Our
Business
We
are a shell company as that term is defined under federal securities laws. Our business plan is to seek (i) a new business to
enter into; or, (ii) acquire assets or shares of an entity actively engaged in business that generates revenues in exchange for
our securities. We intend to focus on acquiring cash-flow positive businesses in the People’s Republic of China. We will
not limit our opportunities to any particular sector or industry. We believe that China is entering a new era of economic growth,
particularly in the Chinese new economy sectors, which we expect will result in attractive acquisition opportunities for us. We
believe this growth will be driven by private sector expansion, technological innovation, increasing consumption by the middle
class, structural economic and policy reforms, and demographic changes in China.
Our
new management team is comprised of individuals who have extensive experience investing in and building companies with operations
in China. They have experience investing in, building, and operating diversified businesses in the Chinese new economy sectors.
Our strategy will be to actively participate in growing, building and operating companies. The objective is to generate additional
revenue through, among other things, integration of our portfolio companies; cross-selling; consolidation of management and administrative
functions; group-wide procurement; centralizing and minimizing risk; forming strategic partnerships; and, improving management
capabilities.
This
discussion of our business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to
search for and enter potential business opportunities. Management anticipates that it may not be able to participate in more than
one potential business venture because we have nominal assets and limited financial resources. This lack of diversification should
be considered a substantial risk to our shareholders because it will not permit us to offset potential losses from one venture
against gains from another.
Plan
of Operations
We
currently plan to investigate and, if such investigation warrants, either (i) enter into a new business; or, (ii) acquire assets
or shares of an entity actively engaged in business and which is seeking the perceived advantages of being a publicly held corporation.
Our principal business objective for the next 12-months and beyond will be to achieve long-term growth potential through either
entry into a new business or a combination with an existing business, rather than immediate, short-term earnings. We intend to
focus on acquiring cash-flow positive businesses in the People’s Republic of China. We will not limit our opportunities
to any particular sector or industry. The analysis of new business opportunities will be undertaken by or under the supervision
of the New Board. We have not had any material conversations with potential merger or acquisition targets nor have we entered
into any definitive agreement with any party. In our efforts to analyze and evaluate a prospective target business, we will consider
several factors, including, without limitation, the following:
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experience
and skill of management and availability of additional personnel of the target business;
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costs
associated with effecting the business combination;
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equity
interest retained by our shareholders in the merged entity;
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growth
potential of the target business;
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capital
requirements of the target business;
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capital
available to the target business;
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stage
of development of the target business;
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proprietary
features and degree of intellectual property or other protection of the target business;
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the
financial statements of the target business; and
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the
regulatory environment in which the target business operates.
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The
foregoing criteria are not intended to be exhaustive and any evaluation relating to the merits of a particular target business
will be based, to the extent relevant, on the above factors, as well as other considerations we deem relevant. In connection with
our evaluation of a prospective target business, we anticipate that we will conduct a due diligence review which will encompass,
among other things, meeting with incumbent management as well as a review of financial, legal and other information.
The
time and costs required to select and evaluate a target business (including conducting a due diligence review) and to structure
and consummate the business combination (including negotiating and documenting relevant agreements and preparing requisite documents
for filing pursuant to applicable corporate and securities laws) cannot be determined at this time. Our officers and directors
will not work full-time for the Company. However, they do intend to devote such time as they deem reasonably necessary to carry
out our business and affairs. The amount of time devoted to our business and affairs may vary significantly depending upon, among
other things, whether we have identified a target business or are engaged in active negotiation of a business combination.
We
anticipate that various prospective target businesses will be brought to our attention from various sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers and other members of the financial community, including, possibly,
from our officers and directors. The way we participate in an opportunity will depend upon the nature of the opportunity, our
respective needs and desires as well as those of the promoters of the opportunity, and the relative negotiating strength of ourselves
and such promoters.
It
is likely that we will acquire our participation in a business opportunity through the issuance of common stock or other securities.
Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria
for determining whether or not an acquisition is a so-called “tax free” reorganization under Section 368(a)(1) of
the Internal Revenue Code of 1986, as amended (the “Code”), depends upon the issuance to the shareholders of the acquired
company of at least 80% of the common stock of the combined entities immediately following the reorganization. If a transaction
were structured to take advantage of these provisions rather than other “tax free” provisions provided under the Code,
all prior shareholders would in such circumstances retain 20% or less of the total issued and outstanding shares. Under other
circumstances, depending upon the relative negotiating strength of the parties, prior shareholders may retain substantially less
than 10% of the total issued and outstanding shares. This could result in substantial additional dilution to the equity of those
who were our shareholders prior to such reorganization.
In
the case of an acquisition, the transaction may be accomplished upon the sole determination of our management without any vote
or approval by shareholders. In the case of a statutory merger or consolidation directly involving our Company, it will likely
be necessary to call a shareholders’ meeting and obtain the approval of the holders of a majority of the outstanding shares.
The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed
transaction and will also give rise to certain appraisal rights to dissenting shareholders. Most likely, management will seek
to structure any such transaction so as not to require stockholder approval, if possible.
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
cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs
theretofore 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 our loss of the related
costs incurred.
During
the year ended March 31, 2018 we did not engage in any business activities that provided us with positive cash flows. As such,
the costs of investigating and analyzing business combinations for the next 12-months and beyond will be paid with funds raised
through other sources, which may not be available on favorable terms, if at all. The Company, at this time, does not intend to
obtain funds in one or more private placements to finance the operation of any acquired business opportunity until such time as
the Company has successfully consummated such a merger or acquisition or entered into a new business. Rather, the Company intends
to borrow money to finance ongoing operations.
Government
Regulations
The
Company’s common stock is a “penny stock,” as defined in Rule 3a51-1 under the Exchange Act. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer’s account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt
from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the Company’s common
stock is subject to the penny stock rules, it may be more difficult to sell our common stock.
Patents,
Trademarks, Franchises, Royalty Agreements or Labor Contracts
We
have no current plans for any registrations such as patents, trademarks, copyrights, franchises, concessions, royalty agreements
or labor contracts. We will assess the need for any copyright, trademark or patent applications on an ongoing basis.
Need
for Government Approval of Products or Services
We
are not required to apply for or have any government approval for our products or services.
Research
and Development Costs During the Last Two Years
We
have not expended funds for research and development costs since inception.
Competition
The
Company will remain an insignificant participant among the firms which engage in the acquisition of business opportunities. There
are many established venture capital and financial concerns which have significantly greater financial and personnel resources
and technical expertise than the Company. In view of the Company’s extremely limited financial resources and limited management
availability, the Company will continue to be at a significant competitive disadvantage compared to the Company’s competitors.
Employees
The
Company currently has no employees. The business of the Company will be managed by its officers and directors, each of whom may
join the Company as an employee in the future. The Company does not anticipate a need to engage any full-time employees at this
time.
Available
Information
The
Company expects to continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
proxy statements and other information with the SEC. Any materials filed by the Company with the SEC may be read and copied at
the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the SEC’s
Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly
and current reports, proxy statements and other information that issuers (including the Company) file electronically with the
SEC. The Internet address of the SEC’s website is
http://www.sec.gov
.
At some point in the near future
we intend to make our reports, amendments thereto, and other information available, free of charge, on a website for the Company.
At this time, the Company does not maintain a website and there is no estimate for when such a website will be maintained by the
Company. Our corporate offices are located at 23 Corporate Plaza, Suite 150, Newport Beach, California, 92660. Our telephone number
is 949-629-2534.
You
should carefully consider the risks described below together with the other information set forth in this report, which could
materially affect our business, financial condition, and future results. The risks described below are not the only risks facing
our Company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition, and operating results.
Risks
Related to Our Business
We
have no recent operating history or basis for evaluating prospects.
We
currently have no operating business or immediate plans to develop one. We are seeking to enter into a merger or business combination
with another operating company, or to enter into a new business. To date, our efforts have been limited to meeting our regulatory
filing requirements and searching for a business target.
We
have limited resources and no revenues from operations, and will need additional financing in order to execute any business plan.
We
have limited resources, no revenues from operations to date and our cash on hand will not be sufficient to satisfy our cash requirements
during the next twelve months. In addition, we will not achieve any revenues (other than insignificant investment income) until,
at the earliest, the consummation of a merger or similar business combination and we cannot ascertain our capital requirements
until such time. There can be no assurance that determinations ultimately made by us will permit us to achieve our business objectives.
Our
business will have no revenues unless and until we merge with or acquire or start an operating business.
We
are an early stage company and have had no revenues from operations. We may not realize any revenues unless and until we successfully
merge with or acquire an operating business or start our own operations.
Since
the Company has no assets and no present source of revenues, we are dependent upon the financial support of our majority shareholder.
At
present, our business activities are limited to seeking potential business opportunities. Due to our limited financial and personnel
resources, there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives.
We have no assets and have no operating income, revenues or cash flow from operations. Our majority shareholder, Houyu Huang,
is providing us with funding, on an as needed basis, under a loan arrangement, with amounts advanced limited to enabling us to
continue our corporate existence and our business objective to seek new business opportunities, as well as funding the costs,
including professional accounting and legal fees, of registering our securities under the Exchange Act and continuing to be a
reporting company under the Exchange Act. The amount to be loaned by Houyu Huang in the interim financing arrangement is limited
to $500,000.
We
will be able to effect at most one merger or similar business combination, or enter into just one new business, and thus may not
have a diversified business.
Our
resources are limited and we will most likely have the ability to effect only a single merger or similar business combination,
or enter into a single new business. This probable lack of diversification will subject us to numerous economic, competitive and
regulatory developments, any or all of which may have a material adverse impact upon the particular industry in which we may operate
subsequent to the consummation of a merger. We will become dependent upon the development or market acceptance of a single or
limited number of products, processes or services.
We
depend substantially upon our directors to make all management decisions.
Our
ability to effect a merger or similar business combination or enter into a new business will be dependent upon the efforts of
our directors, Meihua Li and Hua Huang. Notwithstanding the importance of Ms. Li and Ms. Huang, we have not entered into any employment
agreement or other understanding with either concerning compensation or obtained any “key man” life insurance on the
life of either. The loss of the services of either, or both, Ms. Li and/or Ms. Huang will have a material adverse effect on achieving
our business objectives and success. We will rely upon the expertise of both Ms. Li and Ms. Huang and do not anticipate that we
will hire additional personnel.
There
is competition for those private companies suitable for a business combination of the type contemplated by management.
We
are in a highly competitive market for a small number of business opportunities which could reduce the likelihood of consummating
a successful business combination. We are and will continue to be an insignificant participant in the business of seeking mergers
with, joint ventures with and acquisitions of small private and public entities. A large number of established and well-financed
entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that
may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical
expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible
business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood
of our identifying and consummating a successful business combination.
Future
success is highly dependent on the ability of management to locate and attract a suitable target business opportunity.
The
nature of our operations is highly speculative. The success of our plan of operation will depend to a great extent on the operations,
financial condition and management of the identified business opportunity. While management intends to seek business combination(s)
with entities having established operating histories, we cannot assure you 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.
We
have no agreement for a business combination or other transaction.
We
have no definitive agreement with respect to engaging in a merger with, joint venture with or acquisition of, a private or public
entity, or to enter into a new business. No assurances can be given that we will successfully identify and evaluate suitable business
opportunities or that we will conclude a business combination. We cannot guarantee that we will be able to negotiate a business
combination on favorable terms, and there is consequently a risk that funds allocated to the purchase of our shares will not be
invested in a company with active business operations.
Current
shareholders will be immediately and substantially diluted upon a merger or business combination.
Our
Articles of Incorporation currently authorize the issuance of three billion (3,000,000,000) shares of common stock, with a par
value of $0.001 per share, of which 2,900,164,114 shares are currently issued. To the extent that additional shares of common
stock are authorized and issued in connection with a merger or business combination, our shareholders could experience significant
dilution of their respective ownership interests. Furthermore, the issuance of a substantial number of shares of common stock
may adversely affect prevailing market prices, if any, for the common stock and could impair our ability to raise additional capital
through the sale of equity securities.
There
are relatively low barriers to becoming a blank check company or shell company, thereby increasing the competition for a small
number of business opportunities.
There
are relatively low barriers to becoming a blank check or shell company. A newly incorporated company with a single stockholder
and sole officer and director may become a blank check company or shell company by voluntarily subjecting itself to the SEC reporting
requirements by filing and seeking effectiveness of a Form 10, thereby registering its common stock pursuant to Section 12(g)
of the Securities and Exchange Act of 1934 with the SEC. Assuming no comments to the Form 10 have been received from the SEC,
that registration statement is automatically deemed effective 60 days after filing the Form 10 with the SEC. The relative ease
and low cost with which a company can become a reporting blank check or shell company can increase the number of public companies
seeking a business combination, thereby adding further competition to an already highly competitive market for a limited number
of businesses that will consummate a successful business combination.
Our
management will only be able to devote a limited amount of time to seeking a target company or new business which may adversely
impact our ability to identify a suitable acquisition candidate.
While
seeking a business combination or developing our own business plan, management anticipates devoting only a limited amount of time
to the Company’s affairs in total. Our two directors and officers, Hua Huang and Meihua Li, have not entered into a written
employment agreement with us and neither is expected to do so in the foreseeable future. This limited commitment may adversely
impact our ability to identify and consummate a successful business combination. If we pursue a business combination or develop
our own plan of operations, we will need to have increased management involvement. There is no assurance that we will be able
to expand our management resources to implement a business combination or business plan.
We
are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which requires us to incur audit fees
and legal fees in connection with the preparation of such reports. These costs could reduce or eliminate our ability to earn a
profit.
We
are required to file periodic reports with the SEC pursuant to the Securities Exchange Act and the rules and regulations promulgated
thereunder. In order to comply with these regulations, our independent registered public accounting firm must review our financial
statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel has to review
and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately
predicted at this time because of factors such as the number and type of transactions that we engage in and the complexity of
our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an expense to our future operations and could have a negative
effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or
prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information
and the trading price of our common stock could drop significantly.
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 audited 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.
We
may be subject to further government regulation which would adversely affect our operations.
Although
we will be subject to the reporting requirements under the Exchange Act, management believes we will not be subject to regulation
under the Investment Company Act since we will not be engaged in the business of investing or trading in securities. If we engage
in business combinations which result in our holding passive investment interests in a number of entities, we could be subject
to regulation under the Investment Company Act. If so, we would be required to register as an investment company and could be
expected to incur significant registration and compliance costs.
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 concern, we will be subject to risks inherent in business operations outside
of the United States. This is an important risk as it is our preference to acquire a business based in the People’s Republic
of China. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies,
trade embargoes, risks related to shipment 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.
The
Company may be subject to certain tax consequences in our business, which may increase our cost of doing business.
We
may not be able to structure an acquisition to result in tax-free treatment for the companies or their shareholders, which could
deter third parties from entering into certain business combinations with us or result in being taxed on consideration received
in a transaction. Currently, a transaction may be structured so as to result in tax-free treatment to both companies, as prescribed
by various federal and state tax provisions. We intend to structure any business combination so as to minimize the federal and
state tax consequences to both us and the target entity; however, we cannot guarantee that the business combination will meet
the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a
transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes that
may have an adverse effect on both parties to the transaction.
As
a blank check company, any registered offering of our securities will have to comply with Rule 419 under the Securities Act of
1933, which could impact our ability to raise equity funds from investors.
In
the event we register an offering of our securities with the SEC while we are a blank check company, we will have to comply with
Rule 419 under the Securities Act of 1933. Rule 419 is a cumbersome rule applicable to blank check companies selling penny stocks
in a registered offering. Rule 419 requires that the gross proceeds raised in such an offering be deposited into an escrow account
with a financial institution insured by the FDIC or in a separate bank account established by a registered broker or dealer in
which the broker or dealer acts as trustee for the persons having the beneficial interests in the account. Furthermore, Rule 419
requires the securities issued to investors in the blank check offering be issued in the name of such investors but certificates
representing such securities must be deposited into the escrow account instead of being delivered directly to investors, and the
records of the escrow agent, maintained in good faith and in the regular course of business, must show the name and interest of
each party to the account. The initial registration statement for the blank check offering shall disclose the specific terms of
the offering, including, but not limited to, (i) the terms and provisions of the escrow or trust agreement and the effect thereof
upon the company’s right to receive funds and the effect of the escrow or trust agreement upon the investor’s funds
and securities required to be deposited into the escrow or trust account, including, if applicable, any material risk of non-insurance
of investors’ funds resulting from deposits in excess of the insured amounts; and, (ii) the obligation of the company to
provide, and the right of the purchaser to receive, information regarding an acquisition, including the requirement that pursuant
to Rule 419, investors confirm in writing their investment in the Company’s securities. Rule 419 imposes certain additional
disclosure obligations on companies making blank check offerings. Due to the requirements of Rule 419 and the fact that investors
investing in blank check offerings have no idea if or when an acquisition or merger transaction will occur, or if the acquisition
or merger target is worthy of the investors’ money or risks, it may be difficult for the company to successfully complete
a blank check offering and even if the company is successful in raising funds in such an offering, it may not be able to find
an attractive acquisition or merger candidate. Therefore, investors in a blank check offering will have their funds at risk for
a prolonged period of time and they may not be happy with the results of an acquisition or merger, if one were to occur.
Risks
Associated with Acquiring and Operating a Business in China
The
Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors and certain other People’s Republic of
China regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make
it more difficult for us to pursue growth through acquisitions in China.
The
Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “
M&A Rules
”) and
some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could
make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances
that the Ministry of Commerce (the “
MOFCOM
”) be notified in advance of any change-of-control transaction in
which a foreign investor takes control of a business enterprise based in the People’s Republic of China (the “
PRC
”).
Moreover, the Anti-Monopoly Law of the PRC requires that the MOFCOM shall be notified in advance of any concentration of undertaking
if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM that became effective in September
2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns
and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise
“national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting
to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the
future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned
regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes,
including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share.
If
substantially all of our assets will be located in the PRC and substantially all of our revenue will be derived from our operations
there, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal
policies, developments and conditions in the PRC.
The
economic, political and social conditions, as well as government policies, of the PRC could affect our business. The economies
in Asia differ from the economies of most developed countries in many respects. For the most part, such economies have recently
grown at a rate in excess of the United States; however, (i) such economic growth has been uneven, both geographically and among
various sectors of the economy; and, (ii) such growth may not be sustained in the future. If in the future such country’s
economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries.
A decrease in demand for spending in certain industries could materially and adversely affect our ability to find target businesses
to acquire, and the ability of such businesses to become profitable.
If
relations between the United States and the PRC deteriorate, acquisition targets or their goods or services could become less
attractive.
The
relationship between the United States and the PRC is subject to sudden fluctuation and periodic tension. For example, the United
States recently announced its intention to impose new tariffs and quotas on certain Chinese imports. While intended to be short-term,
these may be extended for several years. Such tariffs and quotas may adversely affect political relations between the two countries
and result in retaliatory countermeasures by the PRC. Relations may also be compromised if the U.S. becomes a more vocal advocate
of Taiwan or proceeds to sell certain military weapons and technology to Taiwan. Changes in political conditions in the PRC and
changes in the state of Sino-U.S. relations are difficult to predict and could adversely affect our operations or cause potential
acquisition targets or their goods and services to become less attractive.
Contractual
arrangements we enter into with potential future subsidiaries and affiliated entities or acquisitions of offshore entities that
conduct operations through affiliates in the PRC may be subject to a high level of scrutiny by the relevant tax authorities.
Under
the laws of the PRC, arrangements and transactions among related parties may be subject to audit or challenge by the relevant
tax authorities. If any of the transactions we enter into with potential future subsidiaries and affiliated entities are found
not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under local law, the relevant tax authorities
may have the authority to disallow any tax savings, adjust the profits and losses of such potential future local entities and
assess late payment interest and penalties. A finding by the relevant tax authorities that we are ineligible for any such tax
savings, or that any of our possible future affiliated entities are not eligible for tax exemptions, would substantially increase
our possible future taxes and thus reduce our net income and the value of a shareholder’s investment. In addition, in the
event that in connection with an acquisition of an offshore entity that conducted its operations through affiliates in the PRC,
the sellers of such entities failed to pay any taxes required under local law, the relevant tax authorities could require us to
withhold and pay the tax, together with late-payment interest and penalties. The occurrence of any of the foregoing could have
a negative impact on our operating results and financial condition.
China’s
economic, political and social conditions, as well as changes in any government policies, laws and regulations, could have a material
adverse effect on our business.
A
substantial portion of our operations may be conducted in China, and a significant portion of our net revenues may be derived
from customers where the contracting entity is located in China. Accordingly, our business, financial condition, results of operations,
prospects and certain transactions we may undertake may be subject, to a significant extent, to economic, political and legal
developments in China.
China’s
economy differs from the economies of most developed countries in many respects, including the amount of government involvement,
level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced
significant growth in the past two to three decades, growth has been uneven, both geographically and among various sectors of
the economy. Demand for target services and products depends, in large part, on economic conditions in China. Any slowdown in
China’s economic growth may cause our potential customers to delay or cancel their plans to purchase our services and products,
which in turn could reduce our net revenues.
Although
China’s economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the
PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC
government also exercises significant control over China’s economic growth through allocating resources, controlling the
incurrence and payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment
to particular industries or companies. Changes in any of these policies, laws and regulations could adversely affect the economy
in China and could have a material adverse effect on our business.
The
PRC government has implemented various measures to encourage foreign investment and sustainable economic growth and to guide the
allocation of financial and other resources. However, we cannot assure you that the PRC government will not repeal or alter these
measures or introduce new measures that will have a negative effect on us. China’s social and political conditions may change
and become unstable. Any sudden changes to China’s political system or the occurrence of widespread social unrest could
have a material adverse effect on our business and results of operations.
If
we effect our initial business combination with a business located in the PRC, the laws applicable to such business will likely
govern all of our material agreements and we may not be able to enforce our legal rights.
If
we effect our initial business combination with a business located in the PRC, the laws of the country in which such business
operates will govern almost all of the material agreements relating to its operations, including any contractual arrangements
through which we acquire control of target business as described above. We cannot assure you that we or the target business will
be able to enforce any of its material agreements or that remedies will be available in this jurisdiction. The system of laws
and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the
United States. In addition, the judiciary in the PRC is relatively inexperienced compared to others in enforcing corporate and
commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. In addition, to the
extent that our target business’ material agreements are with governmental agencies in the PRC, we may not be able to enforce
or obtain a remedy from such agencies due to sovereign immunity, in which the government is deemed to be immune from civil lawsuit
or criminal prosecution. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant
loss of business, business opportunities or capital.
After
we consummate a business combination, our operating company in China will be subject to restrictions on dividend payments.
After
we consummate a business combination, we may rely on dividends and other distributions from our operating company to provide us
with cash flow and to meet our other obligations. Current regulations in China would permit our operating company in China to
pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, our operating company in China will be required to set aside at least 10% (up to an aggregate
amount equal to half of its registered capital) of its accumulated profits each year. Such cash reserve may not be distributed
as cash dividends. In addition, if our operating company in China incurs debt on its own behalf in the future, the instruments
governing the debt may restrict its ability to pay dividends or make other payments to us.
If
the government of the PRC finds that the agreements we entered into to acquire control of a target business through contractual
arrangements with one or more operating businesses do not comply with local governmental restrictions on foreign investment, or
if these regulations or the interpretation of existing regulations change in the future, we could be subject to significant penalties
or be forced to relinquish our interests in those operations.
The
PRC currently prohibits and/or restricts foreign ownership in certain “important industries,” including telecommunications,
food production and heavy equipment. There are uncertainties under certain regulations whether obtaining a majority interest through
contractual arrangements will comply with regulations prohibiting or restricting foreign ownership in certain industries. For
example, the PRC may apply restrictions in other industries in the future. In addition, there can be restrictions on the foreign
ownership of businesses that are determined from time to time to be in “important industries” that may affect the
national economic security or those having “famous brand names” or “well-established brand names.”
If
we or any of our potential future target businesses are found to be in violation of any existing or future local laws or regulations
(for example, if we are deemed to be holding equity interests in certain of our affiliated entities in which direct foreign ownership
is prohibited), the relevant regulatory authorities might have the discretion to:
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revoke
the business and operating licenses of the potential future target business;
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confiscate
relevant income and impose fines and other penalties;
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discontinue
or restrict the operations of the potential future target business;
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require
us or the potential future target business to restructure the relevant ownership structure or operations;
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restrict
or prohibit our use of the proceeds of this offering to finance our businesses and operations in the relevant jurisdiction;
or
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impose
conditions or requirements with which we or the potential future target business may not be able to comply.
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As
a result of merger and acquisition regulations implemented on September 8, 2006 relating to acquisitions of assets and equity
interests of Chinese companies by foreign persons, it is expected that acquisitions will take longer and be subject to economic
scrutiny by the PRC government authorities such that we may not be able to complete a transaction.
On
September 8, 2006, the MOFCOM, together with several other government agencies, promulgated a comprehensive set of regulations
governing the approval process by which a Chinese company may participate in an acquisition of its assets or its equity interests
and by which a Chinese company may obtain public trading of its securities on a securities exchange outside the PRC. Although
there was a complex series of regulations in place prior to September 8, 2006 for approval of Chinese enterprises that were administered
by a combination of provincial and centralized agencies, the new regulations have largely centralized and expanded the approval
process to the MOFCOM, the State Administration of Industry and Commerce (SAIC), the State Administration of Foreign Exchange
(SAFE) or its branch offices, the State Asset Supervision and Administration Commission, and the China Securities Regulatory Commission
(CSRC). Depending on the structure of the transaction as determined once a definitive agreement is executed, these regulations
will require the Chinese parties to make a series of applications and supplemental applications to the aforementioned agencies,
some of which must be made within strict time limits and depending on approvals from one or the other of the aforementioned agencies.
The application process has been supplemented to require the presentation of economic data concerning a transaction, including
appraisals of the business to be acquired and evaluations of the acquirer which will permit the government to assess the economics
of a transaction in addition to the compliance with legal requirements. If obtained, approvals will have expiration dates by which
a transaction must be completed. Also, completed transactions must be reported to the MOFCOM and some of the other agencies within
a short period after closing or be subject to an unwinding of the transaction. It is expected that compliance with the regulations
will be more time-consuming than in the past, will be more costly for the Chinese parties and will permit the government much
more extensive evaluation and control over the terms of the transaction. Therefore, a business combination we propose may not
be able to be completed because the terms of the transaction may not satisfy aspects of the approval process and may not be completed,
even if approved, if they are not consummated within the time permitted by the approvals granted.
Because
the September 8, 2006, PRC merger and acquisition regulations permit the government agencies to have scrutiny over the economics
of an acquisition transaction and require consideration in a transaction to be paid within stated time limits, we may not be able
to negotiate a transaction that is acceptable to our shareholders or sufficiently protect their interests in a transaction.
The
regulations have introduced aspects of economic and substantive analysis of the target business and the acquirer and the terms
of the transaction by the MOFCOM and the other governing agencies through submissions of an appraisal report, an evaluation report
and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction.
The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the Chinese business
or assets. The regulations require that in certain transaction structures, the consideration must be paid within strict time periods,
generally not in excess of a year. Because the Chinese authorities intend to limit offshore flips which converted domestic companies
into foreign investment enterprises (FIEs) in order to take advantage of certain benefits, including reduced taxation, in the
PRC, the new regulations require new foreign sourced capital of not less than 25% of the domestic company’s post–acquisition
capital in order to obtain FIE treatment. Accordingly, if a sufficient amount of foreign capital is not infused into the domestic
company, it will not be eligible to obtain FIE treatment. In asset transactions there must be no harm of third parties and the
public interest in the allocation of assets and liabilities being assumed or acquired. These aspects of the regulations will limit
our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration,
holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities.
Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, we may not be able to negotiate
a transaction with terms that will satisfy our investors and protect our shareholders’ interests in an acquisition of a
Chinese business or assets.
Ambiguities
in the regulations of September 8, 2006 may make it difficult for us to properly comply with all applicable rules and may affect
our ability to consummate a business combination.
Although
the merger and acquisition regulations provide specific requirements and procedures, there are many ambiguities which give the
regulators great latitude in the approval process which may cause uncertainty in our ability to complete a transaction on a timely
basis.
The
merger and acquisition regulations set forth many requirements that have to be followed, but there are still many ambiguities
in the meaning of many provisions. Although further regulations are anticipated in the future, until there has been clarification
either by pronouncements, regulation or practice, there is some uncertainty in the scope of the regulations. Moreover, the ambiguities
give the regulators wide latitude in the enforcement of the regulations and the transactions to which they may or may not apply.
Therefore, we cannot predict the extent to which the regulations will apply to a transaction, and therefore, there may be uncertainty
in whether or not a transaction will be completed until the approval process is under way or until the preliminary approvals are
obtained. This may negatively impact our ability to consummate a business combination.
If
we acquire control of a target business through contractual arrangements with one or more operating businesses in the PRC, such
contracts may not be as effective in providing operational control as direct ownership of such business and may be difficult to
enforce.
We
will only acquire a business or businesses that, upon the consummation of our initial business combination, will be our majority-owned
subsidiaries and will be neither investment companies nor companies excluded from the definition of an investment company by Section
3(c)(1) or 3(c)(7) of the Investment Company Act. However, the PRC has restricted or limited foreign ownership of certain kinds
of assets and companies operating in certain industries. The industry groups that are restricted are wide-ranging, including,
for example, certain aspects of telecommunications, food production, and heavy equipment manufacturers. In addition, there can
be restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries”
that may affect the national economic security or having “famous brand names” or “well-established brand names.”
Subject to the review and approval requirements of the relevant agencies for acquisitions of assets and companies in the relevant
jurisdictions and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving
foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated
using contractual arrangements with permitted local parties. To the extent that such agreements are employed, they may be for
control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company which
may provide exceptions to the merger and acquisition regulations mentioned above since these types of arrangements typically do
not involve a change of equity ownership in the operating company. The agreements would be designed to provide our company with
the economic benefits of, and control over, the subject assets or equity interests similar to the rights of full ownership, while
leaving the technical ownership in the hands of local parties who would be our nominees and, therefore, may exempt the transaction
from certain regulations, including the application process required thereunder.
However,
since there has been limited implementation guidance provided with respect to such regulations, the relevant government agency
might apply them to a business combination effected through contractual arrangements. If such an agency determines that such an
application should have been made or that our potential future target businesses are otherwise in violation of local laws or regulations,
consequences may include confiscating relevant income and levying fines and other penalties, revoking business and other licenses,
requiring restructure of ownership or operations, requiring discontinuation or restriction of the operations of any portion or
all of the acquired business, restricting or prohibiting our use of the proceeds of this offering to finance our businesses and
operations and imposing conditions or requirements with which we or potential future target businesses may not be able to comply.
These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under
local laws and regulations. If we choose to effect a business combination that employs the use of these types of control arrangements,
we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing
us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership. For
example, if the target business or any other entity fails to perform its obligations under these contractual arrangements, we
may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies
under local law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will
be sufficient to offset the cost of enforcement and may adversely affect the benefits we expect to receive from the business combination.
Risks
Related to Ownership of Our Common Stock
Our
common stock is a “penny stock” which may restrict the ability of shareholders to sell our common stock in the secondary
market.
The
SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price,
as defined, of less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions, including
an exception of an equity security that is quoted on a national securities exchange. Our Common Stock is not quoted on a national
exchange but is traded on the OTC Marketplace Pink Sheets (the “Pink Sheets”). Thus, they are subject to rules that
impose additional sales practice requirements on broker-dealers who sell these securities. For example, the broker-dealer must
make a special suitability determination for the purchaser of such securities and have received the purchaser’s written
consent to the transactions prior to the purchase. Additionally, the rules require the delivery, prior to the transaction, of
a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered underwriter, and current quotations for the securities, and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.
Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks. The “penny stock” rules, may restrict the ability
of our shareholders to sell our common stock in the secondary market.
Trading
in our securities could be subject to extreme price fluctuations that could adversely affect your investment.
Historically
speaking, the market prices for securities of small publicly traded companies have been highly volatile. Publicized events and
announcements may have a significant impact on the market price of our common stock. In addition, the stock market from time to
time experiences extreme price and volume fluctuations that particularly affect the market prices for small publicly traded companies
and which are often unrelated to the operating performance of the affected companies.
Because
we may seek to complete a business combination through a “reverse merger,” we may not be able to attract the attention
of major brokerage firms following such a transaction.
Additional
risks may exist since we may assist a privately held business to become public through a “reverse merger”. Securities
analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend
the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings
on behalf of our post-merger Company in the future.
We
cannot assure you that following a business combination with an operating business or business start-up, our common stock will
be listed on any securities exchange higher than the Pink Sheets.
Although,
our common stock is currently quoted on the Pink Sheet, securities quoted on this trading platform often lack liquidity and analyst
coverage, which may result in lower prices for our common stock than might be obtained in a larger, more established stock exchanges
and may also result in a larger spread between the bid and asked price for our common stock. Following a business combination
or business start-up, we may seek the listing of our common stock on NASDAQ or any other exchange which represents a higher listing
than the Pink Sheets. However, we cannot assure you that we will be able to meet the initial listing standards of any of those,
or that we will be able to maintain a listing of our common stock on any stock exchange other than the Pink Sheets. Until our
common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to continue
to trade on the Pink Sheets, where our shareholders may find it more difficult to dispose of shares or obtain accurate quotations
as to the market value of our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult
for our shareholders to sell their shares of common stock at an attractive price or at all. In the absence of an active trading
market for our common stock, shareholders may not be able to sell their common stock at or above the price at which they acquired
the shares or at the time that they would like to sell. We cannot predict the prices at which our common stock will trade. In
addition, we cannot assure you that we will be able to meet the initial listing standards of any national securities exchange,
or, if we do meet such initial qualitative listing standards, that we will be able to maintain any such listing. In addition,
we would be subject to an SEC rule that, if it 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.
Liquidity
is limited, and we may be unable to obtain listing of our common stock on a more liquid market.
Our
common stock is quoted on the Pink Sheets, which provides significantly less liquidity than a securities exchange (such as the
American or New York Stock Exchange) or an automated quotation system (such as the Nasdaq Global Market or Capital Market). There
is uncertainty that we will ever be accepted for a listing on an automated quotation system or national securities exchange.
Substantial
sales of our common stock may impact the market price of our common stock.
Future
sales of substantial amounts of our common stock, including shares that we may issue upon exercise of options and warrants, and
the resale of shares by investors who have registration rights, could adversely affect the market price of our common stock. Furthermore,
if we raise additional funds through the issuance of common stock or securities convertible into our common stock, the percentage
ownership of our shareholders will be reduced and the price of our common stock may fall.
We
do not expect to pay dividends for the foreseeable future and investors must look solely to stock appreciation for a return on
their investment in us.
We
have no plans to pay, and we do not anticipate paying, any cash dividends on our common stock in the foreseeable future. We currently
intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will
be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations
that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase
our common stock.
FINRA
sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an
investment to a customer, broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.
Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will
not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that
their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the
market for our shares.
Our
publicly-filed reports are reviewed from time to time by the SEC, and any significant changes or amendments required as a result
of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common
stock.
The
reports and other securities filings of publicly-traded companies are subject to review by the SEC from time to time for the purpose
of assisting companies in complying with applicable disclosure requirements. The SEC is required, pursuant to the Sarbanes-Oxley
Act of 2002, to undertake a comprehensive review of a company’s reports at least once every three years, although an SEC
review may be initiated at any time. While we believe that our previously filed SEC reports comply, and we intend that all future
reports will comply, in all material respects with the published rules and regulations of the SEC, we could be required to modify,
amend, or reformulate information contained in our filings as a result of any SEC review. Any modification, amendment, or reformulation
of information contained in such reports could be significant and result in material liability to us and have a material adverse
impact on the trading price of our common stock.
We
may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.
Our
management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating
results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that
may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and
uncertainty about our prospects, each of which could cause the price of our common stock to decline.