SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
D.C.
20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d)
of the
Securities
Exchange Act of
1934
Date
of
report (Date of earliest event reported): December 16,
2007
CHINA
VALVES TECHNOLOGY,
INC.
(Exact
name of registrant as
specified in Charter)
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Nevada
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000-28481
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86-0891931
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(State
or other jurisdiction
of
incorporation
or
organization)
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(Commission
File
No.)
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(IRS
Employee Identification
No.)
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No.93
West Xinsong Road, Kaifeng
City, Henan Province, P.R.C.
(Address
of Principal Executive
Offices)
86-378-2925211
(Issuer
Telephone
number)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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|
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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CAUTIONARY
NOTE REGARDING FORWARD
LOOKING STATEMENTS
The
Current Report on Form 8-K contains forward looking statements that involve
risks and uncertainties, principally in the sections entitled "Description
of
Business,” “Risk Factors,” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” All statements other
than statements of historical fact contained in this Current Report on Form
8-K,
including statements regarding future events, our future financial performance,
business strategy and plans and objectives of management for future operations,
are forward-looking statements. We have attempted to identify
forward-looking statements by terminology including “anticipates,” “believes,”
“can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “should,” or “will” or the negative of these terms or
other comparable terminology. Although we do not make forward looking
statements unless we believe we have a reasonable basis for doing so, we cannot
guarantee their accuracy. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including
the
risks outlined under “Risk Factors” or elsewhere in this Current Report on Form
8-K, which may cause our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time and it is
not possible for us to predict all risk factors, nor can we address the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those
contained in any forward-looking statements.
We
have
based these forward-looking statements largely on our current expectations
and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy, short term
and long term business operations , and financial needs. These
forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in
the
forward looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in this
Current Report on Form 8-K, and in particular, the risks discussed below and
under the heading “Risk Factors” and those discussed in other documents we file
with the Securities and Exchange Commission that are incorporated into this
Current Report on Form 8-K by reference. The following discussion
should be read in conjunction with our annual report on Form 10-K and our
quarterly reports on Form 10-Q incorporated into this Current Report on Form
8-K
by reference, and the consolidated financial statements and notes thereto
included in our annual and quarterly reports. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. In light of these risks, uncertainties
and assumptions, the forward-looking events and circumstances discussed in
this
Current Report on Form 8-K may not occur and actual results could differ
materially and adversely from those anticipated or implied in the
forward-looking statement.
You
should not place undue reliance on any forward-looking statement, each of which
applies only as of the date of this Current Report on Form
8-K. Before you invest in our common stock, you should be aware that
the occurrence of the events described in the section entitled “Risk Factors”
and elsewhere in this Current Report on Form 8-K could negatively affect our
business, operating results, financial condition and stock
price. Except as required by law, we undertake no obligation to
update or revise publicly any of the forward-looking statements after the date
of this Current Report on Form 8-K to conform our statements to actual results
or changed expectations.
Page
1
Item 1.01 Entry
Into A Material Definitive
Agreement
As
more
fully described in Item 2.01 below, on December 16, 2007, we entered into a
Stock Purchase Agreement and Share Exchange (the “Exchange Agreement”) with
China Valve Holding Limited (“China Valve Samoa”), a company incorporated under
the laws of Samoa and the equity owner of China Valve Samoa. The
closing of the transaction took place on December 16, 2007 (the “Closing Date”)
and resulted in the merger between us and China Valve Samoa (the
“Merger”). Pursuant to the terms of the Exchange Agreement, we
acquired all of the outstanding capital stock and ownership interests of China
Valve Samoa (the “Interests”) from the China Valve Samoa shareholder for an
aggregate of 40,000,000 shares, or 99.8% of the Company’s common
stock. In addition, China Valve Samoa agreed to pay cash of $490,000
(the “Purchase Price”).
China
Valve is a corporation under the laws of Samoa and holds 100% of the issued
and
outstanding stock and ownership of China Valve Holdings Limited, a Hong Kong
Company, (“China Valve Hong Kong”) (collectively, both China Valve Samoa and
China Valve Hong Kong shall be referred to as “China Valve”). China
Valve Hong Kong holds 100% of the issued and outstanding stock and ownership
of
Henan Tonghai Valve Science Technology Co., Ltd, a limited company incorporated
under the laws of the People’s Republic of China.
Prior
to
the closing of the Exchange Agreement, Mr. Fang Si Ping was a 100% shareholder
of China Valve (the “China Valve Shareholder”). In addition, Mr. Fang
Si Ping is an officer and director of China Valve.
As
a
result of the Exchange Agreement, the China Valve Shareholder transferred all
its interest in China Valve Samoa to the Company and, as a result, China Valve
Samoa became a wholly owned subsidiary of the Company, which in turn, made
the
Company the indirect owner of any China Valve direct and indirect
subsidiaries.
As
a
further condition of the Exchange Agreement, the current officers and directors
of the Company will resign 10 days after the Closing Date and new officers
and
directors of the Company were appointed as successors.
The
merger agreement contains customary terms and conditions for a transaction
of
this type, including representations, warranties and covenants, as well as
provisions describing the merger consideration, the process of exchanging the
consideration and the effect of the merger. Specifically, the
Exchange Agreement requires that the Company cancel all outstanding options,
warrants and convertible preferred stock prior to the closing of the Exchange
Agreement and satisfy all outstanding liabilities. There was a
lawsuit pending in Canada against the Company which was instituted by Merrill
Lynch requesting a judgment of $178,000 which was settled prior to the Closing
for $30,000. In addition, there are Notes Payable and Interest
Payable in the aggregate amount of $42,604.
This
transaction is discussed more fully in Section 2.01 of this Current
Report. This brief discussion is qualified by reference to the
provisions of the Exchange Agreement which is attached to this report as Exhibit
2.1.
Item 2.01 Completion
of Acquisition or
Disposition of Assets
CLOSING
OF EXCHANGE
AGREEMENT
As
described in Item 1.01 above, on December 16, 2007, we acquired China Valve,
a
company incorporated under the laws of Samoa, in accordance with the Exchange
Agreement. The closing of the transaction took place on December 16,
2007 (the “Closing Date”). On the Closing Date, pursuant to the terms
of the Exchange Agreement, we acquired all of the outstanding capital stock
and
ownership interests of China Valve from the China Valve Shareholder; and the
China Valve Shareholder transferred and contributed all of their share interests
in China Valve to us. In exchange, we issued to the China Valve
Shareholder and other entities as designated by the China Valve Shareholder
40,000,000 shares, or approximately 99.8% of our common stock. On the
Closing Date, China Valve became our wholly owned subsidiary.
China
Valve owns 100% of the issued and outstanding capital stock of Henan Tonghai
Valve Science Technology Co., Ltd., a limited company incorporated under the
laws of the People’s Republic of China. Prior to the Merger, Mr. Fang
Si Ping owned 100% of the issued and outstanding capital stock of China
Valve.
Page
2
The
Registrant was a “shell company” (as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
immediately before the completion of the Merger. Accordingly,
pursuant to the requirements of Item 2.01(a)(f) of Form 8-K, set forth below
is
the information that would be required if the Company were filing a general
form
for registration of securities on Form 10-SB under the Exchange Act, reflecting
the Company’s common stock, which is the only class of its securities subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act
upon consummation of the Merger, with such information reflecting the Company
and its securities upon consummation of the Merger.
BUSINESS
DESCRIPTION
OF
BUSINESS
Intercontinental
Resources, Inc., formerly known as Anglotajik Minerals, Inc., (the "Company")
was incorporated August 1, 1997 in Nevada as Meximed Industries to develop
and
produce a non-reusable medical syringe. We later abandoned that business, as
we
lacked sufficient capital resources. In January 1999 we changed our name to
Digital Video Display Technology Corp. and obtained a license to market a
patented audio video jukebox technology in Canada and in five U.S. states.
However, disagreements arising out of contractual relationships impeded the
development of the business. In July 2001 we changed our name to Iconet, Inc.
in
connection with a proposal to build the jukeboxes and sell them back to the
licensor of the technology, but owing to changing technology and to
disagreements among our board as to the future direction the company should
take, we eventually abandoned that business as well.
In
June
of 2002 we resolved to investigate some possible opportunities in mineral
exploration. We optioned a property in Ontario, Canada, but after our due
diligence investigation we elected not to proceed and mutually rescinded the
agreement.
In
June
of 2003 our board appointed Mr. Matthew Markin as president and as a director
to
replace Randy Miller. Mr. Miller also resigned as director, so that Mr. Markin
became the sole executive officer and director of the Company. Mr. Miller's
resignation was voluntary to pursue other interests, and not as a result of
any
dispute with the Company.
In
July
of 2003, we adopted a plan of reorganization whereby our common stock was
reverse split by a ratio of 1-for-143. Shortly thereafter, we effected a 2-for-1
forward split. Then in June 2007, we effectuated a 1 for 500 reverse
split.
BUSINESS
DEVELOPMENT OF CHINA
VALVE
Overview
China
Valve Samoa is a company incorporated in Samoa. Its 100% subsidiary,
China Valve Hong Kong, is company incorporated under the laws of the Hong Kong
Special Administration Region and owns 100% of the issued and outstanding
capital stock of Henan Tonghai Valve Science Technology Co., Ltd, a limited
company incorporated under the laws of the People’s Republic of China (“Henan
Tonghai”). Henan Tonghai owns 100% of the issued and outstanding
capital stock of both Zhengzhou City ZhengDie Valve Co, Ltd., a company formed
under the laws of the People’s Republic of China, and Henan Kaifeng High
Pressure Valve Co., Ltd, a company formed under the laws of the People’s
Republic of China (collectively, all companies shall be referred to herein
as
“China Valve”).
Business
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1)
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Our
operations are headquartered in Kaifeng in the Henan Province of
China. We are a profitable, mid-sized Chinese company that
focuses primarily on the development, manufacture and sale of high-quality
metal valves for electricity, petroleum, chemical, water, gas and
metal
industries.
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Page
3
Zhengzhou
City ZhengDie Valve Co., Ltd. was established in April 2001 as a private
enterprise. Mr. Fang Si Ping is a 93.48% shareholder in
Zhengzhou City ZhengDie Valve Co.
Henan
Kaifeng Kaifeng High Pressure Valve Co., Ltd was established in August
1959. It was a state-owned enterprise until January 2004 when Mr.
Fang Si Ping acquired 66% of the company in accordance with the PRC
privatization policy.
The
business of China Valve allows it to be at the forefront of Chinese
growth. China Valve’s business plan focuses around the production of
valves that are essential in almost every manufacturing
industry. This enables China Valve to experience substantial growth
as China’s economy grows and the manufacturing industries grow.
History
and Corporate
Organization
China
Valve was incorporated under the laws of Hong Kong on June 11, 2007 for the
purpose of functioning as an off-shore holding company to obtain ownership
interests in Henan Tonghai Valve Science Technology Co., Ltd. Its
registered address is No. 6 Bei Guan Street, Kai Liu Road, Long Ting District,
Kaifeng City, Henan Province, P.R.C.
Prior
to
the Merger, Mr. Fang Si Ping was the 100% shareholder of China
Valve.
Merger
and Revised Ownership
Structure
The
chart
below depicts the corporate structure of the Registrant as of the date of this
8-K. As depicted below, pursuant to the Merger, the Registrant owns
100% of the capital stock of China Valve. China Valve, incorporated
in Samoa, owns 100% of China Valve Holdings Limited, a Hong Kong Company, which
owns 100% of Henan Tonghai Valve Science Technology Co., Ltd., a company
organized in the People’s Republic of China. Henan Tonghai is a 100%
shareholder of both Zhengzhou City ZhengDie Valve Co., Ltd. and Henan Kaifeng
High Pressure Valve Co., Ltd. (collectively, these entities shall be referred
to
as “China Valve”).
Page
4
THE
MERGER
On
December 16, 2007, Mr. Fang Si Ping (the “China Valve Shareholder”), China Valve
and we entered into a definitive Stock Purchase Agreement and Share Exchange
(the “Exchange Agreement”) which resulted in China Valve becoming our wholly
owned subsidiary (the “Merger”). The Merger was accomplished by means
of a share exchange in which the China Valve Shareholder exchanged all of the
stock in China Valve for the transfer and additional issuance of our common
stock. Under the terms of the Exchange Agreement and as a result of
the Merger:
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·
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China
Valve became our wholly owned
subsidiary;
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·
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In
exchange for all of the shares of China Valve common stock, the China
Valve Shareholder received 40,000,000 newly issued and transferred
shares
of our common stock (the “Share
Exchange”);
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·
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In
addition to the Share Exchange, China Valve agreed to pay
$490,000.
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·
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Immediately
following the closing of the Merger, the China Valve Shareholder
owns
approximately 99.8% of our issued and outstanding shares on a fully
diluted basis.
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This
transaction closed on December 16, 2007.
PRINCIPAL
PRODUCTS
China
Valve produces valves for many different industries. The main product
lines consist of:
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High
pressure and high temperature valves for power station
unit;
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Valves
for long distance pipeline
petroleum;
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Special
valves for chemical lines;
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Large
valves for water supply pipe
network;
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Valves
for sewage; and
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Valves
for long distance gas pipeline.
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China
Valve produces over 700 models of valves and more than 10,000 standards of
valves in categories such as low, medium and high-pressure
valves. The valves are produced with varying diameters from 3mm to
1300mm and with pressure caps that range from 150lbs to 4500lbs. In
addition, different valve products can be used in temperatures ranging from
-196
degrees Celsius to 610 degrees Celsius.
The
major
materials that are used in the production of these valves include carbon steel,
stainless steel, low temperature steel and heat resistant steel
extra.
The
Company also produces the following types of valves:
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Gate
valves;
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Globe
valves;
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Check
valves;
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Throttle
valves;
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Butterfly
valves;
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Ball
valves;
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-
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Safety
valves;
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-
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Water
pressure test valves;
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-
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Vacuum
valves; and
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-
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Extraction
check valves extra.
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Page
5
MARKETING
AND DISTRIBUTION METHODS OF
PRODUCTS AND SERVICES
China
Valve distributes its products via two channels, one is direct selling and
the
other one is through assigning agents. China Valve’s direct selling
is based on the division of regions and it also has over 40 agencies across
the
country.
STATUS
OF PUBLICLY ANNOUNCED NEW
PRODUCTS/SERVICES
We
expect
that our company will grow over the next few years. Currently, we
produce over 10,000 variations of many types of valves and expect to continue
to
develop newer, stronger and more efficient valves. The Company is
spending a lot of resources on research and development and expects to announce
newer and better valves in the future. Currently, we do not have any
new products that we are announcing.
INDUSTRY
AND COMPETITIVE
FACTORS
China
is
experiencing tremendous growth in its economy, especially in urbanization and
industrialization. China Valve is the No. 1 valve producer in China
and is a leader in the development, manufacture and sale of valves in many
different industries, including, thermal power, sewage disposal, oil and
chemical industry, metallurgy, hot power industry, and nuclear power
industry. There are approximately 4,000 valve manufacturers in China
and China Valve is one of the largest and has the most comprehensive product
lines. The following is a list of our major competitors in the valve
industry:
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-
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Hong
Cheng Machinery Co., Ltd – a manufacturer of medium pressure big diameter
butterfly valves for the water supply
industry;
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Sufa
Technology Industry, Co., Ltd – a manufacturer of nuclear power industry
used valves; and
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-
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Guangdong
Mingzhu Group Co., Ltd – a manufacturer of small diameter ball
valves.
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There
are, however, certain factors that we believe set us apart from all of our
competitors. China Valve is a top producer of many types of valves
and has positioned itself as the leading valve producer in China. In
addition, the following factors will help China Valve continue to set itself
apart from its competitors:
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·
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It
is the first manufacturer of main stream gate valves for 300MW and
main
water supply gate valves for 600MW power stations in
China;
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·
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The
sole designer and manufacturer in China of valves that are used for
ultra
supercritical units of 1000MW power
station;
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·
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The
first manufacturer of high pressure large diameter oil pipeline valves
in
China;
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·
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They
were the first domestic manufacturer of 2500lb high pressure gate
valves
for hydrogenation in chemical lines, which substitutes for imported
products;
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·
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The
first domestic manufacturer of high pressure large diameter gate
valves
for coal chemical industry; and
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·
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The
sole manufacturer in China that produces all of the following: blowtorch
valves, water pressure testing valves, steam controlling valves for
high
parameter power station, and bypass valves for high pressure
heater.
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OUR
INTELLECTUAL PROPERTY
The
Company owns a significant number of patents on its valves. The
following is a list of all the products that are patented by China Valves and
a
description of each product.
Page
6
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Product
Name
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Patent
Number
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Description
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Bi-directional
metal Sealed Butterfly valve
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ZL98242105.2
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The
product is used for water supply and drainage pipes and can prevent
flowing backwards. This product is characterized by wear proof and
long
duration.
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Extension
Butterfly Valve
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ZL98242104.4
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The
product is used for supply and disposal pipes for water and gas of
chemical, steel and electricity The product is characterized by convenient
installation and un-installation and excellent sealing
effect.
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Bi-directional
Seal Ball Valve
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ZL00229964.X
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The
product is used for chemical, steel and electricity and sewage disposal
used water and gas supply and drainage pipes. The product is characterized
by wear proof, long duration and excellent sealing
effect.
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Hydraulic
check butterfly valve with
heavy
hammer
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ZL02228101.0
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The
product is used for water supply and sewage pipes to prevent water
flow
backward. It is characterized by high efficiency and energy
saving.
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Eccentric
ball surface valve (appearance design)
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ZL02355048.1
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The
product is used for supply and sewage pipes for oil, chemical, metallurgy
and electricity
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Extension
metal seated butterfly valve
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ZL02278887.5
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The
product is used on water and gas supply and disposal pipes in oil,
chemical, steel and electricity construction industries. It is
characterized by easy installation and un-installation and long
duration.
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Valves
open and close executing mechanism
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ZL0227886.7
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This
product is used for valves that are produced by the company. This
product
is characterized by reasonable design, high efficiency in
transmission.
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Eccentric
ball surface valve
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ZL02279458.1
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This
product is used industries such as oil, chemical, gas, metallurgy,
electricity, paper manufacturing and heat. This product is especially
suitable for cutting or adjusting flows of industrial pipes, which
transporting flows contains particular matter, ash cinder and texture
extra
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Life
test equipment for valves
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ZL032438656.6
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This
product is used for sealing life duration test
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|
Flat
Gate Valve
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ZL
02290648.7
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This
product is used on water supply and disposal facilities. This product
is
characterized by lightweight, easy installation, corrosion resistance
extra.
|
|
Mechanical
Electromagnetic Lock equipment Hydraulic check butter fly valves
with
heavy hammer
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ZL02138706.0
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This
product is used for Hydraulic check butter fly valves with heavy
hammer.
It is characterized by its safety, reliability and energy
saving.
|
RESEARCH
AND DEVELOPMENT ACTIVITIES
DURING THE PRIOR TWO FISCAL YEARS
China
Valve’s business is dependent on constantly improving the technology associated
with developing and manufacturing valves. Therefore, China Valve has
committed itself to research and development of new valves and developing state
of the art valves that are improved and advancing the valve
industry. Over the past few years, China Valve has invested more than
5% of its total revenue in research and development. It also intends
to increase the amount of resources it allocates to research and development
as
the company begins to grow.
The
company has 246 technicians and researchers dedicated to actively researching
and developing new valves and participate in the valve production and
improvement. China Valve operates a research and development
laboratory with Lanzhou Science and Engineering University (the only university
in China that offers a major in valve development and
manufacturing). It has also partnered with Hefei General Mechanical
Study Department Valves Study institute to work to improve the development,
manufacture and quality of valves produced in China.
COMPLIANCE
WITH ENVIRONMENTAL
LAW
We
comply
with the Environmental Protection Law of PRC as well as applicable local
regulations. In addition to statutory and regulatory compliance, we actively
ensure the environmental sustainability of our operations. Penalties would
be
levied upon us if we fail to adhere to and maintain certain standards. Such
failure has not occurred in the past, and we generally do not anticipate that
it
will occur in the future, but no assurance can be given in this
regard.
EMPLOYEES
As
of
December 16, 2007, we had approximately 904 full-time employees. The
number of employees in each department is detailed in the following
chart:
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Department
|
Number
of
Employees
|
|
Marketing
|
86
|
|
Management
|
48
|
|
Finance
and Accounting
|
25
|
|
Research
& Development
|
102
|
|
Human
Resources
|
502
|
|
Engineering
and Technical Support
|
141
|
|
Total
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904
|
RISK
FACTORS
You
should carefully consider the
risks described below together with all of the other information included in
this report before making an investment decision with regard to our
securities. The statements contained in or incorporated into this
offering that are not historic facts are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
If
any of the following risks actually occurs, our business, financial condition
or
results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.
Page
7
Risks
Relating to Our
Business
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·
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WE
NEED TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH
AND
ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL
CAUSE
A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE
REVENUE.
|
In
order
to maximize potential growth in our current and potential markets, we believe
that we must expand the scope of our services valve manufacture and production
and continue to develop new and improved valves. This expansion will place
a
significant strain on our management and our operational, accounting, and
information systems. We expect that we will need to continue to
improve our financial controls, operating procedures, and management information
systems. We will also need to effectively train, motivate, and manage
our employees. Our failure to manage our growth could disrupt our
operations and ultimately prevent us from generating the revenues we
expect.
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·
|
WE
CANNOT ASSURE YOU THAT OUR INTERNAL GROWTH STRATEGY WILL BE SUCCESSFUL
WHICH MAY RESULT IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND CASH
FLOW.
|
One
of
our strategies is to grow internally through increasing the development of
new
valves and improve the quality of existing valves. However, many
obstacles to this expansion exist, including, but not limited to, increased
competition from similar businesses, international trade and tariff barriers,
unexpected costs, costs associated with marketing efforts abroad and maintaining
attractive foreign exchange ratios. We cannot, therefore, assure you
that we will be able to successfully overcome such obstacles and establish
our
services in any additional markets. Our inability to implement this
internal growth strategy successfully may have a negative impact on our growth,
future financial condition, results of operations or cash flows.
|
·
|
WE
CANNOT ASSURE YOU THAT OUR ACQUISITION GROWTH STRATEGY WILL BE SUCCESSFUL
RESULTING IN OUR FAILURE TO MEET GROWTH AND REVENUE
EXPECTATIONS.
|
In
addition to our internal growth strategy, we have also explored the possibility
of growing through strategic acquisitions. We intend to pursue
opportunities to acquire businesses in PRC that are complementary or related
in
product lines and business structure to us. We may not be able to locate
suitable acquisition candidates at prices that we consider appropriate or to
finance acquisitions on terms that are satisfactory to us. If we do
identify an appropriate acquisition candidate, we may not be able to negotiate
successfully the terms of an acquisition, or, if the acquisition occurs,
integrate the acquired business into our existing
business. Acquisitions of businesses or other material operations may
require debt financing or additional equity financing, resulting in leverage
or
dilution of ownership. Integration of acquired business operations
could disrupt our business by diverting management away from day-to-day
operations. The difficulties of integration may be increased by the necessity
of
coordinating geographically dispersed organizations, integrating personnel
with
disparate business backgrounds and combining different corporate
cultures. We also may not be able to maintain key employees or
customers of an acquired business or realize cost efficiencies or synergies
or
other benefits we anticipated when selecting our acquisition
candidates. In addition, we may need to record write-downs from
future impairments of intangible assets, which could reduce our future reported
earnings. At times, acquisition candidates may have liabilities or
adverse operating issues that we fail to discover through due diligence prior
to
the acquisition. In addition to the above, acquisitions in PRC,
including state owned businesses, will be required to comply with laws of the
People's Republic of China ("PRC"), to the extent applicable. There can be
no
assurance that any given proposed acquisition will be able to comply with PRC
requirements, rules and/or regulations, or that we will successfully obtain
governmental approvals which are necessary to consummate such acquisitions,
to
the extent required. If our acquisition strategy is unsuccessful, we
will not grow our operations and revenues at the rate that we
anticipate.
|
·
|
IF
WE ARE NOT ABLE TO IMPLEMENT OUR STRATEGIES IN ACHIEVING OUR BUSINESS
OBJECTIVES, OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE MAY
BE
ADVERSELY AFFECTED.
|
Our
business plan is based on circumstances currently prevailing and the bases
and
assumptions that certain circumstances will or will not occur, as well as the
inherent risks and uncertainties involved in various stages of
development. However, there is no assurance that we will be
successful in implementing our strategies or that our strategies, even if
implemented, will lead to the successful achievement of our
objectives. If we are not able to successfully implement our
strategies, our business operations and financial performance may be adversely
affected.
Page
8
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·
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WE
MAY HAVE DIFFICULTY DEFENDING OUR INTELLECTUAL PROPERTY RIGHTS FROM
INFRINGEMENT RESULTING IN LAWSUITS REQUIRING US TO DEVOTE FINANCIAL
AND
MANAGEMENT RESOURCES THAT WOULD HAVE A NEGATIVE IMPACT ON OUR OPERATING
RESULTS.
|
We
regard
our service marks, trademarks, trade secrets, patents and similar intellectual
property as critical to our success. We rely on trademark, patent and
trade secret law, as well as confidentiality and license agreements with certain
of our employees, customers and others to protect our proprietary rights. We
have received patent protection for certain of our products in the People's
Republic of China. No assurance can be given that our patents,
trademarks and licenses will not be challenged, invalidated, infringed or
circumvented, or that our intellectual property rights will provide competitive
advantages to us. There can be no assurance that we will be able to
obtain a license from a third-party technology that we may need to conduct
our
business or that such technology can be licensed at a reasonable
cost.
Presently,
we provide our valves mainly in PRC. To date, no trademark or patent
filings have been made other than in PRC. To the extent that we
market our services in other countries, we may have to take additional action
to
protect our intellectual property. The measures we take to protect
our proprietary rights may be inadequate and we cannot give you any assurance
that our competitors will not independently develop formulations, processes
and
services that are substantially equivalent or superior to our own or copy our
products.
|
·
|
WE
DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES
COULD ADVERSELY AFFECT OUR
BUSINESS.
|
We
place
substantial reliance upon the efforts and abilities of our executive
officers. The loss of the services of any of our executive officers
could have a material adverse effect on our business, operations, revenues
or
prospects. We do not maintain key man life insurance on the lives of
these individuals.
|
·
|
WE
MAY NEVER PAY ANY DIVIDENDS TO
SHAREHOLDERS.
|
We
have
never paid any dividends and have not declared any dividends to date in
2007. Our board of directors does not intend to distribute dividends
in the near future. The declaration, payment and amount of any future
dividends will be made at the discretion of the board of directors, and will
depend upon, among other things, the results of our operations, cash flows
and
financial condition, operating and capital requirements, and other factors
as
the board of directors considers relevant. There is no assurance that
future dividends will be paid, and, if dividends are paid, there is no assurance
with respect to the amount of any such dividend.
|
·
|
MANAGEMENT
EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER
APPROVAL
WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR
CONTROL.
|
Mr.
Fang
Si Ping, our Chairman and Chief Executive Officer, through his common stock
ownership, currently has voting power equal to approximately 60% of our voting
securities. As a result, management through such stock ownership
exercises significant control over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership in management may also
have the effect of delaying or preventing a change in control of us that may
be
otherwise viewed as beneficial by shareholders other than
management.
Page
9
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·
|
WE
MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES
CORPORATE GOVERNANCE AND ACCOUNTING
REQUIREMENTS.
|
We
may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission. We expect
all
of these applicable rules and regulations to significantly increase our legal
and financial compliance costs and to make some activities more time consuming
and costly. We also expect that these applicable rules and
regulations may make it more difficult and more expensive for us to obtain
director and officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our board of
directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these newly applicable rules, and we
cannot predict or estimate the amount of additional costs we may incur or the
timing of such costs.
|
·
|
WE
MAY NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL
REPORTING REQUIREMENTS IMPOSED BY THE SECURITIES AND EXCHANGE COMMISSION
RESULTING IN A POSSIBLE DECLINE IN THE PRICE OF OUR COMMON STOCK
AND OUR
INABILITY TO OBTAIN FUTURE
FINANCING.
|
As
directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange
Commission adopted rules requiring each public company to include a report
of
management on the company's internal controls over financial reporting in its
annual reports. In addition, the independent registered public
accounting firm auditing a company's financial statements must also attest
to
and report on management's assessment of the effectiveness of the company's
internal controls over financial reporting as well as the operating
effectiveness of the company's internal controls. While we will not be subject
to these requirements for the fiscal year ended December 31, 2007, we will
be
subject to these requirements beginning January 1, 2008.
While
we
expect to expend significant resources in developing the necessary documentation
and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there
is a risk that we may not be able to comply timely with all of the requirements
imposed by this rule. In the event that we are unable to receive a
positive attestation from our independent registered public accounting firm
with
respect to our internal controls, investors and others may lose confidence
in
the reliability of our financial statements and our stock price and ability
to
obtain equity or debt financing as needed could suffer.
In
addition, in the event that our independent registered public accounting firm
is
unable to rely on our internal controls in connection with its audit of our
financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy
of
our financial statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the Securities and
Exchange Commission, which could also adversely affect the market price of
our
common stock and our ability to secure additional financing as
needed.
|
·
|
WE
MAY HAVE DIFFICULTY RAISING NECESSARY CAPITAL TO FUND OPERATIONS
AS A
RESULT OF MARKET PRICE VOLATILITY FOR OUR SHARES OF COMMON
STOCK.
|
In
recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects
of
such companies. For these reasons, our shares of common stock can
also be expected to be subject to volatility resulting from purely market forces
over which we will have no control. If our business development plans
are successful, we may require additional financing to continue to develop
and
exploit existing and new products and services related to our industries and
to
expand into new markets. The exploitation of our services may,
therefore, be dependent upon our ability to obtain financing through debt and
equity or other means.
Page
10
Risks
Relating to the People's
Republic of China
Our
business operations take place primarily in China. Because Chinese
laws, regulations and policies are continually changing, our Chinese operations
will face several risks summarized below.
|
·
|
LIMITATIONS
ON CHINESE ECONOMIC MARKET REFORMS MAY DISCOURAGE FOREIGN INVESTMENT
IN
CHINESE BUSINESSES.
|
The
value
of investments in Chinese businesses could be adversely affected by political,
economic and social uncertainties in China. The economic reforms in
China in recent years are regarded by China’s central government as a way to
introduce economic market forces into China. Given the overriding
desire of the central government leadership to maintain stability in China
amid
rapid social and economic changes in the country, the economic market reforms
of
recent years could be slowed, or even reversed.
|
·
|
ANY
CHANGE IN POLICY BY THE CHINESE GOVERNMENT COULD ADVERSELY AFFECT
INVESTMENTS IN CHINESE BUSINESSES.
|
Changes
in policy could result in imposition of restrictions on currency conversion,
imports or the source of suppliers, as well as new laws affecting joint ventures
and foreign-owned enterprises doing business in China. Although China
has been pursuing economic reforms for the past two decades, events such as
a
change in leadership or social disruptions that may occur upon the proposed
privatization of certain state-owned industries, could significantly affect
the
government’s ability to continue with its reform.
|
·
|
WE
FACE ECONOMIC RISKS IN DOING BUSINESS IN
CHINA.
|
As
a
developing nation, China’s economy is more volatile than that of developed
Western industrial economies. It differs significantly from that of
the U.S. or a Western European country in such respects as structure, level
of
development, capital reinvestment, resource allocation and
self-sufficiency. Only in recent years has the Chinese economy moved
from what had been a command economy through the 1970s to one that during the
1990s encouraged substantial private economic activity. In 1993, the
Constitution of China was amended to reinforce such economic
reforms. The trends of the 1990s indicate that future policies of the
Chinese government will emphasize greater utilization of market
forces. For example, in 1999, the Government announced plans to amend
the Chinese Constitution to recognize private property, although private
business will officially remain subordinated to the state-owned companies,
which
are the mainstay of the Chinese economy. However, there can be no
assurance that, under some circumstances, the government’s pursuit of economic
reforms will not be restrained or curtailed. Actions by the central
government of China could have a significant adverse effect on economic
conditions in the country as a whole and on the economic prospects for our
Chinese operations.
|
·
|
THE
CHINESE LEGAL AND JUDICIAL SYSTEM MAY NEGATIVELY IMPACT FOREIGN
INVESTORS.
|
In
1982,
the National People’s Congress amended the Constitution of China to authorize
foreign investment and guarantee the “lawful rights and interests” of foreign
investors in China. However, China’s system of laws is not yet
comprehensive. The legal and judicial systems in China are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in
China lack the depth of legal training and experience that would be expected
of
a judge in a more developed country. Because the Chinese judiciary is
relatively inexperienced in enforcing the laws that do exist, anticipation
of
judicial decision-making is more uncertain than would be expected in a more
developed country. It may be impossible to obtain swift and equitable
enforcement of laws that do exist, or to obtain enforcement of the judgment
of
one court by a court of another jurisdiction. China’s legal system is
based on written statutes; a decision by one judge does not set a legal
precedent that is required to be followed by judges in other
cases. In addition, the interpretation of Chinese laws may be varied
to reflect domestic political changes.
Page
11
The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign
investors. However, the trend of legislation over the last 20 years
has significantly enhanced the protection of foreign investment and allowed
for
more control by foreign parties of their investments in Chinese
enterprises. There can be no assurance that a change in leadership,
social or political disruption, or unforeseen circumstances affecting China’s
political, economic or social life, will not affect the Chinese government’s
ability to continue to support and pursue these reforms. Such a shift could
have
a material adverse effect on our business and prospects.
The
practical effect of the Peoples Republic of China legal system on our business
operations in China can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign
Invested Enterprise laws provide significant protection from government
interference. In addition, these laws guarantee the full enjoyment of
the benefits of corporate Articles and contracts to Foreign Invested Enterprise
participants. These laws, however, do impose standards concerning
corporate formation and governance, which are not qualitatively different from
the general corporation laws of the several states. Similarly, the
Peoples Republic of China accounting laws mandate accounting practices, which
are not consistent with U.S. Generally Accepted Accounting
Principles. China’s accounting laws require that an annual “statutory
audit” be performed in accordance with Peoples Republic of China accounting
standards and that the books of account of Foreign Invested Enterprises are
maintained in accordance with Chinese accounting laws. Article 14 of
the Peoples Republic of China Wholly Foreign-Owned Enterprise Law requires
a
Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and
statements to designate financial and tax authorities, at the risk of business
license revocation. Second, while the enforcement of substantive
rights may appear less clear than United States procedures, the Foreign Invested
Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered
companies, which enjoy the same status as other Chinese registered companies
in
business-to-business dispute resolution. Generally, the Articles of
Association provide that all business disputes pertaining to Foreign Invested
Enterprises are to be resolved by the Arbitration Institute of the Stockholm
Chamber of Commerce in Stockholm, Sweden, applying Chinese substantive
law. Any award rendered by this arbitration tribunal is, by the
express terms of the respective Articles of Association, enforceable in
accordance with the “United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958).” Therefore, as a practical
matter, although no assurances can be given, the Chinese legal infrastructure,
while different in operation from its United States counterpart, should not
present any significant impediment to the operation of Foreign Invested
Enterprises.
|
·
|
CERTAIN
POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY
AFFECT OUR COMPANY.
|
The
PRC
is transitioning from a planned economy to a market economy. While
the PRC government has pursued economic reforms since its adoption of the
open-door policy in 1978, a large portion of the PRC economy is still operating
under five-year plans and annual state plans. Through these plans and other
economic measures, such as control on foreign exchange, taxation and
restrictions on foreign participation in the domestic market of various
industries, the PRC government exerts considerable direct and indirect influence
on the economy. Many of the economic reforms carried out by the PRC
government are unprecedented or experimental, and are expected to be refined
and
improved. Other political, economic and social factors can also lead
to further readjustment of such reforms. This refining and
readjustment process may not necessarily have a positive effect on our
operations or future business development. Our operating results may
be adversely affected by changes in the PRC's economic and social conditions
as
well as by changes in the policies of the PRC government, such as changes in
laws and regulations (or the official interpretation thereof), measures which
may be introduced to control inflation, changes in the interest rate or method
of taxation, and the imposition of additional restrictions on currency
conversion.
|
·
|
THE
RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE
TO US
CREATE AN UNCERTAIN ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY
COULD
HAVE A NEGATIVE EFFECT ON US.
|
The
PRC
legal system is a civil law system. Unlike the common law system, the
civil law system is based on written statutes in which decided legal cases
have
little value as precedents. In 1979, the PRC began to promulgate a
comprehensive system of laws and has since introduced many laws and regulations
to provide general guidance on economic and business practices in the PRC and
to
regulate foreign investment.
Page
12
Progress
has been made in the promulgation of laws and regulations dealing with economic
matters such as corporate organization and governance, foreign investment,
commerce, taxation and trade. The promulgation of new laws, changes
of existing laws and the abrogation of local regulations by national laws could
have a negative impact on our business and business prospects. In
addition, as these laws, regulations and legal requirements are relatively
recent, their interpretation and enforcement involve significant
uncertainty.
|
·
|
THE
APPROVAL OF THE CHINESE SECURITIES REGULATORY COMMISSION (“CRSC”) MAY BE
REQUIRED IN CONNECTION WITH THIS OFFERING UNDER A RECENTLY ADOPTED
PRC
REGULATION; SINCE THIS OFFERING DID NOT COMMENCE PRIOR TO THE EFFECTIVE
DATE OF THE REGULATION, WE MAY BE REQUIRED TO OBTAIN CRSC APPROVAL
FOR
THIS OFFERING AND WE CAN NOT CURRENTLY PREDICT THE CONSEQUENCES OF
ANY
FAILURE TO OBTAIN SUCH APPROVAL.
|
On
August
8, 2006, six PRC regulatory agencies, including the Chinese Securities
Regulatory Commission, or CSRC, promulgated a regulation that became effective
on September 8, 2006. This regulation, among other things, purports
to require offshore special purpose vehicles, or SPVs, formed for listing
purposes through acquisitions of PRC domestic companies and controlled by PRC
individuals to obtain the approval of the CSRC prior to publicly listing their
securities on an overseas stock exchange. While the application of
this new regulation is not yet clear, we believe, based on the advice of our
PRC
counsel, that CSRC approval is not required in this transaction because the
Company does not control the Chinese operating entities. They
strictly have contractual arrangements with the Chinese
companies. Although the CSRC is expected to promulgate formal
implementing rules and/or regulations and possibly other clarifications, the
procedures, criteria and timing for obtaining any required CSRC approval have
not been established and it is unclear when these will be
established. Since this offering did not commence prior to the
effective date of the regulation and our shares of common stock did not commence
trading prior to the effective date of the regulation, if the CSRC determines
that the Company exercises control over the Chinese operating entities, we
may
be required to obtain CSRC approval for this offering and we cannot currently
predict the criteria, timing or procedures for obtaining the CSRC approval
or
the consequences of any failure to obtain such approval.
|
·
|
RECENT
PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL
PURPOSE
COMPANIES BY PRC RESIDENTS MAY SUBJECT OUR PRC RESIDENT SHAREHOLDERS
TO
PERSONAL LIABILITY AND LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR
PRC
SUBSIDIARIES, LIMIT OUR PRC SUBSIDIARIES’ ABILITY TO DISTRIBUTE PROFITS TO
US, OR OTHERWISE ADVERSELY AFFECT
US.
|
SAFE
issued a public notice in October 2005, or the SAFE notice, requiring PRC
residents to register with the local SAFE branch before establishing or
controlling any company outside of China for the purpose of capital financing
with assets or equities of PRC companies, referred to in the notice as an
“offshore special purpose company.” PRC residents that are shareholders of
offshore special purpose companies established before November 1, 2005 were
required to register with the local SAFE branch before March 31, 2006. Our
current beneficial owners who are PRC residents have registered with the local
SAFE branch as required under the SAFE notice. The failure of these beneficial
owners to timely amend their SAFE registrations pursuant to the SAFE notice
or
the failure of future beneficial owners of our company who are PRC residents
to
comply with the registration procedures set forth in the SAFE notice may subject
such beneficial owners to fines and legal sanctions and may also limit our
ability to contribute additional capital into our PRC subsidiaries, limit our
PRC subsidiaries’ ability to distribute dividends to our company or otherwise
adversely affect our business.
Other
Risks
|
·
|
CURRENCY
CONVERSION AND EXCHANGE RATE VOLATILITY COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION.
|
The
PRC
government imposes control over the conversion of Renminbi (“RMB”) into foreign
currencies. Under the current unified floating exchange rate system,
the People's Bank of China publishes an exchange rate, which we refer to as
the
PBOC exchange rate, based on the previous day's dealings in the inter-bank
foreign exchange market. Financial institutions authorized to deal in foreign
currency may enter into foreign exchange transactions at exchange rates within
an authorized range above or below the PBOC exchange rate according to market
conditions.
Page
13
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC
which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs,
for use on current account items, including the distribution of dividends and
profits to foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC. Conversion of
Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still under certain restrictions.
On January 14, 1997, the State Council amended the Foreign Exchange Control
Regulations and added, among other things, an important provision, which
provides that the PRC government shall not impose restrictions on recurring
international payments and transfers under current account items.
Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks
by
providing valid receipts and proofs.
Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
Since
1994, the exchange rate for Renminbi against the United States dollar has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to $1.00. However, in 2005, the Chinese government announced that it
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. dollar. As a result, the
exchange rate for the Renminbi against the U.S. dollar became RMB8.02 to
$1.00. As our operations are primarily in PRC, any significant
revaluation or devaluation of the Chinese Renminbi may materially and adversely
affect our cash flows, revenues and financial condition. We may not
be able to hedge effectively against it in any such case. For
example, to the extent that we need to convert United States dollars into
Chinese Renminbi for our operations, appreciation of this currency against
the
United States dollar could have a material adverse effect on our business,
financial condition and results of operations. Conversely, if we
decide to convert Chinese Renminbi into United States dollars for other business
purposes and the United States dollar appreciates against this currency, the
United States dollar equivalent of the Chinese Renminbi we convert would be
reduced. There can be no assurance that future movements in the
exchange rate of Renminbi and other currencies will not have an adverse effect
on our financial condition. Our operating companies are FIEs to which the
Foreign Exchange Control Regulations are applicable. There can be no assurance
that we will be able to obtain sufficient foreign exchange to pay dividends
or
satisfy other foreign exchange requirements in the future.
|
·
|
IT
MAY BE DIFFICULT TO AFFECT SERVICE OF PROCESS AND ENFORCEMENT OF
LEGAL
JUDGMENTS UPON OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE
THEY
RESIDE OUTSIDE THE UNITED STATES.
|
As
our
operations are presently based in PRC and a majority of our directors and all
of
our officers reside in PRC, service of process on our company and such directors
and officers may be difficult to effect within the United
States. Also, our main assets are located in PRC and any judgment
obtained in the United States against us may not be enforceable outside the
United States.
Page
14
|
·
|
WE
MAY EXPERIENCE CURRENCY FLUCTUATION AND LONGER EXCHANGE RATE PAYMENT
CYCLES WHICH WILL NEGATIVELY AFFECT THE COSTS OF OUR PRODUCTS SOLD
AND THE
VALUE OF OUR LOCAL CURRENCY
PROFITS.
|
The
local
currencies in the countries in which we sell our products may fluctuate in
value
in relation to other currencies. Such fluctuations may affect the
costs of our products sold and the value of our local currency profits. While
we
are not conducting any meaningful operations in countries other than PRC at
the
present time, we may expand to other countries and may then have an increased
risk of exposure of our business to currency fluctuation.
|
·
|
SINCE
MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS
FROM
LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT
AGENCIES.
|
Our
assets are predominantly located inside PRC. Under the laws governing
foreign invested enterprises in PRC, dividend distribution and liquidation
are
allowed but subject to special procedures under the relevant laws and
rules. Any dividend payment will be subject to the decision of the
board of directors and subject to foreign exchange rules governing such
repatriation. Any liquidation is subject to the relevant government
agency's approval and supervision as well as the foreign exchange
control. This may generate additional risk for our investors in case
of dividend payment and liquidation.
|
·
|
OUR
SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY
NOT
REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE
AN
ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE
FUTURE.
|
Our
shares of common stock are very thinly traded, and the price if traded may
not
reflect our value. There can be no assurance that there will be an
active market for our shares of common stock either now or in the
future. The market liquidity will be dependent on the perception of
our operating business and any steps that our management might take to bring
us
to the awareness of investors. There can be no assurance given that
there will be any awareness generated. Consequently, investors may
not be able to liquidate their investment or liquidate it at a price that
reflects the value of the business. If a more active market should
develop, the price may be highly volatile. Because there may be a low
price for our shares of common stock, many brokerage firms may not be willing
to
effect transactions in the securities. Even if an investor finds a
broker willing to effect a transaction in the shares of our common stock, the
combination of brokerage commissions, transfer fees, taxes, if any, and any
other selling costs may exceed the selling price. Further, many
lending institutions will not permit the use of such shares of common stock
as
collateral for any loans.
We
may be
subject now and in the future to the SEC’s “penny stock” rules if our shares of
common stock sell below $5.00 per share. Penny stocks generally are
equity securities with a price of less than $5.00. The
penny stock rules require broker-dealers to deliver a standardized risk
disclosure document prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock
market. The broker-dealer must also provide the customer with current bid and offer quotations
for the penny stock,
the compensation of the broker-dealer and its salesperson, and monthly account
statements showing the market value of each penny
stock held in
the customer's account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information must be given to the
customer orally or in writing prior to completing the transaction and must
be
given to the customer in writing before or with the customer's
confirmation.
In
addition, the penny stock rules require that prior to a transaction the broker
dealer make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. The penny stock rules
are burdensome and may reduce purchases of any offerings and reduce the trading
activity for shares of our common stock. As long as our shares of common stock
are subject to the penny stock rules, the holders
of such
shares of common stock may find it more difficult to sell their
securities.
Page
15
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·
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SALES
OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADEABLE
PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND
HAVE A
DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON
STOCK.
|
A
substantial majority of our outstanding shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. As
restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other applicable
exemptions from registration under the Act and as required under applicable
state securities laws. Rule 144 provides in essence that a person who
has held restricted securities for a period of at least one year may, under
certain conditions, sell every three months, in brokerage transactions, a number
of shares that does not exceed the greater of 1% of a company's outstanding
shares of common stock or the average weekly trading volume during the four
calendar weeks prior to the sale (the four calendar week rule does not apply
to
companies quoted on the OTC Bulletin Board). There is no limit on the
amount of restricted securities that may be sold by a non-affiliate after the
restricted securities have been held by the owner for a period of two years
or
more and such owner has not been an affiliate for the 90 day period prior to
sale. A sale under Rule 144 or under any other exemption from the
Act, if available, or pursuant to subsequent registrations of our shares of
common stock, may have a depressive effect upon the price of our shares of
common stock in any active market that may develop.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Overview
The
following discussion is an overview of the important factors that management
focuses on in evaluating our business, financial condition and operating
performance and should be read in conjunction with the financial statements
included in this Current Report on Form 8-K. This discussion contains
forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those
anticipated in these forward looking statements as a result of any number of
factors, including those set forth under the section entitled “Risk Factors” and
elsewhere in this Current Report on Form 8-K.
Our
Business
Through
China Valve’s subsidiaries and certain commercial and contractual relationships
arrangements with other Chinese companies, we operate companies in China that
develop, manufacture and distribute valves for a variety of different
industries. We are located in Henan Province but do business
throughout China. China Valve engages in the development, manufacture
and sales of high quality metal valves for electricity, petroleum, chemical,
water, gas and metal industries. It has total assets of approximately
$60 million USD and has a total facility area of more than 74
acres. It is the leader in valve sales for the thermal power and
water supply industries. It produces over 700 models of valves and
services numerous industries, including, the thermal power, water supply, sewage
disposal, oil and chemical, metallurgy, heat power, and nuclear power
industries.
Principal
Factors Affecting our
Financial Performance
We
believe that the following factors affect our financial
performance:
|
o
|
Growth
of China’s Urbanization
and Industrialization
|
The
annual growth rate of the valve production industry in China is expected to
be
32% for the next few years. This growth is fueled by the rapid
industrialization and manufacturing industries developing in
China. If this growth continues, the growth rate of the valve
production industry will grow at a similar rate and the company’s financial
performance will continue to outperform expectations.
Page
16
|
o
|
PRC
Regulations
|
China
has
looked favorably on the valve production industry and has loosened regulations
to promote manufacturing growth in China which ultimately benefits China Valve
and similarly situated companies. As long as China continues to
promote economic growth and allow manufacturing companies to grow and expand
their operations, China Valve expects to be able to sustain its growth and
continue to be a leader in the valve production industry in China.
Results
of
Operations
The
following tables set forth key components of our results of operations for
the
periods indicated, in dollars, and key components of our revenue for the period
indicated, in dollars.
Nine
months ended September
30, 2007 Compared to nine months ended September 30, 2006
|
Nine
Months
Ended
|
||||||||
|
September
30,
|
||||||||
|
2007
|
2006
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
USD
|
USD
|
|||||||
|
Sales
|
$ |
23,488,630
|
16,690,463
|
|||||
|
Cost
of Goods
Sold
|
(13,660,561 | ) | (9,536,261 | ) | ||||
|
Gross
profit
|
9,828,069
|
7,154,202
|
||||||
|
Add:
Other
income
|
18,493
|
4,042
|
||||||
|
Less:
Selling
expenses
|
(1,831,588 | ) | (1,512,374 | ) | ||||
|
Less:
Operating and
administrative expenses
|
(2,227,487 | ) | (1,647,847 | ) | ||||
|
Less:
Finance
costs
|
(490,360 | ) | (286,520 | ) | ||||
|
Less:
Other
expenses
|
(192,636 | ) | (118,643 | ) | ||||
|
Profit
from
operations
|
5,104,491
|
3,592,860
|
||||||
|
Provision
for income
taxes
|
(843,412 | ) | (735,521 | ) | ||||
|
Net
profit for the
period
|
4,261,079
|
2,857,339
|
||||||
Page
17
Net
Revenue:
Net
revenue increased by US$6,798,167, or 40.7%, from US$16,690,463 in the nine
months ended September 30, 2006 to US$23,488,630 in the nine months ended
September 30, 2007.
Cost
of revenue:
Cost
of
revenue increased by US$4,124,300, or 43.2%, from US$9,536,261 in the nine
months ended September 30, 2006 to US$13,660,561 in the nine months ended
September 30, 2007.
Gross
profit:
Gross
profit increased by US$2,673,867, or 37.3%, from US$7,154,202 in the nine months
ended September 30, 2006 to US$9,828,069 in the nine months ended September
30,
2007 mainly due to the increase in revenue.
Operating
Expenses:
Operating
expenses were US$1,647,847 in the nine months ended September 30, 2006, compared
to US$2,227,487 in the nine months ended September 30, 2007. This
represents an increase of US$579,640, or 35%.
Income
from
Operations:
Operating
profit was US$3,592,860 in the nine months ended September 30, 2006 and
US$5,104,491 in the nine months ended September 30, 2007. The
increase of US$1,511,631 represents an increase in operational income of
42%.
Net
Income:
Net
income was US$2,857,339 in the nine months ended September 30, 2006, compared
to
US$4,261,079 in the nine months ended September 30, 2007, an increase of
US$1,403,740, or 49%.
LIQUIDITY
AND CAPITAL
RESOURCES
The
Company currently generates its cash flow through operations which it believes
will be sufficient to sustain current level operations for at least the next
twelve months. In 2008, we intend to continue to work to develop new
valves and expand our presence as the leader in the development and manufacture
and various valves.
To
the
extent we are successful in growing our business and raising capital, we plan
to
use our working capital and the proceeds of any financing to finance expansion
costs. Our opinion concerning our liquidity is based on current
information. If this information proves to be inaccurate, or if circumstances
change, we may not be able to meet our liquidity needs.
2007
–
2008
Outlook
Over
the
course of the next few years, we intend to grow and expand our
business. One of the ways we expect to grow is through acquisitions
of other similar companies. We expect to acquire high-growth small and medium
size companies but will also evaluate the benefits of acquiring larger
competitors where we can combine our brand names and consolidate the valve
industry and increase our market share in the industry. These
acquisitions will be financed either through revenues of the Company or by
financings and sales of the Company’s stock or other securities.
In
addition, China Valve expects to increase its market development and strengthen
its hold as the leader of valve manufacturers by improving the quality of
existing valves and developing newer, better quality valves.
Lastly,
China Valve intends to increase our market share by expanding into overseas
markets. We would like to expand into neighboring Asian countries
over the next few years and then growing into an international valve
manufacturer that distributes to countries all over the world.
Page
18
PLAN
OF
OPERATIONS
Related
Party
Transactions
For
a
description of our related party transactions see the section of the Current
Report entitled “Certain Relationships and Related Transactions.”
Quantitative
and Qualitative
Disclosures about Market Risk
Interest
Rates. Our exposure
to market risk for changes in interest rates relates primarily to our short-term
investments and short-term obligations; thus, fluctuations in interest rates
would not have a material impact on the fair value of these securities. At
September 30, 2007, we had approximately $2,287,202 in cash and cash
equivalents. A hypothetical 10% increase or decrease in interest
rates would not have a material impact on our earnings or loss, or the fair
market value or cash flows of these instruments.
Foreign
Exchange Rates. The
majority of our revenues derived and expenses and liabilities incurred are
in
Renminbi (the currency of the PRC). Thus, our revenues and operating results
may
be impacted by exchange rate fluctuations in the currency of
Renminbi. We have not tried to reduce our exposure to
exchange rate fluctuations by using hedging
transactions. However, we may choose to do so in the
future. We may not be able to do this
successfully. Accordingly, we may experience economic losses and
negative impacts on earnings and equity as a result of foreign exchange rate
fluctuations. The effect of foreign exchange rate fluctuation during
the year ended December 31, 2006 was not material to us.
DESCRIPTION
OF
PROPERTY
China
Valve does not own any property in China, however, the business is operated
in
facilities located on approximately 74 acres of land. The subsidiaries of China
Valve operate on land that they rent. Kaifeng High Pressure was
privatized in 2004 and pursuant to the PRC policy of privatization, the use
of
land and offices in China is state subsidized until the end of
2007. Therefore, Kaifeng does not incur any expenses with respect to
its property.
With
respect to Zhengzhou City ZhengDie Valve Co., Ltd, the following expenses were
incurred in 2006 and 2007 with respect to its property:
Year
Ended 2006
|
Usage
|
Amount
in
USD
|
|||
|
Office
|
$
|
24,000
|
||
|
Production
Facilities
|
$
|
266,667
|
||
|
Operation
Facilities
|
$
|
6,667
|
||
|
Total
Cost
|
$
|
297,334
|
||
Year
Ended 2007
|
Usage
|
Amount in
USD
|
|||
|
Office
|
$
|
32,000
|
||
|
Production
Facilities
|
$
|
266,667
|
||
|
Operation
Facilities
|
$
|
6,667
|
||
|
Total
Cost
|
$
|
305,334
|
||
Page
19
MANAGEMENT
Appointment
of New
Directors
Effective
10 days after the Closing Date of the Exchange Agreement, we appointed 5 new
directors to our board and hired 6 new officers. Furthermore,
concurrent with the appointment of the new officers and directors,
Mr. Matthew Markin, our former Chief Executive Officer, Chief Financial
Officer, Secretary and Director, resigned from these positions.
Within
90
days of Closing, we will hire an English and Mandarin bilingual CFO who is
experienced or knowledgeable about U.S. GAAP and public company
responsibilities.
The
following table sets forth the names, ages, and positions of our new executive
officers and directors as of 10 days after the Closing Date. Executive officers
are elected annually by our Board of Directors. Each executive
officer holds his office until he resigns, is removed by the Board, or his
successor is elected and qualified. Directors are elected annually by
our stockholders at the annual meeting. Each director holds his
office until his successor is elected and qualified or his earlier resignation
or removal.
|
NAME
|
AGE
|
POSITION
|
|
Fang
Si Ping
|
55
|
President,
Chief Executive Officer and Director
|
|
Zhu
Jun Feng
|
43
|
Chief
Operation Officer & Director
|
|
Tang
Ren Rui
|
35
|
Director
and Chief Financial Officer
|
|
Chen
Hui Feng
|
36
|
Director
|
|
Jia
Zhi Yuan
|
37
|
Chief
Technology Officer
|
|
Fang
Bin Jie
|
35
|
Director
|
A
brief
biography of each officer and director are more fully described in Item
5.02(c). The information therein is hereby incorporated in this
section by reference.
The
Employment Contracts we have entered into with these Individuals are more fully
described in Section 5.02(e). The information therein is hereby
incorporated in this section by reference.
Family
Relationships
Mr.
Fang
Bin Jie is the son of Mr. Fang Si Ping. Other than otherwise
disclosed, there are no other family relationships between any of our directors
or executive officers and any other directors or executive
officers.
Code
of Ethics
We
currently do not have a code of ethics that applies to our officers, employees
and directors, including our Chief Executive Officer and senior executives,
however, we intend to adopt one in the near future.
Conflicts
of
Interest
Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors, and us.
From
time
to time, one or more of our affiliates may form or hold an ownership interest
in
and/or manage other businesses both related and unrelated to the type of
business that we own and operate. These persons expect to continue to
form, hold an ownership interest in and/or manage additional other businesses
which may compete with ours with respect to operations, including financing
and
marketing, management time and services and potential
customers. These activities may give rise to conflicts between or
among the interests of us and other businesses with which our affiliates are
associated. Our affiliates are in no way prohibited from undertaking
such activities, and neither we nor our shareholders will have any right to
require participation in such other activities.
Page
20
Further,
because we intend to transact business with some of our officers, directors
and
affiliates, as well as with firms in which some of our officers, directors
or
affiliates have a material interest, potential conflicts may arise between
the
respective interests of us and these related persons or entities. We
believe that such transactions will be effected on terms at least as favorable
to us as those available from unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed
or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority of
our
disinterested outside directors, and (iii) the transaction be fair and
reasonable to us at the time it is authorized or approved by our
directors.
EXECUTIVE
COMPENSATION
INTERCONTINENTAL
RESOURCES EXECUTIVE
COMPENSATION SUMMARY
Summary
Compensation Table
The
following table sets forth all cash compensation paid by INCL, for the last
fiscal year, specifically, the year ending December 31, 2006. The
table below sets forth the positions for each person at INCL. All amounts are
in
USD.
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
($)
|
Stock
Award
($)
|
Option
Award
($)
|
Non-Equity
Incentive Plan Compensation Earnings ($)
|
Non-Qualified
Deferred Compensation Earnings ($)
|
All
other Compensation
($)
|
Total
($)
|
|
Matthew
Markin, former Chairman and CEO (1)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Fang
Si Ping, President, CEO and Director (2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Zhu
Jun Feng, Director (2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Tang
Ren Rui, CFO and Director (2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Chen
Hui Feng, Director (2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Jia
Zhi Yuan, Chief Technology Officer (2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Fang
Bin Jie, Director
(2)
|
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
(1)
|
On
December 16, 2007, we acquired China Valve in a reverse acquisition
transaction that was structured as a share exchange and in connection
with
that transaction, Matthew Markin tendered his resignation from the
board
of directors and from all offices held in the Company, effective
immediately.
|
|
(2)
|
In
connection with the reverse acquisition of China Valve on December
16,
2007, Fang Si Ping, Tang Ren Rui and Jia Zhi Yuan were elected officers
and directors of the Company effective upon the resignation of Mr.
Markin.
|
Page
21
Option
Grants
We
do not
maintain any equity incentive or stock option plan. Accordingly, we
did not grant options to purchase any equity interests to any employees or
officers, and no stock options are issued or outstanding to any
officers.
Employment
Contracts
The
new
directors and executive officers have entered into employment agreements with
the Company and pursuant to their agreements shall be compensated as
follows:
|
Name
|
Annual
Compensation
($USD)
|
|
Feng
Si Ping
|
$100,000
(USD)
|
|
Zhu
Jun Feng
|
$60,000
(USD)
|
| Tang Ren Rui | $40,000 (USD) |
|
Chen
Hui Feng
|
$40,000
(USD)
|
|
Jia
Zhi Yuan
|
$30,000
(USD)
|
|
Fang
Bin Jie
|
$40,000
(USD)
|
.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth certain information regarding our common stock
beneficially owned on December 16, 2007, for (i) each shareholder known to
be
the beneficial owner of 5% or more of our outstanding common stock, (ii) each
of
our officers and directors, and (iii) all executive officers and directors
as a
group. In general, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting
of
such security, or the power to dispose or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any
securities of which the person has the right to acquire beneficial ownership
within 60 days. To the best of our knowledge, all persons named have
sole voting and investment power with respect to such shares, except as
otherwise noted. Except as set forth in this Information Statement,
there are not any pending or anticipated arrangements that may cause a change
in
control. At December 16, 2007, 40,106,500 shares of our common stock
were outstanding immediately after the Closing.
|
Name
and Address of Beneficial
Owner (1)
|
Nature
of
Security
|
Number
of
Shares
|
Percentage
of
Common
Stock
|
|
Mr.
Fang Si Ping
|
Common
Stock
|
24,300,000
|
60.75%
|
|
Mr.
Zhu Jun Feng
|
-
|
0
|
0%
|
|
Tang
Ren Rui
|
-
|
0
|
0%
|
|
Chen
Hui Feng
|
-
|
0
|
0%
|
|
Jia
Zhi Yuan
|
-
|
0
|
0%
|
|
Fang
Bin Jie
|
-
|
0
|
0%
|
|
All
directors and executive officers as a group (1 person)
|
Common
Stock
|
24,300,000
|
60.75%
|
(1)
Unless otherwise indicated in the footnotes to the table, each shareholder
shown
on the table has sole voting and investment power with respect to the shares
beneficially owned by him.
Reorganization
Related
Transactions
The
organization and ownership structure of the Company subsequent to the
consummation of the reorganization as summarized in the paragraphs above is
as
follows:
DESCRIPTION
OF
SECURITIES
As
of
December 16, 2007, our authorized capital stock consists of 300,000,000 shares
of common stock, par value $0.001 per share, and 0 shares of preferred
stock. As of December 16, 2007 and immediately after Closing, an
aggregate of 40,106,500 shares of Common Stock were outstanding, including
shares issued pursuant to the Closing. There are no shares of
preferred stock outstanding.
Page
22
Common
Stock
Subject
to preferences that may apply to shares of preferred stock outstanding at the
time, the holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available at times and in amounts as our board
of directors may determine. Each stockholder is entitled to one vote
for each share of Common Stock held on all matters submitted to a vote of the
stockholders. Cumulative voting is not provided for in our articles
of incorporation, or any amendments thereto, which means that the majority
of
the shares voted can elect all of the directors then standing for
election. The Common Stock is not entitled to preemptive rights and
is not subject to conversion or redemption. Upon the occurrence of a
liquidation, dissolution or winding-up, the holders of shares of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights of any outstanding preferred
stock. There are no sinking fund provisions applicable to the Common
Stock. The outstanding shares of Common Stock are, and the shares of
Common Stock to be issued upon conversion of the Warrants will be, fully paid
and non-assessable.
Preferred
Stock
The
Company is not authorized to issue any preferred stock.
MARKET
FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our
common stock, having $0.001 par value per share ("Common Stock"), is traded
on
the Over-The-Counter Bulletin Board ("OTCBB") under the symbol
"INCL." Following the Merger, the combined Company will continue to
be traded on the OTCBB, however, the Company may request a different ticker
symbol based on a name change to better reflect its business plan.
On
December 10, 2007, the closing bid quotation for INCL’s common stock as reported
on the OTCBB was $3.50. The bid price reflects inter-dealer
quotations, do not include retail markups, markdowns or commissions and do
not
necessarily reflect actual transactions.
Transfer
Agent and
Registrar
Pacwest
Transfer, LLC is currently the transfer agent and registrar for our Common
Stock. Its address is 2510 Pines Road North, Spokane Valley,
Washington 99206. Its phone number is (509) 926-2330.
Dividend
Policy
Any
future determination as to the declaration and payment of dividends on shares
of
our Common Stock will be made at the discretion of our board of directors out
of
funds legally available for such purpose. We are under no contractual
obligations or restrictions to declare or pay dividends on our shares of Common
Stock. In addition, we currently have no plans to pay such
dividends. However, even if we wish to pay dividends, because our
cash flow is dependent on dividend distributions from our affiliated entities
in
PRC, we may be restricted from distributing dividends to our holders of shares
of our common stock in the future if at the time we are unable to obtain
sufficient dividend distributions from and of China Valve. Our board of
directors currently intends to retain all earnings for use in the business
for
the foreseeable future. See “Risk Factors.”
LEGAL
PROCEEDINGS
The
Company was sued by Merrill Lynch Canada, Inc., in British Columbia, Canada,
in
July 2000. Other than initial pleadings, the plaintiff did not proceed with
the suit since it was filed. The Company believes that the suit is without
merit. In connection with the Merger, the Company agreed to place a
portion of the Purchase Price into escrow pending resolution of this
suit. If required, the portion of the Purchase Price held in escrow
will be used to settle this lawsuit.
Page
23
The
Company settled an action by a bank regarding an overdraft. The settlement
carried an interest rate of 9.0% and twelve monthly payments of $3,321. The
Company made three payments before defaulting on this settlement. The amount
due
as of September 30, 2007 is $28,343. Related interest of $14,261 has also
been accrued by the Company.
China
Valve and its subsidiaries are not involved in any lawsuit outside the ordinary
course of business, the disposition of which would have a material effect upon
either our results of operations, financial position, or cash
flows.
INDEMNIFICATION
OF OFFICERS AND
DIRECTORS
The
General Corporation Law of Nevada provides that directors, officers, employees
or agents of Nevada corporations are entitled, under certain circumstances,
to
be indemnified against expenses (including attorneys’ fees) and other
liabilities actually and reasonably incurred by them in connection with any
suit
brought against them in their capacity as a director, officer, employee or
agent, if they acted in good faith and in a manner they reasonably believed
to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. This statute provides that directors, officers,
employees and agents may also be indemnified against expenses (including
attorneys’ fees) actually and reasonably incurred by them in connection with a
derivative suit brought against them in their capacity as a director, if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made without court approval if such person was adjudged liable to the
corporation.
Our
by-laws provide that we shall indemnify our officers and directors in any
action, suit or proceeding unless such officer or director shall be adjudged
to
be derelict in his or her duties.
CHANGES
AND DISAGREEMENTS WITH
ACCOUNTANTS
Chisholm,
Bierwolf & Nilson, LLC (“Chisholm”) has served as our independent auditor in
connection with the audits of our fiscal years ended December 31, 2006 and
2005,
and review of the subsequent interim period through September 30,
2007. In connection with this Merger, our board of directors
recommended and approved the appointment of Madsen &
Associates CPAs, Inc. (“Madsen”) as the independent auditor for INCL
and China Valve.
During
the fiscal years ended December 31, 2006 and 2005 and through the date hereof,
neither us nor anyone acting on our behalf consulted Madsen with respect to
(i)
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on
China Valve’s financial statements, and neither a written report was provided to
us or oral advice was provided that Madsen concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was the subject of a
disagreement or reportable events set forth in Item 304(a)(1)(iv) and (v),
respectively, of Regulation S-B.
For
a
more detailed discussion of our change in auditor, please refer to Item 4.01,
below.
Item 3.02 Unregistered
Sales of Equity
Securities
Pursuant
to the Exchange Agreement, on December 16, 2007, we issued 40,000,000 shares
of
our Common Stock to individuals and entities as designated by China Valve in
exchange for 100% of the outstanding shares of China Valve. Such
securities were not registered under the Securities Act of 1933. The
issuance of these shares was exempt from registration, in part pursuant to
Regulation S and Regulation D under the Securities Act of 1933 and in part
pursuant to Section 4(2) of the Securities Act of 1933.
Page
24
We
made
this determination based on the representations of the entities designated
by
China Valve which included, in pertinent part, that such shareholders were
either (a) "accredited investors" within the meaning of Rule 501 of Regulation
D
promulgated under the Securities Act, or (b) not a "U.S. person" as that term
is
defined in Rule 902(k) of Regulation S under the Act, and that such shareholders
were acquiring our common stock, for investment purposes for their own
respective accounts and not as nominees or agents, and not with a view to the
resale or distribution thereof, and that the entities designated by China Valve
understood that the shares of our common stock may not be sold or otherwise
disposed of without registration under the Securities Act or an applicable
exemption therefrom.
Item
4.01 Changes in Registrant’s
Certifying Accountant.
|
(1)
|
Previous
Independent Auditors:
|
(i)
On
December 16, 2007, Chisholm, Bierwolf & Nilson, LLC (“Chisholm”) was
dismissed as independent auditor for the Company. On December 16,
2007, the Company engaged Madsen & Associates CPAs, Inc. (“Madsen”) as its
principal independent accountant. This decision to engage Madsen was
ratified by the majority approval of the Board of Directors of the
Company.
(ii)
Management of the Company has not had any disagreements with Chisholm related
to
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. For the two most recent fiscal years
and any subsequent interim period through Chisholm’s termination on December 16,
2007, there has been no disagreement between the Company and Chisholm on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Chisholm would have caused it to make a reference to the subject
matter of the disagreement in connection with its reports.
(iii)
The
Company’s Board of Directors participated in and approved the decision to change
independent accountants.
(iv)
In
connection with its review of financial statements through December 16, 2007,
there have been no disagreements with Chisholm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedure, which disagreements if not resolved to the satisfaction of Chisholm
would have caused them to make reference thereto in their report on the
financial statements.
(v)
During the most recent audit period and the interim period subsequent to
December 16, 2007 there have been no reportable events with the Company as
set
forth in Item 304(a)(i)(v) of Regulation S-K.
(vi)
The
Company requested that Chisholm furnish it with a letter addressed to the SEC
stating whether or not it agrees with the above statements. A copy of
such letter is filed as an Exhibit to this Form 8-K.
|
(2)
|
New
Independent Accountants:
|
(i)
The
Company engaged Madsen & Associates CPAs, Inc. (“Madsen”) as its new
independent auditors as of December 16, 2007. Prior to such date, the
Company, did not consult with Madsen regarding (i) the application of accounting
principles, (ii) the type of audit opinion that might be rendered, or (iii)
any
other matter that was the subject of a disagreement between the Company and
its
former auditor as described in Item 304(a)(1)(iv) of Regulation S-
B.
Item 5.01 Changes
in Control of
Registrant.
As
explained more fully in Item 2.01, in connection with the Exchange Agreement,
on
December 16, 2007, we issued 40,000,000shares of our Common Stock to
entities designated by China Valve in exchange for the transfer of 100% of
the
outstanding shares of China Valve capital stock to us. As such,
immediately following the Merger, the entities designated by China Valve hold
approximately 99.8% of the total combined voting power of all classes of our
outstanding stock entitled to vote.
Page
25
In
connection with the Closing of the Merger, and as explained more fully in the
above Item 2.01 under the section titled “Management” and below in Item 5.02 of
this Current Report on Form 8-K dated December 16, 2007, Mr. Matthew Markin
resigned as a member of our board of directors effective 10 days after the
Closing Date. Further, effective 10 days after the Closing Date and
in connection with the resignation of Mr. Markin, Mr. Fang Si Ping, Mr. Zhu
Jun
Feng, Mr. Tang Ren Rui, Mr. Chen Hui Feng and Mr. Fang Bin Jie (the “New
Directors”) were appointed as members of our board of
directors. Finally, effective 10 days after the Closing Date, our New
Directors appointed Fang Si Ping as our President and Chief Executive Officer,
Tang Ren Rui as our Chief Financial Officer and Jia Zhi Yuan as our Chief
Technology Officer.
Item 5.02 Departure
of Directors or Principal
Officers; Election of Directors; Appointment of Principal
Officers.
(a) Resignation
of
Directors
Effective
10 days following the Closing Date, Matthew Markin resigned as the sole member
of our board of directors. There were no disagreements between him and us or
any
officer or director of the Company.
(b) Resignation
of
Officers
Effective
10 days following the Closing Date, Matthew Markin resigned as our President,
Treasurer, and Secretary.
(c) Appointment
of
Directors
Effective
10 days following the Closing Date, the following persons were appointed as
members of the Board of Directors:
|
NAME
|
AGE
|
POSITION
|
|
Fang
Si Ping
|
55
|
President,
CEO and Director
|
|
Zhu
Jun Feng
|
43
|
Chief
operation officer and Director
|
|
Tang
Ren Rui
|
35
|
Chief
Financial Officer and Director
|
|
Chen
Hui Feng
|
36
|
Director
|
|
Jia
Zhi Yuan
|
37
|
Chief
Technology Officer
|
|
Fang
Bin Jie
|
35
|
Director
|
The
business background descriptions of the newly appointed directors are as
follows:
Fang
Si Ping, Chairman of
China Valve, Chief Executive Officer and Director
Male,
55,
Mr. Fang has over 20 years’ of experience in the valve industry. In
2001, Mr. Fang established Zheng Zhou City Zhengdie Valves Co. Mr. Fang has
been
appointed as President and CEO of that company. Mr. Fang has been responsible
for making strategic decision, leading the management to carry on operations
in
all aspects. In 2003, Mr. Fang acquired Stated-owned enterprise, Henan Kaifeng
High Pressure Valves Company Limited. Mr. Fang has been appointed as President
and CEO of the company. Mr. Fang has been responsible for making strategic
decision on major corporate issues and overlooking the comprehensive operations
and market expansion
Zhu
Jun Feng, Director of
China Valve
Male,
43,
Mr. Zhu has over 20 years’ experience in management. He has been working with
Henan Kaifeng High Pressure Valve Co., LTD since 1990. In 2000, Mr. Zhu was
appointed as the general manager and head of marketing department of Kiafeng
High Pressure Valve. His major responsibilities include supervising on daily
operations in various aspects, directing marketing department on marketing
expansion and making decisions on corporate-level issues.
Page
26
Tang
Ren Rui, Chief
Financial Officer and Director of China Valve
Male,
43,
Between 1994 and 2004, Mr. Tang worked for Zhengzhou City Zhengdie Valve Co.,
Ltd as the manger for financial department. He had been in charge of the firm’s
financing activities and various issues in accounting fields. From
2004 to the present, Mr. Tang was appointed as financial director of Henan
Kaifeng High Pressure Co, LTD. His major duties include managing
accounting and financing activities, supervising financial analysis, capital
allocation, internal control and auditing.
Chen
Hui Feng, Director of
China Valve
Female,
36, From 2004 to the present, Ms. Chen has been appointed as financial Director
of Zhengzhou City ZhengDie Valve Co., Ltd. She has been in charge of various
fields in accounting and finance. Her major responsibilities include surprising
on the preparation on financial statements, capital budgeting, internal control
and auditing.
Fang
Bin Jie, Director of
China Valve
Male,
35,
Between September 1995 and January 2005 he was appointed as head of operation
and human resource departments of Zhengzhou City Zhengdie Valve Co.,
Ltd. His major responsibilities included managing daily operations
and human resource related issues. From January 2005 to the present,
Mr. Fang has been appointed as the general manager of Zhengdie Valve Co.,
Ltd. His major responsibilities include supervising company operation
in various aspects and managing marketing and business development
activities.
Family
Relationships
Mr.
Fang
Bin Jie is the son of Mr. Fang Si Ping. Other than otherwise
disclosed, there are no other relationships between the officers or directors
of
the Company.
(d) Appointment
of
Officers
Effective
10 days after the Closing Date, the newly appointed directors described above
in
Item 5.02(c) appointed the following persons as our executive officers, with
the
respective titles as set forth opposite his or her name below:
|
NAME
|
AGE
|
POSITION
|
|
Fang
Si Ping
|
55
|
Chairman
and Chief Executive Officer
|
|
Tang
Ren Rui
|
35
|
Chief
Financial Officer
|
|
Zhu
Jun Feng
|
43
|
Chief
Operation Officer
|
|
Jia
Zhi Yuan
|
37
|
Chief
Technology Officer
|
Please
see Section 5.02(c) of this current report for all officers who are also
directors, whose information is herein incorporated by reference.
Jia
Zhi Yuan, Chief
Technology Officer of China Valve
Male,
37,
Between September 2001- January 2006, he was appointed as associate manager
of
designing division and his major responsibility was supervising the product
design. From January 2006 to the present, he has been appointed as
head of the Research & Development department and he is primarily
responsible for supervising the R&D activities, technical support and
production.
(e)
Employment Agreements of the
Executive Officers
The
Company and each officer and director have entered into formal employment
arrangements with the Executive Officers. The following chart lists
the compensation of each officer and director.
|
Name
|
Annual
Compensation
($USD)
|
|
Feng
Si Ping
|
$100,000
(USD)
|
|
Zhu
Jun Feng
|
$60,000
(USD)
|
| Tang Ren Rui | $40,000 (USD) |
|
Chen
Hui Feng
|
$40,000
(USD)
|
|
Jia
Zhi Yuan
|
$30,000
(USD)
|
|
Fang
Bin Jie
|
$40,000
(USD)
|
Page
27
Item
5.03 Amendments to Articles
of
Incorporation or Bylaws; Change in Fiscal Year
Pursuant
to the Exchange Agreement, on December 18, 2007 we filed with the Secretary
of
State for the state of Neveda a Certificate of Amendment to our Certificate
of
Incorporation changing our name to “China Valves Technology, Inc.” to better
reflect our business plan. A
copy of the Certificate of Amendment
to Articles of Incorporation is attached hereto as Exhibit
3.2.
Item
5.06 Change In Shell Company
Status
As
explained more fully in Item 2.01 above, we were a "shell company" (as such
term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended)
immediately before the Closing of the Merger. As a result of the
Merger, China Valve became our wholly owned subsidiary and became our main
operational business. Consequently, we believe that the Merger has
caused us to cease to be a shell company. For information about the
Merger, please see the information set forth above under Item 2.01 of this
Current Report on Form 8-K which information is incorporated herein by
reference.
Item
7.01 Regulation FD
Disclosure
On
December 19, 2007 we issued a press release regarding the Stock Purchase
Agreement and Share Exchange and name change described above. The press release
is attached hereto as Exhibit 99.3 and incorporated herein by
reference.
The
information contained in the press release attached hereto is being furnished
and shall not be deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to
the liability of that Section, and shall not be incorporated by reference
into
any registration statement or other document filed under the Securities Act
of
1933, as amended, or the Exchange Act, except as shall be expressly set forth
by
specific reference in such filing.
Item 9.01 Financial
Statement and
Exhibits.
(a)
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The
Audited Consolidated Financial Statements of China Valve as of December 31,
2005
and 2006 are filed as Exhibit 99.1 to this current report and are incorporated
herein by reference.
The
Unaudited Condensed Consolidated Financial Statements of China Valve as of
September 30, 2007 and for the nine months ended September 30, 2007 are filed
as
Exhibit 99.2 to this current report and are incorporated herein by
reference.
(b)
PRO FORMA FINANCIAL INFORMATION.
None
(c)
SHELL COMPANY TRANSACTIONS
Reference
is made to Items 9.01(a) and 9.01(b) and the exhibits referred to therein
which are incorporated herein by reference.
(d)
EXHIBITS
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Share
Exchange Agreement, dated December 16, 2007, among the Company, the
stockholders of the Company, China Valve and the China Valve
Shareholder
|
|
|
3.1
|
Articles
of Incorporation of the Company as filed with the Secretary of State
of
Nevada on August 1, 1997
(incorporated
herein by reference
to the SB-2 Registration Statement filed on November 1,
2001)
|
|
|
3.2
|
Certificate
of Amendment to Certificate of Incorporation changing the corporate
name
filed with the Secretary of State of Nevada
|
|
|
3.3
|
Certificate
of Good Standing from the State of Nevada dated December 10,
2007
|
|
|
16.1
|
Letter
from Chisholm, Bierwolf & Nilson, LLC
|
|
|
99.1
|
The
Audited Consolidated Financial Statements of China Valve as of December
31, 2005 and 2006
|
|
|
99.2
|
The
Unaudited Condensed Consolidated Financial Statements of China Valve
as of September 30, 2007 and for the nine months ended September
30,
2007
|
|
| 99.3 | Press Release |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report on Form 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
|
|
|
|
|
|
CHINA
VALVES HOLDING LIMITED,
CO.
|
|
|
Date: December
17, 2007
|
By:
|
/s/
Fang Si
Ping
|
|
Fang
Si Ping
Director
and Chief Executive Officer
|
||
Page
28