SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended October 31, 2005
Commission File Number: 0-31539
COVENTURE INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)
Delaware 98-0231607
-------- ----------
(Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
Tang Xing Shu Ma Building, Suite 418
Tang Xing Road
Xian High Tech Area
Xian, Shaanxi Province
China
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 86-29-88323325
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.) Yes
[x ] No [ ]
As of December 14, 2005 the Company had 5,051,022 shares of common stock issued
and outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes __ No x
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at October 31, 2005 (unaudited) F-2
Consolidated Statements of Operations for the three month periods ended F-3
October 31, 2005 and 2004 (unaudited)
Consolidated Statements of Cash Flows for the three month periods ended F-4
October 31, 2005 and 2004 (unaudited)
Notes To Consolidated Financial Statements (unaudited) F-5 - F-9
Item 2 Management's Discussion and Analysis or Plan of Operation 10
Item 3 Controls and Procedures 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits 15
SIGNATURES
(ii)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Coventure International Inc.
Consolidated Balance Sheet
(Unaudited)
October 31,
2005
$
ASSETS
Current Assets
Cash & cash equivalents 17,469
Prepaid expenses and deposits 403
-------------------------------------------------------------------------------------------------------------
Total Current Assets 17,872
Property and Equipment, net 16,750
Equipment Under Capital Lease 9,518
-------------------------------------------------------------------------------------------------------------
Total Assets 44,140
-------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable 16,702
Accrued liabilities 13,191
Current portion of capital lease 3,940
Deferred revenue 618
Due to related parties 105,314
Loan payable 25,000
-------------------------------------------------------------------------------------------------------------
Total Current Liabilities 164,765
Capital Lease Obligation 4,696
-------------------------------------------------------------------------------------------------------------
Total Liabilities 169,461
-------------------------------------------------------------------------------------------------------------
Contingencies and Commitment
Stockholders' Deficit
Preferred Stock:
5,000,000 shares authorized, $0.0001 par value, none issued -
Common Stock:
30,000,000 shares authorized, $0.0001 par value
7,022,200 shares issued and outstanding 702
Additional Paid-in Capital 139,280
Accumulated Other Comprehensive Loss (11,299)
Deficit (254,004)
-------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (125,321)
-------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit 44,140
-------------------------------------------------------------------------------------------------------------
(The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
F-2
Coventure International Inc.
Consolidated Statements of Operations
(Unaudited)
Three Month Periods Ended
-------------------- -------------------
October 31, October 31,
2005 2004
$ $
Revenue 11,259 67,023
--------------------------------------------------------------------------- -------------------- -------------------
Expenses
Advertising and promotion - 10,748
Amortization 2,948 2,614
Commissions - 5,266
General and administrative 5,921 30,949
Loss on property and equipment 3,191 -
Management fees and wages - 6,169
Professional fees 7,193 3,000
Subcontract 3,142 25,396
--------------------------------------------------------------------------- -------------------- -------------------
Total Expenses 22,395 84,142
--------------------------------------------------------------------------- -------------------- -------------------
Net Loss (11,136) (17,119)
Other Comprehensive Loss:
(2,848)
Foreign Currency translation adjustment (2,848) (8,309)
--------------------------------------------------------------------------- -------------------- -------------------
Comprehensive Loss (13,984) (25,428)
--------------------------------------------------------------------------- -------------------- -------------------
Net Loss Per Share - Basic and Diluted - -
--------------------------------------------------------------------------- -------------------- -------------------
Weighted Average Shares Outstanding 7,022,000 7,022,000
--------------------------------------------------------------------------- -------------------- -------------------
(The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
F-3
Coventure International Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Month Periods Ended
-------------------------------------
October 31, October 31,
2005 2004
$ $
Operating Activities
Net loss (11,136) (17,119)
Adjustment to reconcile net loss to net cash provided by (used in) operating
activities
Amortization 2,948 2,614
Loss on property and equipment 3,191 -
Changes in operating assets and liabilities
Accounts receivable 3,153 801
Prepaid expenses and deposits 1,163 (149)
Accounts payable and accrued liabilities (1,731) 16,656
Due to related parties 15,429 11,686
Deferred revenue (14,453) (2,734)
--------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating Activities (1,436) 11,755
--------------------------------------------------------------------------------------------------------------------
Investing Activities
(Purchase of) proceeds from disposal of property and equipment 803 (17,395)
--------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities 803 (17,395)
--------------------------------------------------------------------------------------------------------------------
Financing Activities
Advances from related parties - 15,092
Principle repayments on capital lease (894) -
--------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities (894) 15,092
--------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 43 (6,167)
--------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash & cash equivalents (1,484) 3,285
Cash & cash equivalents - Beginning of Period 18,953 940
--------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents - End of Period 17,469 4,225
--------------------------------------------------------------------------------------------------------------------
(The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
F-4
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
1. Nature of Operations and Continuance of Business
Coventure International Inc. (the "Company") was incorporated in the State
of Delaware, U.S.A. on March 31, 1999 as Bullet Environmental Systems, Inc.
and changed its name on May 25, 2000 to Liquidpure Corp. On February 14,
2002, the Company changed its name to Coventure International Inc. These
financial statements include the accounts of the Company and its
wholly-owned subsidiary Coventure Canada Inc. (the "Subsidiary"). The
Subsidiary was incorporated in the Province of Alberta, Canada on February
5, 2002.
The Company is engaged in the business of providing management consulting,
accounting and tax services. Subsequent to the period end, the Company
changed its business to that of natural gas distribution. Refer to Note 8.
The Company generated sufficient revenues that indicated planned principal
activities commenced and as a result, the Company emerged from the
development stage during the 2004 fiscal year. As of October 31, 2005, the
Company has a working capital deficiency of $146,893, and accumulated
losses of $254,004 since inception. The continuation of the Company as a
going concern is dependent upon the continued financial support from its
shareholders, the ability of the Company to obtain necessary equity
financing to continue operations and to generate profitable operations.
There is no guarantee that the Company will be able to raise any equity
financing or generate profitable operations. These financial statements
have been prepared on a going concern basis, which implies the Company will
continue to realize its assets and discharge its liabilities in the normal
course of business. These financial statements do not include any
adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. These factors raise
substantial doubt regarding the Company's ability to continue as a going
concern.
2. Summary of Significant Accounting Policies
1) Basis of Presentation
The accompanying consolidated balance sheet of Coventure International
Inc. and subsidiary at October 31, 2005 and the consolidated
statements of operations for the three month periods ended October 31,
2005 and 2004 and consolidated statements of cash flows for the three
month periods ended October 31, 2005 and 2004 have been prepared by
the Company's management in conformity with accounting principles
generally accepted in the United States of America. In the opinion of
management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring
nature.
Operating results for the three month periods ended October 31, 2005,
are not necessarily indicative of the results that can be expected for
the year ending July 31, 2006.
These consolidated financial statements and related notes are prepared
in accordance with accounting principles generally accepted in the
United States and are expressed in US dollars. These statements
include the accounts of the Company and its wholly-owned subsidiary
Coventure Canada Inc., a company incorporated in the Province of
Alberta, Canada. All significant intercompany transactions and
balances have been eliminated. The Company's fiscal year end is July
31.
2) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods. Actual results
could differ from those estimates. 3) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash equivalents.
F-6
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
4) Property and Equipment
Property and equipment consists of furniture and equipment and
leasehold improvements and is recorded at cost. Furniture and
equipment are being amortized on a straight-line basis over their
estimated useful lives of four years. During the period, the Company's
lease was terminated, and the remaining carrying cost of leasehold
improvements of $3,191 was charged to operations.
5) Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", the carrying value of intangible
assets and other long-lived assets is reviewed on a regular basis for
the existence of facts or circumstances that may suggest impairment.
The Company recognizes impairment when the sum of the expected
undiscounted future cash flows is less than the carrying amount of the
asset. Impairment losses, if any, are measured as the excess of the
carrying amount of the asset over its estimated fair value.
6) Foreign Currency Transactions/Balances
The Company's functional currency is the Canadian dollar. Occasional
transactions occur in U.S. dollars, and management has adopted SFAS
No. 52, "Foreign Currency Translation". Assets and liabilities
denominated in foreign currencies are translated into US dollars at
rates of exchange in effect at the balance sheet date. Average rates
for the year are used to translate revenues and expenses. Resulting
translation gains and losses are accumulated in a separate component
of stockholders' equity as accumulated other comprehensive income or
loss.
7) Income Taxes
Potential benefits of income tax losses are not recognized in the
accounts until realization is more likely than not. The Company has
adopted SFAS No. 109 "Accounting for Income Taxes" as of its
inception. Pursuant to SFAS No. 109 the Company is required to compute
tax asset benefits for net operating losses carried forward. Potential
benefit of net operating losses have not been recognized in these
financial statements because the Company cannot be assured it is more
likely than not it will utilize the net operating losses carried
forward in future years.
8) Financial Instruments
The fair value of financial instruments which includes cash, accounts
receivable, prepaid expenses, loan payable, accounts payable, accrued
liabilities, due to related parties and deferred revenue were
estimated to approximate their carrying value due to the immediate or
relatively short maturity of these instruments. The Company's
operations are in Canada and virtually all of its assets and
liabilities are giving rise to significant exposure to market risks
from changes in foreign currency rates. The financial risk is the risk
to the Company's operations that arise from fluctuations in foreign
exchange rates and the degree of volatility of these rates. Currently,
the Company does not use derivative instruments to reduce its exposure
to foreign currency risk.
9) Stock-Based Compensation
The Company has elected to apply the intrinsic value method of
accounting in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under the
intrinsic value method of accounting, compensation expense is
recognized if the exercise price of the Company's employee stock
options is less than the market price of the underlying common stock
on the date of grant. Stock-based compensation for employees is
recognized on the straight-line basis over the vesting period of the
individual options. Stock options granted to non-employees are
accounted for under Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" (SFAS 123), which
establishes a fair value based method of accounting for stock-based
awards, and recognizes compensation expense based on the fair market
value of the stock award or fair market value of the goods and
services received, whichever is more reliably measurable. Under the
provisions of SFAS 123, companies that elect to account for
stock-based awards in accordance with the provisions of APB 25 are
required to disclose the pro forma net income (loss) that would have
resulted from the use of the fair value based method under SFAS 123.
The Company has not granted any stock-based awards since inception.
10) Revenue Recognition
F-7
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
The Company recognizes revenue from the sale of services in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No.
104 ("SAB 104"), "Revenue Recognition in Financial Statements."
Revenue consists of consulting services and is recognized only when
the price is fixed or determinable, persuasive evidence of an
arrangement exists, the service is performed, and collectibility is
reasonably assured.
The Company continually monitors timely payments and assesses any
collection issues. The allowance for doubtful accounts is based on the
Company's detailed assessment of the collectibility of specific
customer accounts. Any significant accounts that are not expected to
be collected are excluded from revenue. Deferred revenue represents
customer deposits, which are recognized as revenue once the criteria
for SAB 104 have been met.
11) Comprehensive Loss
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and display of comprehensive income and its
components in the financial statements. For the three month period
ended October 31, 2005, the Company had comprehensive loss of $13,984
which includes a foreign currency translation loss of $2,848.
12) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share" (SFAS 128). Which requires
presentation of both basic and diluted earnings per shares (EPS) on
the face of the income statement. Basic EPS is computed by dividing
net income (loss) available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period including stock options,
using the treasury stock method, and convertible preferred stock,
using the if-converted method. In computing diluted EPS, the average
stock price for the period is used in determining the number of shares
assumed to be purchased
from the exercise of stock options or warrants. Diluted EPS excludes
all dilutive potential common shares if their effect is anti-dilutive.
13) Recent Accounting Pronouncement
In May 2005, the Financial Accounting Standards Board (FASB) issued
SFAS No. 154, "Accounting Changes and Error Corrections - A
Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS 154 changes
the requirements for the accounting for and reporting of a change in
accounting principle and applies to all voluntary changes in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. SFAS
154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. The provisions of SFAS No. 154 are
effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005. The adoption of this
standard is not expected to have a material effect on the Company's
results of operations or financial position.
In December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29". The guidance in APB
Opinion No. 29, "Accounting for Nonmonetary Transactions", is based on
the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that
Opinion, however, included certain exceptions to that principle. SFAS
No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. Early application is
permitted and companies must apply the standard prospectively. The
adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
F-8
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
In December 2004, the SFAS No. 123R, "Share Based Payment". SFAS 123R
is a revision of SFAS No. 123 "Accounting for Stock-Based
Compensation", and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and its related implementation guidance.
SFAS 123R establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the
fair value of the entity's equity instruments or that may be settled
by the issuance of those equity instruments. SFAS 123R focuses
primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R
requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is
required to provide service in exchange for the award - the requisite
service period (usually the vesting period). SFAS 123R requires that
the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based
on the fair value of the equity or liability instruments issued.
Public entities that file as small business issuers will be required
to apply SFAS 123R in the first interim or annual reporting period
that begins after December 15, 2005. The adoption of this standard is
not expected to have a material effect on the Company's results of
operations or financial position.
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107
("SAB 107") to give guidance on the implementation of SFAS 123R. The
Company will consider SAB 107 during implementation of SFAS 123R.
14) Interim Financial Statements
These interim unaudited consolidated financial statements have been
prepared on the same basis as the annual financial statements and in
the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the
Company's financial position, results of operations and cash flows for
the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for a full year or for
any future period.
3. Property and Equipment
October 31,
Accumulated 2005
Cost Amortization Net Carrying Value
$ $ $
(unaudited)
Furniture and equipment 31,160 (14,410) 16,750
Leasehold improvements 3,130 (3,130) -
---------------------------------------------------------------------------------------------------------------
34,290 (17,540) 16,750
---------------------------------------------------------------------------------------------------------------
F-9
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
4. Capital lease
During the year ended July 31, 2005, the Company entered into a
non-cancelable leasing arrangement involving certain assets owned by the
Company. The Company sold equipment with a fair value of $12,515 and leased
it back over a period of thirty-six months at an effective interest rate of
2.83% per annum. The leasor assumed the Company's obligations to the trade
creditors related to the original acquisition of the assets. The Company
maintains total use of the equipment and recorded a deferred gain. At
October 31, 2005 the balance of the deferred gain is $618. The deferred
gain will be amortized over the lease term. Amortization of equipment under
capital leases was $1,088 for the three month period ended October 31,
2005.
Property under capital lease is as follows:
$
Furniture and equipment (Leased equipment) 13,179
Less: Accumulated Amortization (3,661)
---------------------------------------------------------------------------
9,518
---------------------------------------------------------------------------
The following represents future minimum lease payments under capital leases
and the present value of the minimum lease payments as of October 31, 2005.
$
2006 3,388
2007 4,517
2008 1,543
--------------------------------------------------------------------------
Total minimum lease payments 9,448
Less: Amounts representing interest (812)
--------------------------------------------------------------------------
Present value of net minimum lease payments 8,636
Current portion of obligations under capital leases 3,940
--------------------------------------------------------------------------
Long-term obligations under capital leases 4,696
---------------------------------------------------------------------------
5. Related Party Transactions/Balances
1) The President of the Company and a company controlled by the President
is owed $105,314 for cash advances and expenses paid on behalf of the
Company as of October 31, 2005. This amount bears interest at 11.5%
per annum, is unsecured and due on demand.
2) The Company paid management fees of $0 and $5,000 to the President of
the Company during the three month periods ended October 31, 2005 and
2004, respectively. In addition, management fees and accounting fees
of $21,596 and $0 were paid to the spouse of the President of the
Company during the three month periods ended October 31, 2005 and
2004, respectively.
6. Loan Payable
An unrelated party advanced the Company $25,000 on a non-interest bearing,
unsecured basis. This amount is due on demand with no terms of repayment.
7. Commitments
On September 1, 2003 the Company entered into an operating lease for office
premises for a term of 3 years. During the three month period ended October
31, 2005 the lease was terminated.
F-10
Coventure International Inc.
Notes to the Consolidated Financial Statements
October 31, 2005
(Unaudited)
8. Subsequent Event
On December 6, 2005, the Company entered into and closed a share purchase
agreement with Xian Xilan Natural Gas Co., Ltd., a corporation formed under
the laws of the People's Republic of China ("Xilan" ), and each of Xilan's
shareholders . Pursuant to the Agreement, the Company acquired all of the
issued and outstanding capital stock of Xilan from the Xilan shareholders
in exchange for 4,000,000 shares of the Company's common stock.
Concurrently with the closing of the Purchase Agreement and as a condition
thereof, the Company entered into an agreement with John Hromyk, the
Company's President and Chief Financial Officer, pursuant to which Mr.
Hromyk returned 5,971,178 shares of the Company's common stock to the
Company for cancellation. Upon completion of the foregoing transactions,
the Company had an aggregate of 5,051,022 shares of common stock issued and
outstanding. The shares of common stock issued to the shareholders of Xilan
were issued in reliance upon the exemption from registration provided by
Regulation S under the Securities Act of 1933, as amended.
Xilan was incorporated under the laws of the People's Republic of China on
January 8, 2000 and is headquartered in Xian, China in Shaanxi Province.
Xilan primarily engages in the transmission and distribution of natural gas
to commercial, industrial and residential customers.
In connection with the acquisition of Xilan on December 6, 2005, John
Hromyk resigned as the sole officer of the Company and the executive
officers of Xilan were appointed as executive officers of the Company.
The exchange of shares with Xilan will be accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders
of the Xilan obtained control of the Company. Accordingly, the merger of
the two companies has been recorded as a recapitalization of Xilan, with
Xilan being treated as the continuing entity.
Unaudited revenue and net income of Xilan for the nine month periods ended
September 30, 2005 and 2004 are as follows:
Nine month periods ended
September 30, (Unaudited)
--------------------------
2005 2004
------------ -------------
Revenue $ 2,714,042 $ 701,615
Net income (loss) for the period $ 736,802 $(128,289)
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis explains the major factors affecting our
financial condition. The following discussion of our financial condition and
plan of operations should be read along with the financial statements and notes
to the financial statements included elsewhere in this quarterly report.
In the fall of 2003 we began providing accounting, tax and business consulting
services to small and medium sized businesses in-and-around the Calgary, Alberta
region. The consulting services are designed to improve a client's profitability
through strategic analysis, planning, consulting and ongoing evaluation. Our
core services attempt to identify inefficiencies and trouble spots in a business
before they cause significant problems.
Our original plan of business was to leverage the experience from this regional
office to template offices throughout Canada through a network of regionally
licensed operators. We have to date been unable to secure the necessary
financing to establish a network of regionally licensed operators and have
determined that it would be in our best interests to seek to locate an
adequately financed venture partner which is seeking the benefits of being
publicly traded with which to merge. Our management reached this determination
due to the fact that, while our core business has achieved marginal
profitability, the costs incurred in registering our common stock with the
Securities and Exchange Commission and the ongoing costs of maintaining such
registration have resulted in unsustainable financial losses.
11
As of October 31, 2005 we had approximately five clients serviced out of our
Cochrane office. These clients are small and medium sized businesses that have
selected one of our standard programs that incorporate tax and business advisory
services for a one-year initial period. Client response has been strong and we
have implemented numerous refinements to our programs from our experience with
our clients.
Results of Operations
Three month periods ended October 31, 2005 and 2004
Our revenue for the three month period ended October 31, 2005 has decreased to
$11,259 from $67,023 for the three month period ended October 31, 2004. The
decreased revenue resulted in decreased expenses of $22,395 for the three month
period ended October 31, 2005 as compared to $84,142 for the three month period
ended October 31, 2004. The Company had net loss of $11,136 for the three month
period ended October 31, 2005 compared to a net loss of $17,119 in the previous
year period. The commissions expense for the three month period ended October
31, 2005 has decreased to $0 from $5,266 for the three month period ended
October 31, 2004 as a result of the reduced number of clients currently being
serviced.
During the three month period ended October 31, 2005 net cash used in operating
activities was $1,436 and we incurred $803 on office equipment and leasehold
improvements.
Liquidity and Capital Resources
At October 31, 2005 we had total current assets of $17,872 and a working capital
deficit of $146,893. Our business has operated at a loss since inception and we
have been unable to obtain adequate financing to continue our current
operations. We have no current source of funds to fund our operations.
In order to resolve our lack of liquidity, our management has been actively
seeking an adequately financed venture partner which is seeking the benefits of
being publicly traded with which to merge.
Acquisition of Xi'an Xilan Natural Gas Co., Ltd.
On December 6, 2005, the Company entered into and closed a share purchase
agreement with Xian Xilan Natural Gas Co., Ltd., a corporation formed under the
laws of the People's Republic of China ("Xilan" ), and each of Xilan's
shareholders . Pursuant to the Agreement, the Company acquired all of the issued
and outstanding capital stock of Xilan from the Xilan shareholders in exchange
for 4,000,000 shares of the Company's common stock. Concurrently with the
closing of the Purchase Agreement and as a condition thereof, the Company
entered into an agreement with John Hromyk, the Company's President and Chief
Financial Officer, pursuant to which Mr. Hromyk returned 5,971,178 shares of the
Company's common stock to the Company for cancellation. Upon completion of the
foregoing transactions, the Company had an aggregate of 5,051,022 shares of
common stock issued and outstanding. The shares of common stock issued to the
shareholders of Xilan were issued in reliance upon the exemption from
registration provided by Regulation S under the Securities Act of 1933, as
amended.
12
Xilan was incorporated under the laws of the People's Republic of China on
January 8, 2000 and is headquartered in Xian, China in Shaanxi Province. Xilan
primarily engages in the transmission and distribution of natural gas to
commercial, industrial and residential customers.
In connection with the acquisition of Xilan on December 6, 2005, John Hromyk
resigned as the sole officer of the Company and the executive officers of Xilan
were appointed as executive officers of the Company.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The methods, estimates, and judgments we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our financial statements. The SEC considers an entity's most critical accounting
policies to be those policies that are both most important to the portrayal of a
company's financial condition and results of operations, and those that require
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about matters that are inherently uncertain at the
time of estimation. We believe the following critical accounting policies, among
others, require significant judgments and estimates used in the preparation of
our financial statements:
(i) Property and Equipment
Property and equipment consists of furniture and equipment and
leasehold improvements and is recorded at cost. Furniture and
equipment and leasehold improvements are being amortized on a
straight-line basis over their estimated useful lives of four years
and three years, respectively.
(ii) Long-Lived Assets
In accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets", the
carrying value of intangible assets and other long-lived assets is
reviewed on a regular basis for the existence of facts or
circumstances that may suggest impairment. The Company recognizes
impairment when the sum of the expected undiscounted future cash flows
is less than the carrying amount of the asset. Impairment losses, if
any, are measured as the excess of the carrying amount of the asset
over its estimated fair value.
13
(iii) Revenue Recognition
The Company recognizes revenue from the sale of services in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No.
104 ("SAB 104"), "Revenue Recognition in Financial Statements."
Revenue consists of consulting services and is recognized only when
the price is fixed or determinable, persuasive evidence of an
arrangement exists, the service is performed, and collectibility is
reasonably assured.
The Company continually monitors timely payments and assesses any
collection issues. The allowance for doubtful accounts is based on the
Company's detailed assessment of the collectibility of specific
customer accounts. Any significant accounts that are not expected to
be collected are excluded from revenue. Deferred revenue represents
customer deposits, which are recognized as revenue once the criteria
for SAB 104 have been met.
(iv) Foreign Currency Transactions/Balances
The Company's functional currency is the Canadian dollar. Occasional
transactions occur in U.S. dollars, and management has adopted SFAS
No. 52, "Foreign Currency Translation". Assets and liabilities
denominated in foreign currencies are translated into US dollars at
rates of exchange in effect at the balance sheet date. Average rates
for the year are used to translate revenues and expenses. Resulting
translation gains and losses are accumulated in a separate component
of stockholders' equity as accumulated other comprehensive income or
loss.
New Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (FASB) issued
SFAS No. 154, "Accounting Changes and Error Corrections - A
Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS 154 changes
the requirements for the accounting for and reporting of a change in
accounting principle and applies to all voluntary changes in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. SFAS
154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. The provisions of SFAS No. 154 are
effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005. The adoption of this
standard is not expected to have a material effect on the Company's
results of operations or financial position.
In December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29". The guidance in APB
Opinion No. 29, "Accounting for Nonmonetary Transactions", is based on
the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that
Opinion, however, included certain exceptions to that principle. SFAS
No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do
14
not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. Early application is
permitted and companies must apply the standard prospectively. The
adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
In December 2004, the SFAS No. 123R, "Share Based Payment". SFAS 123R
is a revision of SFAS No. 123 "Accounting for Stock-Based
Compensation", and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and its related implementation guidance.
SFAS 123R establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the
fair value of the entity's equity instruments or that may be settled
by the issuance of those equity instruments. SFAS 123R focuses
primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R
requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is
required to provide service in exchange for the award - the requisite
service period (usually the vesting period). SFAS 123R requires that
the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based
on the fair value of the equity or liability instruments issued.
Public entities that file as small business issuers will be required
to apply SFAS 123R in the first interim or annual reporting period
that begins after December 15, 2005. The adoption of this standard is
not expected to have a material effect on the Company's results of
operations or financial position.
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107
("SAB 107") to give guidance on the implementation of SFAS 123R. The
Company will consider SAB 107 during implementation of SFAS 123R.
F-15
Forward Looking Statements
This Plan of Operations includes a number of forward-looking statements that
reflect Management's current views with respect to future events and financial
performance. Those statements include statements regarding the intent, belief or
current expectations of us and members of our management team as well as the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the Securities and
Exchange Commission. Important factors currently known to management could cause
actual results to differ materially from those in forward-looking statements. We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time. We believe that its assumptions are
based upon reasonable data derived from and known about our business and
operations and the business and operations of the Company. No assurances are
made that actual results of operations or the results of our future activities
will not differ materially from its assumptions.
Item 3. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934 (the "Exchange Act") under the supervision and with the
participation of our chief executive officer and chief financial officer. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives. Any system of controls can provide only
reasonable and not absolute assurance that the objectives of the control system
are met. In addition, the design of any control system is based upon certain
assumptions about the likelihood of future events. Because of these and other
inherent limitations of control systems, there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Based upon the evaluation of the effectiveness of the design and
operations of our disclosure controls and procedures, the chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were effective as of October 31, 2005 in timely alerting them to
material information required to be included in our Exchange Act filings, and
that such information is recorded, processed, summarized and reported within the
time period required.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable
17
Item 6. Exhibits
31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
December 14, 2005
COVENTURE INTERNATIONAL INC.
By:/s/ MINQING LU
-----------------------------
Minqing Lu,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ XIAOGANG ZHU
---------------------------
Xiaogang Zhu,
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer )
19