-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVz7X0CfqvttQdSuUZpgff+E2UUcwnudSklT3DNa36wipR0f/2d4EmN0l0AxYbQj ZOX385sto4JzSVRTF5BIrQ== 0001013762-05-001797.txt : 20051209 0001013762-05-001797.hdr.sgml : 20051209 20051209103557 ACCESSION NUMBER: 0001013762-05-001797 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051206 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Changes in Registrant.s Certifying Accountant ITEM INFORMATION: Changes in Control of Registrant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051209 DATE AS OF CHANGE: 20051209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COVENTURE INTERNATIONAL INC CENTRAL INDEX KEY: 0001120830 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 980231607 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-31539 FILM NUMBER: 051254360 BUSINESS ADDRESS: STREET 1: SUITE 174 STREET 2: 3359 27TH STREET NE CITY: CALGARY, ALBERTA STATE: A1 ZIP: T1Y 5EY BUSINESS PHONE: 403 949 5621 MAIL ADDRESS: STREET 1: SUITE 174 STREET 2: 3359 27TH STREET NE CITY: CALGARY, ALBERTA STATE: A1 ZIP: T1Y 5EY FORMER COMPANY: FORMER CONFORMED NAME: LIQUIDPURE CORP DATE OF NAME CHANGE: 20000801 8-K 1 dec820058k.txt UNITED STATES 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 6, 2005 COVENTURE INTERNATIONAL INC. (Exact name of registrant as specified in its charter) Delaware 000-31539 98-0231607 -------- ---------- (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification Number) Tang Xing Shu Ma Building, Suite 418 Tang Xing Road Xian High Tech Area Xian, Shaanxi Province China (Address of principal executive offices) (zip code) 86-29-88323325 (Registrant's telephone number, including area code) Copies to: Marc J. Ross, Esq. Thomas A. Rose, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 Phone: (212) 930-9700 Fax: (212) 930-9725 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): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement. On December 6, 2005, Coventure International Inc.("Coventure"), 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" or the "Company"), and each of Xilan's shareholders (the "Purchase Agreement"). Pursuant to the Agreement, Coventure acquired all of the issued and outstanding capital stock of Xilan from the Xilan shareholders in exchange for 4,000,000 shares of Coventure common stock. Concurrently with the closing of the Purchase Agreement and as a condition thereof, Coventure entered into an agreement with John Hromyk, its President and Chief Financial Officer, pursuant to which Mr. Hromyk returned 5,971,178 shares of Coventure common stock to Coventure for cancellation. Mr. Hromyk was not compensated in any way for the cancellation of his shares of Coventure Common Stock. Upon completion of the foregoing transactions, Coventure 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. In connection with the acquisition of Xilan on December 6, 2005, John Hromyk resigned as the sole officer of Coventure and the following executive officers of Xilan were appointed as executive officers of Coventure: Name Title - ------------- ----------------------------- Minqing Lu Chief Executive Officer Xiaogang Zhu Chief Financial Officer Yuman Chen Vice President - Marketing Liangzhong Li Vice President - Construction Item 2.01 Completion of Acquisition or Disposition of Assets Description of Xilan 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. Industry Overview China's rapidly expanding economy is stretching the limits of its energy resources. Currently, only 3% of China's total energy usage is natural gas, while the world's average consumption of natural gas is 24% of total energy usage. (source: US Energy Information Administration ("EIA"), August 2005) Over the next 5 years, China's use of natural gas is generally expected to double. China's domestic reserve of natural gas was estimated to be 53.3 trillion cubic feet (tcf) at the beginning of 2005 (source: EIA August 2005). The country's largest reserves are located in western and north central China, including the Province of Shaanxi, the home of Xilan. 2 In order to meet the growth in natural gas demand, the PRC government has encouraged private companies to invest in and build the natural gas infrastructure. On December 27, 2002, the Ministry of Construction issued a memorandum stating that regulation of the public utility industry (including gas distribution) should be liberalized and foreign and private investment participation should be encouraged and welcomed. The memorandum encouraged private investment in the sector and provided a legal framework for private urban natural gas distribution. Business End User Delivery of Natural Gas Xilan is the sole authorized provider of natural gas to residential customers in certain parts of the Xian area, including Lantian County and the Baqiao District. The company is currently supplying natural gas to approximately 50,000 households in the Xian area. Via a connecting point with a high pressure pipeline network from the government operated Shaanxi Natural Gas Company, natural gas with much lower pressure is delivered to Xilan's residential, commercial and industrial customers. The company owns approximately 120 km of high pressure pipeline. It is the only private company in Shaanxi province to own this type of high pressure pipeline. The management is seeking to expand supply services to the Shangluo and Ankang areas of Shaanxi province. Upon approval from the government, Xilan would also have the exclusive right to provide natural gas to residential and commercial end users in those areas. In order to obtain such approval, Xilan was required to submit a project proposal for the feasibility of supplying gas to each area. In Ankang, Xilan applied to the Urban and Rural Construction Bureau. In Shangluo, applications were made to the Municipal Administration Bureau. The approval process takes approximately four to six months and is pending. Wholesale to Filling Stations Xilan sells compressed natural gas to filling stations on a wholesale basis. The stations, in turn, sell natural gas to taxis and buses in Xian which operate on compressed natural gas (CNG) technology. Government statistics indicate that there are currently 5,000 buses and 20,000 taxis using natural gas in Xian. Each bus uses an average of 70 cubic meters of CNG per day and taxis use an average of 30 cubic meters of CNG per day (source: Xian Clean Fuel Vehicles Commission 2005). In July 2005, Xilan purchased a Compressor Station which is operated in proximity to the company's pipeline and which allows the company to compress and transport natural gas via truck to retail gas stations. The company also plans to develop a liquefied form of natural gas (LNG) that can be transported over longer distances by gas tanker truck and which could expand the company's geographical sales. The Company is currently conducting a feasibility study with regard to LNG production. This study should be completed in June 2006. In order to construct an appropriate LNG plant, Xilan will require approximately US$19 million (RMB 150 million), with construction of the plant completed by year end 2006, testing in October 2007 and production commencing in December 2007, assuming 3 appropriate financing can be obtained. Xilan can begin the process with its current licenses but in the future will require approval from Shaanxi Development and Reform Commission for LNG production. Retail Filling Stations Based on company estimates, by the end of June 2005, the total demand for compressed natural gas vehicular fuel in the Xian area was approximately one million cubic meters per day. The company expects demand for natural gas as a transport fuel to continue to increase based on government clean energy policy as expressed in the proposal for the Eleventh Ten Year Plan (2006-2010) and the end-user cost advantages of CNG fuel over gasoline. The company estimates that the average filling station in Xian pumps approximately 12,000 cubic meters of natural gas per day. Based on a company survey, as of November 1, 2005, there were 31 filling stations in Xian pumping approximately 372,000 cubic meters of CNG fuel per day, a figure well below estimated total demand. Xilan is establishing three new company-operated gas stations in the Xian metropolitan area, which will be completed by January 2006. Currently, the company purchases natural gas for 1.16 RMB/cubic meter and will sell each cubic meter for 1.90RMB net of VAT. The construction time for each filling station is 45-60 days and the cost is approximately US$600,000. The construction of additional facilities is dependent upon the company acquiring sufficient additional capital when needed. The company believes that its vertically integrated operation should allow Xilan to be able to surpass the average sales volume of competing stations, estimated at 12,000 cubic meters per day, based on its proprietary supply of CNG from its own pipeline. Marketing Xilan markets the end user delivery of the natural gas segment of the business through advertising in the general media and direct solicitation of real estate development companies and government officials. Xilan participates in trade shows and conferences such as the 7th Xian Global Gas Fuels Technology Equipment and Auto Service Station Exhibition which was held in June 2005. For the retail filling station segment of the business, the company will target advertising to taxi drivers, who are the largest segment of end-users of the company's CNG fuel product. A discount loyalty card will be made available to the professional driving community including taxi and bus drivers. Brochures, radio and newspaper advertisements and point of sale displays will also be utilized. Suppliers Currently, Xilan has only one natural gas supplier, the Shaanxi Natural Gas Co., Ltd., a government owned enterprise. In the past, contracts were renewed on an annual basis. However, as the volume of usage has increased, Shaanxi Natural Gas has revised their policies, and contract terms are now six months and subject to review prior to renewal. Company management reports that it does not expect any issues or difficulty in continuing to renew the supply contracts 4 going forward. Price points for natural gas are strictly controlled by the government and have remained stable over the past 3 years. Customers Residential/Commercial Xilan supplies natural gas to approximately 50,000 residential customers in Lantian County, Lintong and Baqiao Districts in the jurisdiction of Xian. These residences include apartment blocks and small estates. Commercial customers include small businesses like restaurants and office buildings. Industrial Within the Xian region there are several industries to which Xilan supplies natural gas as a raw material for their production process including the Xiwei Aluminum Company. Wholesale to Filling Stations Currently, Xilan supplies natural gas to several of the privately owned and operated CNG filling stations in the Xian area. Upon the completion of construction of their company-owned filling stations, Xilan will also supply their own filling stations for sales to retail end users. Intellectual Property Xilan has applied for a service mark on the "Xilan" name, which is used in connection with all services. Research and Development Xilan has not had any material research and development expenses over the past two years. The company projects expenditures of approximately $100,000 for research and development in 2006. The funding source for all research and development expenses is expected to come from operating cash flows. Employees As of November 1, 2005, Xilan employed a total of 151 employees in the following capacities: 8 management, 15 administrative, 46 operational, 66 sales, 9 R & D, and 7 finance. Xilan believes that it has a good working relationship with its employees. The company is not a party to any collective bargaining agreements. Governmental and Environmental Regulation To date, Xilan has been compliant with all registrations and requirements for the issuance and maintenance of all licenses required by the applicable governing authorities in China. 5 These licenses include: o Qualified Urban Fuel Operator Business License authorized by the Shaanxi Construction Bureau, the local office of the Ministry of Construction, effective from January 2, 2004 to January 2, 2009. (License number SHAANRANZHI 166) o License to Supply, Install Equipment and Maintain Gas Fuel Lines issued by the local Gas Fuels for Heating Bureau, an agency of the Ministry of Construction and the Xian Natural Gas Management Bureau. (License number: XIRAN 136) o Safety and Inspection Regulation for Special Equipment Safety Inspection Standards for High Pressure Pipeline and Technical Safety Inspection Regulations from the Shaanxi Quality and Technology Inspection Bureau for compressor stations and pressure storage tank system. (Approval letter reference: 2004SHAANGUOCHUHAN033) o Annual Safety Inspection of Lightning Conductor Equipment approved by the Shaanxi Meteorology Bureau. (Certificate number 0005274) The Citygate and Compressor Stations are approved by the local office of the Ministry of Construction. Fuel service station standards are subject to regulation by the Ministry of Construction, the General Administration of Quality Supervision, and the Bureau of Inspection and Quarantine of the People's Republic of China. Certificates will be issued upon satisfactory inspection of service stations. There are various standards that must be met for filling stations including handling and storage of gas, tanker handling, and compressor operation. These standards are regulated by the Local Ministry of Construction and the Gas Field Operation Department of the Municipal Administration Committee. Inspections will be carried out by the Municipal Development and Reform Commission which will issue a certificate for the handling of dangerous chemical agents. Standards for the design and construction of filling stations must conform to GB50156-2202 and technology standard BJJ84-2000. Competition The three largest state owned energy companies, CNPC (China National Petroleum Corporation) Group, SINOPEC, and CNOOC are principally engaged in the upstream supply of energy and are major players in exploration and transportation of oil and gas. They build much of the country's high pressure pipeline infrastructure. Natural gas is distributed to smaller regional firms that redistribute the gas to the end user, either through lower pressure pipeline networks, or via tankers in the form of liquid natural gas (LNG). The company is aware of two privately owned companies in China which may be considered to be direct competitors of the company: Xinjiang Guanghui LNG Development Corporation Ltd and Xin'Ao Gas Field Ltd. Xinjiang Guanghui LNG Development Corporation Ltd is primarily involved in the transportation of LNG 6 via tanker truck to storage facilities from natural gas wells. Xin'Ao Gas Field Ltd. is a publicly owned company traded on the Hong Kong Exchange, distributing natural gas via pipeline, doing business in 13 provinces and municipalities that have a combined population of 31 million. Neither Xinjiang Guanghui nor Xin'Ao is approved to supply natural gas to any area in which Xilan is currently operating. Currently, there are approximately 31 filling stations in Xian City. Thirteen of these stations are state owned enterprises. The other 18 stations are privately owned with the majority of these being single station operators. The company believes that it can effectively compete with the stations based upon its organization, experience and financial resources. Description of Property Xilan's properties are located in Lantian county, Baqiao District and Gaoxin District of Xian, Shaanxi province. Xilan owns a 120km high-pressure underground pipeline network and two Citygate stations (terminals) with accompanying buildings and equipment. Xilan leases the main office building where they are headquartered and three filling station sites. MANAGEMENT'S DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENTS Some of the statements contained in this Form 8-K that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 8-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation: 1. Our ability to attract and retain management, and to integrate and maintain technical information and management information systems; 2. Our ability to raise capital when needed and on acceptable terms and conditions; 3. The intensity of competition; and 4. General economic conditions. All written and oral forward-looking statements made in connection with this Form 8-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements. 7 Nine Months Ended September 30, 2005 Compared To Nine Months Ended September 30, 2004 Revenue. For the nine-month period ended September 30, 2005 as compared to the nine-month period ended September 30, 2004, the Company generated net revenues of $2,714,042 and $701,615 respectively, reflecting an increase of $2,012,427 or 287%. The increase in revenues was due to increased construction and installation revenue as the company signed new residential and commercial customers. These customers pay approximately 60% of the construction costs up front and the balance is paid as part of the monthly natural gas bill. Gross profit. The Company achieved a gross profit of $1,298,743 for the nine months ended September 30, 2005, an increase of $1,034,828 or 392%, compared to $263,915 for the nine months ended September 30, 2004. Gross margin, as a percentage of revenues, increased from 37.6% for the nine months ended September 30, 2004, to 47.9% for the nine months ended September 30, 2005. The increase in gross profit is due to the increased construction and installation activity. The increase in gross margin is attributable to the margins that are received during construction and installation, the company works with gross margins that are approximately 50%, mostly due to the low cost of labor. Operating expenses. The Company incurred operating expenses of $432,343 for the nine months ended September 30, 2005, an increase of $39,818 or 10%, compared to $392,525 for the nine months ended September 30, 2004. This increase represents our continued development and implementation of our strategy to develop the filling station business, as well as administering the increased construction and installation activity. Aggregated selling expenses of $299,352 account for expenses related to costs associated with sales and marketing of the Company's products. Operating expenses include general and administrative expenses of $132,991 for the first nine months of 2005 and relate to cost of maintaining the company's facilities, salaries and planning the initial roll out of the filling station business. Net income. The Company's net income was $736,802 for the nine months ended September 30, 2005, an increase of $865,091 compared to $(128,289) for the nine months ended September 30, 2004. The increase was fully attributed to the growth of construction and installation fees. Twelve Months Ended December 31, 2004 Compared To Twelve Months Ended December 31, 2003 Revenue. The Company generated revenues of $884,413 for the twelve months ended December 31, 2004, a decrease of $687,880 or -43.8%, compared to $1,572,293 for the twelve months ended December 31, 2003. The decrease in revenue was due to the completion of the first phase of construction and installation necessary to bring new customers into our system. This work was completed ahead of time and accounts for the relatively minor amount of construction and installation work in the same period of 2004. Due to the rapid pace of the work completed in 2003, the company was able to focus on signing new customers in 2004, hence the surge in construction and installations in 2005. 8 Gross profit. The Company achieved a gross profit of $370,367 for the twelve months ended December 31, 2004, a decrease of $143,535 or 28%, compared to $513,902 for the twelve months ended December 31, 2003. Gross margin, as a percentage of revenues, decreased from 41.9% for the twelve months ended December 31, 2003, to 32.7% for the twelve months ended December 31, 2004. The decrease in gross margin was attributed to the 57% decrease in construction and installation activity in 2004, this segment of our business, although not a monthly recurring business is highly profitable with gross margins that are nearly 50%. Operating expenses. The Company incurred operating expenses of $487,718 for the twelve months ended December 31, 2004, an increase of $42,499 or 9%, compared to $530,217 for the twelve months ended December 31, 2003. These operating expenses are related to increased sales and marketing costs to sign new residential and commercial customers that were put on line in 2005. In addition the company began to address the filling station strategy, identifying possible locations for the filling stations and commencing the process of applying to the proper governmental agencies for all necessary approvals and licenses to construct the new filling stations. Net Income. Net income decreased to ($161,768), a decrease of $240,982, from $79,214. This loss can be attributed to increased marketing efforts to new residential and commercial customers as well as the decline in revenues associated with construction and installation activities that were completed ahead of schedule. Liquidity and Capital Resources As of September 30, 2005 the Company had $1,001,243 cash and cash equivalents on hand compared to $65,177 cash and cash equivalents as of September 30, 2004. Based on past performance and current expectations, we believe our cash and cash equivalents, cash generated from operations, as well as future possible cash investments, will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations. The Company had net cash flows provided by operations of $69,256 for the nine month period ended September 30, 2005 as compared to net cash provided by operations of $396,079 in the corresponding period last year. The decrease in net cash flows from operations in the current period as compared to corresponding period last year was mainly due to an increase in accounts receivables of $297,892 during the nine month period ended September 30, 2005. Cashflows from investing activities resulted in net usage of $2,671,533 in the current period as compared to net usage of $374,638 in the corresponding period last year. The greater usage in the current period was mainly due to advance payments made to equipment suppliers for investments necessary to construct and build the filling stations. The Company had inflows from investment activities of $3,503,897 during the nine month period ended September 30, 2005, the company issued 29,000,000 shares of common stock. The majority of the Company's revenues and expenses were denominated primarily in Renminbi ("RMB"), the currency of the People's Republic of China. 9 There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. The Company does not engage in currency hedging. Inflation has not had a material impact on the Company's business. Executive Officers and Board of Directors Below are the names and certain information regarding the Company's executive officers, directors and director nominees following the acquisition of Xilan: Name Age Position - ------ ---- --------- Minqing Lu 43 Chief Executive Officer and Director* Xiaogang Zhu 51 Chief Financial Officer Yuman Chen 35 Vice President - Marketing Liangzhong Li 44 Vice President - Construction Qinan Ji 48 Chairman of the Board* Bo Chen 48 Vice Chairman of the Board* John Hromyk 44 Director - -------------- * Director nominee. Officers are elected annually by the Board of Directors, at our annual meeting, to hold such office until an officer's successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. Background of Executive Officers and Directors Qinan Ji, Chairman of the Board of Directors Mr. Ji joined Xilan as the Chairman of the Board of Directors in 2005. In 1996, he founded the Anxian Hotel in Weinan City in Shaanxi Province. In 2001, he formed the Xian Sunway Technology and Industry Co., Ltd. He has more than 20 years experience in the energy and petroleum industries in operational, administrative, management and government relations roles. He received a Bachelor of Economy Management from North West University (Shaanxi). Bo Chen, Vice Chairman of the Board of Directors Mr. Chen was named Vice Chairman of the Board of Directors of Xilan in October 2005. He is currently the President of Bodisen Biotech, Inc., a publicly listed company on the AMEX (symbol: BBC), and is one of its original founders and stockholders having joined that company in 2000. From August 1997 to August 2001, Mr. Chen was Chief Operations Officer and Chief Technology Officer of Shaanxi Bodisen Chemical Co., Ltd. From July 1994 to December 1997, he was the Chief Executive Officer and President of Yang Ling Shikanglu Chemical Technology Development Co., Ltd. He received his Bachelor of Science degree from Shaanxi Normal College in July 1984. 10 Minqing Lu, Chief Executive Officer, Member of the Board of Directors Mr. Lu joined Xilan in February 2005. He is Chief Executive Officer and serves on the Board of Directors. From February 1999 to May 2002, he was the executive director of Beijing Peixinkenu Investment Consultancy Company. From May 2002 to July 2004, he was President of Fenghua Aidi Air Service Company in Beijing. He received a Certificate of Management in July 1994 from Central Party College. Xiaogang Zhu, Chief Financial Officer Mr. Zhu joined Xilan as the Chief Financial Officer in January 2005. He spent 16 years working at the Ministry of General Logistics 3546 Company and his last position there was manager of the Finance Department. From September 2000 to December 2004, Mr. Zhu was the Vice General Manager and CFO of Xian Dapeng Biotech Co., Ltd. He received a Bachelor of Accounting degree from Xian Jiaotong University. Yuman Chen, Vice President, Marketing Ms. Chen joined Xilan in the beginning of 2000. She has spent the last five years at Xilan serving in the finance department until January 2001 when she became the manager of the Operations Department. In January 2005, she became the Vice President of Marketing Development and Customer Support. She received a Bachelors Degree in Management from North West University (Shaanxi) in July 1996. Liangzhong Li, Vice President, Construction Mr. Li joined the company in February 2005. He has 15 years experience in the natural gas industry. He is Vice President of Construction and oversees the construction pipeline networks and installation of gas fittings. From 1999 to 2002, he was Vice General Manager of Leqing Pipeline of Liquefied Oil Gas Company in Zhejiang Province. From 2002 to 2004, he was Vice General Manager and Manager of Construction Department in Leqing Natural Gas Company. He received a certificate of literature from North West University (Shaanxi) in July 1986. John Hromyk, Director John Hromyk has been Coventure's sole director since August 30, 2001 and was President and Chief Financial Officer of Coventure from August 30, 2001 through December 6, 2005. From May 1999 to June 2001, he was the sole proprietor of Banded Peak Venture Services, a business development and management-consulting firm located in Calgary, Alberta. Banded Peak Venture Service is presently inactive. For three years prior, he was the founder and president of Hillside Estate Winery Ltd. located in Penticton, British Columbia. Hillside Estate Winery, Ltd. is an established winery which produces a small number of high quality varietal wines which are sold through its wine shop and to specialty stores and restaurants. From June 1985 to April 1996, Mr. Hromyk was a contract magazine publisher for numerous Canadian regional and national periodicals. Educated in Vancouver, British Columbia Mr. Hromyk studied 11 biological sciences from 1980 to 1984 at Vancouver Community College (Langara) and at the University of British Columbia. He also completed a Diploma Program in Business Administration and Marketing from Capilano College in North Vancouver in 1986. EXECUTIVE COMPENSATION The following table sets forth information concerning the total compensation that Xilan has paid or that has accrued on behalf of Xilan's chief executive officer and other executive officers with annual compensation exceeding $100,000 during the years ended December 31, 2004, 2003 and 2002. SUMMARY COMPENSATION TABLE
Long-Term Compensation ------------------------------------------- Annual Compensation Awards Payouts ------------------------------------- ------------------------------ ------------ Other Securities All Annual Restricted Underlying Other Name and Compen- Stock Award(s) Options/ LTIP Compen- Principal Position Year Salary ($) Bonus ($) sation ($) ($) SARs (#) Payouts ($) sation ($) - ------------------------- ----------- ------------- ---------- ------------ ----------------- ------------ ------------ ----------- Huai'pu Zhang 2004 5,000 -0- -0- -0- -0- -0- -0- President, CEO 2003 5,000 -0- -0- -0- -0- -0- -0- And Director 2002 5,000 -0- -0- -0- -0- -0- -0-
EQUITY COMPENSATION PLAN INFORMATION There has been no common stock authorized for issuance with respect to any equity compensation plan as of the fiscal year ended December 31, 2004. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of December 7, 2005 with respect to the beneficial ownership of the Company's outstanding common stock following the acquisition of Xilan by (i) any holder of more than five (5%) percent; (ii) each of the named executive officers, directors and director nominees; and (iii) our directors, director nominees and named executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Common Stock Percentage of Name of Beneficial Owner (1) Beneficially Owned Common Stock Minqing Lu 173,913 3.4% Qinan Ji 1,482,899(2) 29.3%(2) Bo Chen 515,942(3) 10.2%(3) Yangling Bodisen Biotech Development Co, Ltd. 515,942(3) 10.2% 12 John Hromyk -- -- Xiang Ji 364,058 7.2% Shaohu Jia 270,145 5.3% Xian Sunway Technology & Industry Co., Ltd 718,841(2) 14.2% All officers, directors and director nominees as a group 2,172,754(2)(3) 42.9% (4 persons) (1) Except as otherwise indicated, the address of each beneficial owner is c/o Xian Xilan Natural Gas Co., Ltd., Tang Xing Shu Ma Building, Suite 418, Tang Xing Road, Xian High Tech Area, Xian, Shaanxi Province, China. (2) Of which 718,841 shares are owned by Xian Sunway Technology & Industry Co., Ltd. ("Sunway"). Qinan Ji owns 42.1% of Xian Sunway and may be deemed to beneficially own such shares. (3) Of which 515,942 shares are owned by Yangling Bodisen Biotech Development Co, Ltd. ("Bodisen"). Mr. Chen is President, a member of the Board of Directors and a 23% stockholder of Bodisen and may be deemed to beneficially own such shares. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In July 2005, Xilan loaned $77,169 to Qinan Ji, Chairman of the Board. The loan was made on a interest free basis and was repaid in its entirety in October 2005. In July 2005, Xilan loaned $94,393 to Xian Sunway Technology & Industry Co., Ltd., a principal shareholder of Xilan. The loan was made on an interest free basis and was repaid in its entirety on November 2005. DESCRIPTION OF SECURITIES Our authorized capital stock consists of 30,000,000 shares of common stock at a par value of $0.0001 per share and 5,000,000 shares of preferred stock, par value $.0001. As of December 7, 2005, there were 5,051,022 shares of common stock of the Company issued and outstanding and no shares of preferred stock outstanding. Holders of the Company's common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of the Company's common stock representing a majority of the voting power of the Company's capital stock issued, outstanding and entitled to 13 vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company's outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to the Company's articles of incorporation. Holders of the Company's common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The Company's common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company's common stock. Market for Common Equity On March 17, 2004, the Company approved for listing on the Over-the-Counter Bulletin Board under the symbol "CVNI". The following table sets forth the range of high and low closing bid quotations for our common stock since our common stock was listed on the Over-the-Counter Bulletin Board. The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions. Period High Low December 6, 2005 $11.00 $2.10 October 31, 2005 $7.00 $2.24 July 31, 2005 $6.00 $0.50 April 30, 2005 $2.90 $1.05 January 31, 2005 $7.25 $0.45 October 30, 2004 $0.45 $0.45 July 31, 2004 $1.50 $0.25 April 30, 2004 $0.30 $0.30 The Securities Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Commission, which: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and significance of the spread between the bid and ask price; (d) contains a 14 toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form as the Commission shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer: (a) with bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock and, as a result, stockholders may have difficulty selling those securities. Recent Sales of Unregistered Securities We did not complete any unregistered sales of our common stock during our fiscal year ended July 31, 2005. Dividends There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Delaware General Corporation Law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend: 1. We would not be able to pay our debts as they become due in the usual course of business; or 2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceeding, nor is its property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of the Company's business. 15 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS On December 6, 2005, in connection with the acquisition of Xilan, the Company terminated the services of Manning Elliot, Chartered Accountants, as Coventure's independent auditor. Manning Elliot, Chartered Accountants performed the audits for the two year period ended July 31, 2005, which reports for the two years ended July 31, 2005 and 2004 did not contain any adverse opinion or a disclaimer of opinion, nor was it qualified as to audit scope or accounting principles but did carry a modification as to going concern. During Coventure's two most recent fiscal years and during any subsequent interim period prior to the December 6, 2005 termination as Coventure's independent auditors, there were no disagreements with Manning Elliot, Chartered Accountants, with respect to accounting or auditing issues of the type discussed in Item 304(a)(iv) of Regulation S-B. On December 7, 2005 Coventure provided Manning Elliot with a copy of this disclosure and requested that it furnish a letter to Coventure, addressed to the SEC, stating that it agreed with the statements made herein or the reasons why it disagreed. On December 7, 2005, Coventure's board of directors approved the engagement of the firm of Kabani & Company, Inc. as Coventure's independent auditors. During Coventure's two most recent fiscal years or any subsequent interim period prior to engaging Kabani & Company, Inc., Coventure had not consulted Kabani & Company, Inc. regarding any of the accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-B. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's directors and executive officers are indemnified as provided by the Delaware General Corporation Law and the Company's Bylaws. These provisions state that the Company's directors may cause the Company to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment. Such indemnification is at the discretion of the Company's board of directors and is subject to the Securities and Exchange Commission's policy regarding indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. Item 3.02 Unregistered Sales of Equity Securities. See Item 2.01. Item 4.01 Changes in Registrant's Certifying Accountant. 16 See Item 2.01. Item 5.01 Changes in Control of Registrant. See Item 2.01. Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. See Item 1.01. Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. In connection with the acquisition of Xilan, the Company is changing its fiscal year end to December 31. Item 9.01 Financial Statements and Exhibits. (a) Financial statements of business acquired. (b) Pro forma financial information. (c) Exhibits Exhibit Number Description - -------------------------------------------------------------------------------- 10.1 Share Purchase Agreement made as of December 6, 2005 among Coventure International Inc., Xian Xilan Natural Gas Co., Ltd. and each of Xilan's shareholders. 10.2 Return to Treasury Agreement between Coventure International Inc. and John Hromyk, dated December 6, 2005. 16.1 Letter from Manning Elliot, Chartered Accountants, dated December 7, 2005 17 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COVENTURE INTERNATIONAL INC. Dated: December 7, 2005 By: /s/ MINQING LU -------------- Minqing Lu, Chief Executive Officer 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Xi'an Xilan Natural Gas Company, LTD. We have audited the accompanying balance sheet of Xi'an Xilan Natural Gas Company, LTD. (the "Company") as of December 31, 2004 and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xi'an Xilan Natural Gas Company, LTD as of December 31, 2004 and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America. KABANI & COMPANY, INC. CERTIFIED PUBLIC ACCOUNTANTS Los Angeles, California November 13, 2005 1 XI'AN XILAN NATURAL GAS CO., LTD BALANCE SHEET DECEMBER 31, 2004 AND SEPTEMBER 30, 2005 (UNAUDITED)
ASSETS December 31, September 30, 2004 2005 (unaudited) CURRENT ASSETS: Cash & cash equivalents $ 62,998 $ 1,001,243 Accounts receivable, net 4,944 308,065 Other receivable 23,405 57,902 Receivable from related party - 171,563 Inventory 46,442 25,864 Advances to suppliers 725 297,712 Prepaid expense 200 16,961 ------------------ ------------------ Total current assets 138,712 1,879,311 PROPERTY AND EQUIPMENT, net 5,267,344 5,405,515 CONTRACT IN PROGRESS: 377,497 - OTHER ASSET: - 2,491,411 ------------------ ------------------ $ 5,783,554 9,776,237 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable & accrued expense $ 97,238 $ 163,974 Other payable 60,666 261,772 Unearned revenue 931,440 215,724 ------------------ ------------------ Total current liabilities 1,089,344 641,470 STOCKHOLDERS' EQUITY: Common stock; 10,000,000 registered and 30,000,000 unregistered shares issued and outstanding 4,832,396 69,000,000 registered shares issued and outstanding 8,336,893 Cumulative translation adjustment 572 199,859 Accumulated deficit (142,215) 515,582 Statutory reserve 3,457 82,433 ------------------ ------------------ Total stockholders' equity 4,694,210 9,134,767 ------------------ ------------------ $ 5,783,554 $ 9,776,237 ================== ==================
2 XI'AN XILAN NATURAL GAS CO., LTD STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
For the Years For the Nine Months Ended December 31, Ended September 30, (unaudited) 2004 2003 2005 2004 --------------- ---------------- ---------------- ---------------- Revenue Natural gas revenue $ 306,306 $ 237,312 $ 1,065,017 $ 211,990 Construction / installation revenue 578,107 1,334,981 1,649,025 489,625 --------------- ---------------- ---------------- ---------------- Total revenue 884,413 1,572,293 2,714,042 701,615 Cost of revenue Natural gas cost 226,944 94,617 830,527 157,065 Construction / installation cost 287,102 963,775 584,772 280,635 --------------- ---------------- ---------------- ---------------- 514,046 1,058,392 1,415,299 437,700 Gross profit 370,367 513,902 1,298,743 263,915 Operating expenses Selling expenses 387,768 344,242 299,352 282,924 General and administrative expenses 142,449 143,476 132,991 109,600 --------------- ---------------- ---------------- ---------------- Total operating expenses 530,217 487,718 432,343 392,525 --------------- ---------------- ---------------- ---------------- Income (loss) from operations (159,850) 26,183 866,400 (128,609) Non-operating income (expense): Gain on conversion of debt - 82,763 - - Interest expense - (13,396) - - Interest income 1,618 524 894 541 Other expense (3,535) (242) (468) (221) --------------- ---------------- ---------------- ---------------- Total non-operating income (expense) (1,918) 69,649 426 321 --------------- ---------------- ---------------- ---------------- Net income (loss) before income tax (161,768) 95,833 866,826 (128,289) Income tax - 16,618 130,024 - --------------- ---------------- ---------------- ---------------- --------------- ---------------- ---------------- ---------------- Net income (loss) $ (161,768) $ 79,214 $ 736,802 $ (128,289) =============== ================ ================ ================ Basic and diluted weighted average shares outstanding 40,000,000 10,082,192 69,000,000 40,000,000 =============== ================ ================ ================ Basic and diluted net income (loss) per share $ (0.00) $ 0.01 $ 0.01 $ (0.00) =============== ================ ================ ================
3 XI'AN XILAN NATURAL GAS CO., LTD STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Common Cumulative Total stock translation Statutory Accumulated stockholders' shares Amount adjustment Reserve deficit equity ------------ ------------- -------------- ------------- ------------- ----------- Balance, December 31, 2002 10,000,000 $ 1,207,729 $ - $ - $ (56,204) $ 1,151,525 Net income for the year ended December 31, 2003 - - - - 79,214 79,214 Conversion of debt to equity 30,000,000 3,624,667 - - - 3,624,667 Statutory reserve - - - 3,457 (3,457) - ------------ ------------- -------------- ------------- ------------- ----------- Balance, December 31, 2003 40,000,000 4,832,396 - 3,457 19,553 4,855,406 Cumulative translation adjustment - - 572 - - 572 Net loss for the year ended December 31, 2004 - - - - (161,768) (161,768) ------------ ------------- -------------- ------------- ------------- ----------- Balance December 31, 2004 40,000,000 $ 4,832,396 $ 572 $ 3,457 $ (142,215) $ 4,694,210 ============ ============= ============== ============= ============= ===========
4 XI'AN XILAN NATURAL GAS CO., LTD STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
For the Nine Months For the Years Ended September 30, Ended December 31, (unaudited) 2004 2003 2005 2004 ----------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (161,768) $ 79,214 $ 736,802 $ (128,289) Adjustments to reconcile net income (loss) to net cash provided in operating activities: Gain on conversion of debt - (82,763) - - Loss on disposal of property 3,242 - - - Depreciation and amortization 314,453 260,765 204,426 235,757 (Increase) / decrease in assets: Accounts receivable (4,943) 1,482 (297,892) (16,543) Inventory (46,440) - 21,271 (56,848) Other receivable (6,525) (5,715) (33,390) 4,193 Receivable from related party - - (168,666) - Advances to suppliers 14,982 15,500 (291,955) 15,706 Prepaid expense (99) (101) (16,474) (597) Contract in progress 118,537 (363,523) 379,584 496,014 Increase / (decrease) in current liabilities: Accounts payable (64,344) (1,590,145) (1,128,496) 26,814 Payable to related party (917,642) 4,501,535 - (120,818) Other payable (2,854) (1,999,673) 1,388,554 (6,271) Unearned revenue 777,436 (174,197) (724,508) (53,040) ----------- ----------- ----------- ----------- Net cash provided by operating activities 24,035 642,379 69,256 396,079 ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Payment on purchase of equipment (5,981) (282,917) (222,195) (374,638) Advance payment on purchase of equipment - other asset - - (2,449,338) - Proceeds from disposal of property 1,208 - - - ----------- ----------- ----------- ----------- Net cash used in investing activities (4,773) (282,917) (2,671,533) (374,638) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on short-term loan - (362,441) - - Stock issued for cash - - 3,503,897 - ----------- ----------- ----------- ----------- Net cash provided by (used) in financing activities - (362,441) 3,503,897 - ----------- ----------- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents - - 36,625 - NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 19,262 (2,980) 938,245 21,441 CASH & CASH EQUIVALENTS, BEGINNING BALANCE 43,736 46,716 62,998 43,736 ----------- ----------- ----------- ----------- CASH & CASH EQUIVALENTS, ENDING BALANCE $ 62,998 $ 43,736 $ 1,001,243 $ 65,177 =========== =========== =========== ===========
5 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Xi'an Xilan Natural Gas Co, Ltd. (The "Company") was incorporated on January 8, 2000 in Xi'an city in the Shaanxi province, China. The core business of the Company is distribution of natural gas to commercial, industrial and residential customers, construction of pipeline networks, and installation of natural gas fittings and parts for end-users. The Company has an exclusive permit to provide gas utility service in Lantian County and Baqiao District of Xi'an city, China. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of estimates The preparation of financial statements in conformity with 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. Cash and cash equivalents Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Accounts and other receivable Accounts and other receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. Advances to suppliers The Company advances to certain vendors for purchase of its material. The advances to suppliers are interest free and unsecured. Inventory Inventory is stated at the lower of cost, as determined on a first-in, first-out basis, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower. Inventory consists of material used in the construction of pipelines. 6 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS Property, equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows: Office equipment 5 years Operating equipment 5-20 years Vehicles 5 years Buildings 30 years At December 31, 2004, the following are the details of the property and equipment: Office equipment $ 17,419 Operating equipment 5,798,307 Vehicles 57,416 Buildings 167,274 Less: Accumulated depreciation (773,073) ------------ Net book value $ 5,267,344 ============ September 30, 2005, the following are the details of the property and equipment (unaudited): Office equipment $ 19,775 Operating equipment 5,930,510 Vehicles 158,616 Buildings 189,073 Construction in process 106,178 Less: Accumulated depreciation (998,637) ------------ Net book value $ 5,405,515 ============ Long-lived assets Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2004 there were no significant impairments of its long-lived assets. 7 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS Contracts-in progress Contracts in progress consist of cost of construction of pipelines for customers. Fair value of financial instruments Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value. Revenue Recognition The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Revenue is recognized when services are rendered to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Revenue from gas sales is recognized when gas is pumped through pipelines to the end users. Revenue from construction and installation of pipelines is recorded when the contract is completed and accepted by the customers. The construction contracts are usually completed within one to two months time. Deferred revenue Deferred revenue represents prepayments by customers for gas purchases and advance payments on construction and installation of pipeline contracts. The Company records such prepayment as unearned revenue when the payments are received. Advertising Costs The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the year ended December 31, 2004 and 2003 were insignificant. Stock-based compensation In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and related interpretations with proforma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company uses the intrinsic value method prescribed by APB 25 and has opted for the disclosure provisions of SFAS No.123. No options have been granted for the years ended December 31, 2004 and 2003 and for the nine months ended September 30, 2005. 8 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS Income Taxes The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At December 31, 2004 and September 30, 2005, there was no significant book to tax differences. LOCAL PRC INCOME TAX Pursuant to the tax laws of China, general enterprises are subject to income tax at an effective rate of 33%. The Company is in the natural gas industry whose development is encouraged by the government. According to the income tax regulation, any company engaged in the natural gas industry enjoys a favorable tax rate. Accordingly, the Company's income is subject to a reduced tax rate of 15%. At December 31, 2004, the Company had net operating loss of approximately $162,000 all of which was generated in the Peoples Republic of China (PRC). Under PRC income tax rules, net operating losses can be carried forward for 5 years. The Company has recorded a 100% valuation allowance on the gross amount of deferred tax assets of $25,000 based on the uncertainty of its realization at December 31, 2004. There were no other book to tax differences at December 31, 2004 and 2003. A reconciliation of tax at United States federal statutory rate to provision for income tax recorded in the financial statements is as follows:
For the Years For the Nine Months Ended December 31, Ended September 30, (unaudited) 2004 2003 2005 2004 ------------- -------------- ----------- ------------ Tax provision (credit) at statutory rate (34%) 34% 34% (34%) Foreign tax rate difference 19% (19%) (19%) 19% Change in valuation allowance 15% - - 15% Other 2% ------------- -------------- ----------- ------------ - 17% 15% - ============= ============== =========== ============
Foreign Currencies Translation Assets and liabilities in foreign currency are recorded at the balance sheet date at the rate prevailing on that date. Items of income statement are recorded at the average exchange rate. Gain or loss on foreign currency transactions are 9 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet as component of comprehensive income. The functional currency of the Company is Chinese Renminbi. Basic and diluted net loss per share Net loss per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Statement of Cash Flows: In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Supplemental Disclosure to Cash Flows During the year ended December 31, 2003 cash from financing and operating activities exclude the effect of the conversion of debt to equity for $3,624,667 and gain on conversion of debt of 82,763. Segment Reporting Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company's consolidated financial statements as the Company consists of one reportable business segment. All revenue is from customers in People's Republic of China. All of the Company's assets are located in People's Republic of China. Recent Pronouncements In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior periods' financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We are evaluating the effect the adoption of this interpretation will have on its financial position, cash flows and results of operations. 10 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's first quarter of fiscal 2006. In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on its consolidated financial position or results of operations. The Company believes that the adoption of this standard will have no material impact on its financial statements. 3. OTHER ASSET Other asset consists of advance payments for purchases of certain equipment. 4. OTHER PAYABLE Other payable consists of the following as of December 31, 2004: Other accounts payable $ 26,360 Welfare payable 14,673 Tax payable 18,874 Other levies 759 ---------- Total $ 60,666 ========== Other payable consists of the following as of September 30, 2005 (unaudited): Other accounts payable $ 24,659 Welfare payable 13,433 Tax payable 220,280 Other levies 3,400 ---------- Total $ 261,772 ========== 5. SHAREHOLDERS' EQUITY On January 1, 2003, the Company had 10,000,000 registered shares issued and outstanding. On December 30, 2003, the Company converted $ 3,624,667 of debt in to 30,000,000 shares of common stock. The Company recorded a gain on conversion of $82,763 as a result of this transaction. The shares were recorded as paid in capital since the shares were not registered. The Company did not have any issuances of its stock in the year ended December 31, 2004. During the nine months ended September 30, 2005, the Company issued 29,000,000 shares of common stock for $3,503,897 cash contribution (unaudited). 11 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS 6. EMPLOYEE WELFARE PLAN The Company has established its own employee welfare plan in accordance with Chinese law and regulations. The Company makes annual contributions of 14% of all employees' salaries to employee welfare plan. The total expense for the above plan was $10,045 and $9,485 and $8,360 and $7,528 for the years ended December 31, 2004 and 2003 and for nine month periods ended September 30, 2005 and 2004 (unaudited), respectively. 7. STATUTORY COMMON WELFARE FUND As stipulated by the Company Law of the People's Republic of China (PRC) as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) Making up cumulative prior years' losses, if any; (ii) Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; (iii) Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and (iv) Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting. The Company has appropriated $78,976 as reserve for the statutory surplus reserve and welfare fund for the nine months ended September 30, 2005 (unaudited) and $3,547 for the year ended December 31, 2003. No allocation was made for the year ended December 31, 2004 as the company had net loss from operations. 8. EARNINGS PER SHARE Earnings per share for the years ended December 31, 2004 and 2003 and for the nine months ended September 30, 2005 and 2004 (unaudited) are determined by dividing net income for the periods by the weighted average number of both basic and diluted shares of common stock and common stock equivalents outstanding. At December 31, 2004 and 2003 and September 30, 2005 and 2004, there were no dilutive securities. 9. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Company purchases all of the natural gas for resale from one vendor. No amount was owing to this vendor at December 31, 2004 or at September 30, 2005. Three major customers accounted for 84%, 92% and 82% of the construction revenue for the years ended December 31, 2004 and 2003 and for the nine months ended September 30, 2004 (unaudited), respectively. One customer accounted for 87% of the construction revenue for the nine months ended September 30, 2005. 12 XI'AN XILAN NATURAL GAS CO., LTD NOTES TO THE FINANCIAL STATEMENTS The Company's operations are carried out in the People's Republic of China. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the People's Republic of China, by the general state of the People's Republic of China`s economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. 10. RELATED PARTY TRANSACTIONS The Company has receivable from related parties - shareholders of the Company in the amount of $171,563 as of September 30, 2005 (unaudited). 11. SUBSEQUENT EVENT The Company entered in to an agreement with one of its customer under which, the Company will acquire certain equipment for $2,765,200 (RMB 22,300,000). The Company paid $ 1,240,000 (RMB 10,000,000) on April 22, 2005. At September 30, 2005, $308,668 (RMB 2,489,262) is included in accounts receivable from this customer, which will be adjusted against the purchase price at the date of transfer of title to the equipment. The agreement stipulates that 100 days after the advance payment, the equipment will be transferred to the Company. The remaining unpaid balance will be paid by the Company through delivery of natural gas to this customer at a specified price per cubic meter of gas. 13 CONVENTURE INTERNATIONAL, INC. PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 2005 (Unaudited) The following Unaudited Pro Forma Statement of operations has been derived from the audited financial statements of Coventure International, Inc., (A) for the year ended July 31, 2005 and the audited financial statements of Xi'an Natural Gas Co. (B) for the year ended December 31, 2004, the unaudited financial statements of (B) for the nine months ended September 30, 2004 and September 30, 2005, respectively. The Pro Forma Statements of Operations reflects the acquisition of B by A (a reporting company) on December 6, 2005 in an acquisition accounted for using the reverse acquisition method of accounting and assumes that such acquisition was consummated as of August 1, 2004. The Pro Forma Statement of Operations and financial conditions should be read in conjunction with the Financial Statements of A, the Financial Statements of B and the Notes to the financial statements. The Pro Forma Statements do not purport to represent what the Company's results of operations and financial conditions would actually information and the assumption set forth in the foot notes below, which management believes are reasonable.
A B Pro Forma Pro Forma (Historical) (Historical) Adjustment Combined -------------- ------------- --------------- ---------------- Net Revenue $ 234,777 $ 2,896,840 $ - $ 3,131,617 Cost of revenue - 1,491,645 - 1,491,645 -------------- ------------- --------------- ---------------- Gross profit 234,777 1,405,195 - 1,639,972 Operating expenses 270,484 570,035 - 840,519 -------------- ------------- --------------- ---------------- Loss from operations (35,707) 835,159 - 799,452 Non-operating income (Expenses), minority interest and income tax 57,881 (1,813) - 56,068 -------------- ------------- --------------- ---------------- Net gain (loss) $ 22,174 $ 833,347 $ - $ 855,521 ============== ============= =============== ================ EARNINGS PER SHARE Weighted -average number of shares outstanding 7,022,000 40,000,000 (3) 20,204,088 ============== ============= ================ Gain (Loss) per share $ 0.00 $ 0.02 $ 0.04 ============== ============= ================
NOTES: (1) Loss per share data shown above are applicable for both primary and fully diluted. (2) Weighted-average number of shares outstanding for the combined entity includes all shares issued before the acquisition as if outstanding as of August 1, 2004. (3) Weighted average number of shares outstanding for combined entity includes 5,051,022 shares of A as of August 1, 2004 after talking in to account 4,000,000 shares issued to B and 5,971,178 shares of the principal shareholder of A that were cancelled as a result of the merger. The weighted average shares reflect a 4:1 stock split after the consumation of the merger. 14 CONVENTURE INTERNATIONAL, INC. PRO FORMA STATEMENT OF FINANCIAL CONDITIONS AS ON JULY 31, 2005 (Unaudited) The following unaudited Pro Forma Statement of financial conditions has been derived from the audited financial statements of Conventure International, inc. (A) as of July 31, 2005 and the unaudited financial statements of Xi'an Natural Gas Co. (B) as of September 30, 2005. The unaudited Pro Forma Statements of financial conditions reflects the acquisition of B by A (a reporting company) in a merger using reverse acquisition method of accounting.
A B Pro Forma Pro Forma (Historical) (Historical) Adjustment Combined -------------- ------------- --------------- ---------------- ASSETS Current Assets $ 23,490 $ 1,879,311 (1) $ (23,490) $ 1,879,311 Property & equipment, net 32,063 5,405,515 (1) (32,063) 5,405,515 Intangible assets, net - - - - Other non-current assets - 2,491,411 2,491,411 -------------- ------------- --------------- ---------------- TOTAL ASSETS $ 55,553 $ 9,776,237 $ (55,553) $ 9,776,237 ============== ============= =============== ================ LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities $ 161,397 $ 641,470 (1) $ (161,397) $ 641,470 Long-term liabilities 5,493 - (1) (5,493) 0 Stockholders' equity; Common stock 702 8,336,893 (2) (8,336,374) 2,075 (4) 1,556 Additional paid in capital 139,280 - (3) (139,280) 8,334,818 (2) 8,335,672 (4) (1,556) Statutory reserve - 82,433 - 82,433 Subscription receivable - - - - Accumulated other comprehensive gain (loss) (8,451) 199,859 (3) 8,451 199,859 Retained earnings (deficit) (242,868) 515,582 (3) 242,868 515,582 -------------- ------------- --------------- ---------------- Total stockholders' equity (deficit) (111,337) 9,134,767 111,337 9,134,767 -------------- ------------- --------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 55,553 $ 9,776,237 $ (55,553) $ 9,776,237 ============== ============= =============== ================
NOTES; (1) Elimination of assets and liabilities of A sold to A's principal stockholder in return for 5,971,178 shares (2) Recapitalization of B to account for issuance of 4,000,000 shares of A to shareholders of B (3) Elimination of pre-acquisition retained earnings of (A) (4) To account for 4:1 stock split after merger 15 EX-10 2 dec720058kex101.txt THIS AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT. SHARE PURCHASE AGREEMENT THIS AGREEMENT is made as of the 6th day of December, 2005 AMONG: COVENTURE INTERNATIONAL INC., a corporation formed pursuant to the laws of the State of Delaware and having an office for business located at 118 First Avenue West, Suite 206, PO Box 1900, Cochrane, Alberta Canada T4C 1A5 ("Coventure") AND: XIAN XILAN NATURAL GAS CO., LTD., a company formed pursuant to the laws of the People's Republic of China and having an office for business located at Tang Xing Shu Ma Building, Suite 418, Tang Xing Road, Xian High Tech Area, Xian, Shaanxi Province, China ("Xilan Natural Gas") AND: The shareholders of Xilan Natural Gas, each of whom are set forth on the signature page of this Agreement (the "Xilan Natural Gas Shareholders") WHEREAS: A. The Xilan Natural Gas Shareholders own 69,000,000 registered shares of Xilan Natural Gas, constututing 100% of the presently issued and outstanding Xilan Natural Gas Shares; B. Coventure is a reporting company whose common stock is quoted on the NASD "Bulletin Board"; and C. The respective Boards of Directors of Coventure, and Xilan Natural Gas deem it advisable and in the best interests of Coventure and Xilan Natural Gas that Xilan Natural Gas become a wholly-owned subsidiary of Coventure (the "Acquisition") pursuant to this Agreement. NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION Definitions 1.1 In this Agreement the following terms will have the following meanings: (a) "Acquisition" means the Acquisition, at the Closing, of Xilan Natural Gas by Coventure pursuant to this Agreement; (b) "Acquisition Shares" means the 4,000,000 Coventure Common Shares to be issued to the Xilan Natural Gas Shareholders at Closing pursuant to the terms of the Acquisition; (c) "Agreement" means this share purchase agreement among Coventure, Xilan Natural Gas, and the Xilan Natural Gas Shareholders; (d) "Closing" means the completion, on the Closing Date, of the transactions contemplated hereby in accordance with Article 9 hereof; (e) "Closing Date" means the day on which all conditions precedent to the completion of the transaction as contemplated hereby have been satisfied or waived; (f) "Coventure Accounts Payable and Liabilities" means all accounts payable and liabilities of Coventure, on a consolidated basis, due and owing or otherwise constituting a binding obligation of Coventure and its subsidiaries (other than a Coventure Material Contract) as of July 31, 2005 as set forth is Schedule "B" hereto; (g) "Coventure Accounts Receivable" means all accounts receivable and other debts owing to Coventure, on a consolidated basis, as of July 31, 2005 as set forth in Schedule "C" hereto; (h) "Coventure Assets" means the undertaking and all the property and assets of the Coventure Business of every kind and description wheresoever situated including, without limitation, Coventure Equipment, Coventure Inventory, Coventure Material Contracts, Coventure Accounts Receivable, Coventure Cash, Coventure Intangible Assets and Coventure Goodwill, and all credit cards, charge cards and banking cards issued to Coventure; 2 (i) "Coventure Bank Accounts" means all of the bank accounts, lock boxes and safety deposit boxes of Coventure and its subsidiaries or relating to the Coventure Business as set forth in Schedule "D" hereto; (j) "Coventure Business" means all aspects of any business conducted by Coventure and its subsidiaries; (k) "Coventure Cash" means all cash on hand or on deposit to the credit of Coventure and its subsidiaries on the Closing Date; (l) "Coventure Common Shares" means the shares of common stock in the capital of Coventure; (m) "Coventure Debt to Related Parties" means the debts owed by Coventure to any affiliate, director or officer of Coventure as described in Schedule "E" hereto; (n) "Coventure Equipment" means all machinery, equipment, furniture, and furnishings used in the Coventure Business, including, without limitation, the items more particularly described in Schedule "F" hereto; (o) "Coventure Financial Statements" means, collectively, the audited consolidated financial statements of Coventure for the two fiscal years ended July 31, 2005, together with the unqualified auditors' report thereon, true copies of which are attached as Schedule "A" hereto; (p) "Coventure Goodwill" means the goodwill of the Coventure Business including the right to all corporate, operating and trade names associated with the Coventure Business, or any variations of such names as part of or in connection with the Coventure Business, all books and records and other information relating to the Coventure Business, all necessary licenses and authorizations and any other rights used in connection with the Coventure Business; (q) "Coventure Insurance Policies" means the public liability insurance and insurance against loss or damage to the Coventure Assets and the Coventure Business as described in Schedule "G" hereto; (r) "Coventure Intangible Assets" means all of the intangible assets of Coventure and its subsidiaries, including, without limitation, Coventure Goodwill, all trademarks, logos, copyrights, designs, and other intellectual and industrial property of Coventure and its subsidiaries; (s) "Coventure Inventory" means all inventory and supplies of the Coventure Business as of July 31, 2005, as set forth in Schedule "H" hereto; (t) "Coventure Material Contracts" means the burden and benefit of and the right, title and interest of Coventure and its subsidiaries in, to and under all trade and non-trade contracts, engagements or commitments, whether written or oral, to which Coventure or its subsidiaries are entitled whereunder Coventure or its subsidiaries are obligated to pay or entitled to receive the sum of $10,000 or more including, without limitation, any pension plans, profit sharing plans, bonus plans, loan agreements, security agreements, indemnities and guarantees, any agreements with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, officers, directors, attorneys or others which cannot be terminated without liability on not more than one month's notice, and those contracts listed in Schedule "I" hereto; 3 (u) "Place of Closing" means the offices of Sichenzia Ross Friedman Ference LLP, or such other place as Coventure and Xilan Natural Gas may mutually agree upon; (v) "Xilan Natural Gas Accounts Payable and Liabilities" means all accounts payable and liabilities of Xilan Natural Gas, due and owing or otherwise constituting a binding obligation of Xilan Natural Gas (other than a Xilan Natural Gas Material Contract) as of September 30, 2005 as set forth in Schedule "K" hereto; (w) "Xilan Natural Gas Accounts Receivable" means all accounts receivable and other debts owing to Xilan Natural Gas, as of September 30, 2005 as set forth in Schedule "L" hereto; (x) "Xilan Natural Gas Assets" means the undertaking and all the property and assets of the Xilan Natural Gas Business of every kind and description wheresoever situated including, without limitation, Xilan Natural Gas Equipment, Xilan Natural Gas Inventory, Xilan Natural Gas Material Contracts, Xilan Natural Gas Accounts Receivable, Xilan Natural Gas Cash, Xilan Natural Gas Intangible Assets and Xilan Natural Gas Goodwill, and all credit cards, charge cards and banking cards issued to Xilan Natural Gas; (y) "Xilan Natural Gas Bank Accounts" means all of the bank accounts, lock boxes and safety deposit boxes of Xilan Natural Gas or relating to the Xilan Natural Gas Business as set forth in Schedule "M" hereto; (z) "Xilan Natural Gas Business" means all aspects of the business conducted by Xilan Natural Gas; (aa) "Xilan Natural Gas Cash" means all cash on hand or on deposit to the credit of Xilan Natural Gas on the Closing Date; (bb) "Xilan Natural Gas Debt to Related Parties" means the debts owed by Xilan Natural Gas and its subsidiaries to the Xilan Natural Gas Shareholders or to any family member thereof, or to any affiliate, director or officer of Xilan Natural Gas or the Xilan Natural Gas Shareholders as described in Schedule "N"; (cc) "Xilan Natural Gas Equipment" means all machinery, equipment, furniture, and furnishings used in the Xilan Natural Gas Business, including, without limitation, the items more particularly described in Schedule "O" hereto; (dd) "Xilan Natural Gas Financial Statements" means collectively, the audited consolidated financial statements of Xilan Natural Gas for two year period ended December 31, 2004, together with the reviewed financial statements for the nine month period ended September 30, 2005, true copies of which are attached as Schedule "J" hereto; (ee) "Xilan Natural Gas Goodwill" means the goodwill of the Xilan Natural Gas Business together with the exclusive right of Coventure to represent itself as carrying on the Xilan Natural Gas Business in succession of Xilan Natural Gas subject to the terms hereof, and the right to use any words indicating that the Xilan Natural Gas Business 4 is so carried on including the right to use the name "Xilan Natural Gas" or "Xilan Natural Gas International" or any variation thereof as part of the name of or in connection with the Xilan Natural Gas Business or any part thereof carried on or to be carried on by Xilan Natural Gas, the right to all corporate, operating and trade names associated with the Xilan Natural Gas Business, or any variations of such names as part of or in connection with the Xilan Natural Gas Business, all telephone listings and telephone advertising contracts, all lists of customers, books and records and other information relating to the Xilan Natural Gas Business, all necessary licenses and authorizations and any other rights used in connection with the Xilan Natural Gas Business; (ff) "Xilan Natural Gas Insurance Policies" means the public liability insurance and insurance against loss or damage to Xilan Natural Gas Assets and the Xilan Natural Gas Business as described in Schedule "P" hereto; (gg) "Xilan Natural Gas Intangible Assets" means all of the intangible assets of Xilan Natural Gas, including, without limitation, Xilan Natural Gas Goodwill, all trademarks, logos, copyrights, designs, and other intellectual and industrial property of Xilan Natural Gas and its subsidiaries; (hh) "Xilan Natural Gas Inventory" means all inventory and supplies of the Xilan Natural Gas Business as of September 30, 2005 as set forth in Schedule "Q" hereto; (ii) "Xilan Natural Gas Material Contracts" means the burden and benefit of and the right, title and interest of Xilan Natural Gas in, to and under all trade and non-trade contracts, engagements or commitments, whether written or oral, to which Xilan Natural Gas is entitled in connection with the Xilan Natural Gas Business whereunder Xilan Natural Gas is obligated to pay or entitled to receive the sum of $10,000 or more including, without limitation, any pension plans, profit sharing plans, bonus plans, loan agreements, security agreements, indemnities and guarantees, any agreements with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, officers, directors, attorneys or others which cannot be terminated without liability on not more than one month's notice, and those contracts listed in Schedule "R" hereto; (jj) "Xilan Natural Gas Related Party Debts" means the debts owed by the Xilan Natural Gas Shareholders or by any family member thereof, or by any affiliate, director or officer of Xilan Natural Gas or the Xilan Natural Gas Shareholders, to Xilan Natural Gas as described in Schedule "S"; and (kk) "Xilan Natural Gas Shares" means all of the issued and outstanding shares of Xilan Natural Gas's equity stock. Any other terms defined within the text of this Agreement will have the meanings so ascribed to them. Captions and Section Numbers 1.2 The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof. 5 Section References and Schedules 1.3 Any reference to a particular "Article", "section", "paragraph", "clause" or other subdivision is to the particular Article, section, clause or other subdivision of this Agreement and any reference to a Schedule by letter will mean the appropriate Schedule attached to this Agreement and by such reference the appropriate Schedule is incorporated into and made part of this Agreement. The Schedules to this Agreement are as follows: Information concerning Coventure Schedule "A" Coventure Financial Statements Schedule "B" Coventure Accounts Payable and Liabilities Schedule "C" Coventure Accounts Receivable Schedule "D" Coventure Bank Accounts Schedule "E" Coventure Debts to Related Parties Schedule "F" Coventure Equipment Schedule "G" Coventure Insurance Policies Schedule "H" Coventure Inventory Schedule "I" Coventure Material Contracts Information concerning Xilan Natural Gas Schedule "J" Xilan Natural Gas Financial Statements Schedule "K" Xilan Natural Gas Accounts Payable and Liabilities Schedule "L" Xilan Natural Gas Accounts Receivable Schedule "M" Xilan Natural Gas Bank Accounts Schedule "N" Xilan Natural Gas Debts to Related Parties Schedule "O" Xilan Natural Gas Equipment Schedule "P" Xilan Natural Gas Insurance Policies Schedule "Q" Xilan Natural Gas Inventory Schedule "R" Xilan Natural Gas Material Contracts Schedule "S" Xilan Natural Gas Related Party Debts Severability of Clauses 1.4 If any part of this Agreement is declared or held to be invalid for any reason, such invalidity will not affect the validity of the remainder which will continue in full force and effect and be construed as if this Agreement had been executed without the invalid portion, and it is hereby declared the intention of the parties that this Agreement would have been executed without reference to any portion which may, for any reason, be hereafter declared or held to be invalid. ARTICLE 2 THE ACQUISITION Sale of Shares 2.1 The Xilan Natural Gas Shareholders hereby agree to sell to Coventure the Xilan Natural Gas Shares in exchange for the Acquisition Shares on the Closing Date and to transfer to Coventure on the Closing Date a 100% undivided interest in and to the Xilan Natural Gas Shares free from all liens, mortgages, charges, pledges, encumbrances or other burdens with all rights now or thereafter attached thereto. 6 Allocation of Consideration 2.2 The Acquisition Shares shall be allocated to the Xilan Natural Gas Shareholders, as set forth on Schedule 2.2 attached hereto and made a part hereof. Adherence with Applicable Securities Laws 2.3 The Xilan Natural Gas Shareholders agree that they are acquiring the Acquisition Shares for investment purposes and will not offer, sell or otherwise transfer, pledge or hypothecate any of the Acquisition Shares issued to them (other than pursuant to an effective Registration Statement under the Securities Act of 1933, as amended) directly or indirectly unless: (a) the sale is to Coventure; (b) the sale is made pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144 thereunder; or (c) the Acquisition Shares are sold in a transaction that does not require registration under the Securities Act of 1933, as amended, or any applicable United States state laws and regulations governing the offer and sale of securities, and the vendor has furnished to Coventure an opinion of counsel to that effect or such other written opinion as may be reasonably required by Coventure. The Xilan Natural Gas Shareholders acknowledge that the certificates representing the Acquisition Shares shall bear the following legend: "THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT." The Xilan Natural Gas Shareholders further represent and acknowledge that: (a) The Xilan Natural Gas Shareholders are located outside the United States; 7 (b) The Xilan Natural Gas Shareholders are not aware of any advertisement of any of the shares be issued hereunder; (c) The Xilan Natural Gas Shareholders will not acquire the shares as a result of and will not itself engage in, any "directed selling efforts" (as defined in Regulation S under the 1933 Act) in the United States in respect of the shares which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of the shares; provided, however, that the Xilan Natural Gas Shareholders may sell or otherwise dispose of the shares pursuant to registration of the shares pursuant to the 1933 Act and any applicable state and provincial securities laws or under an exemption from such registration requirements and as otherwise provided herein; (d) The Xilan Natural Gas Shareholders agree that the Company will refuse to register any transfer of the shares not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from the registration requirements of the 1933 Act and in accordance with applicable state and provincial securities laws; and (e) The Xilan Natural Gas Shareholders understand and agree that offers and sales of any of the shares, prior to the expiration of a period of one year after the date of transfer of the shares (the "Distribution Compliance Period"), shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the 1933 Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom and in each case only in accordance with all applicable securities laws; (f) The Xilan Natural Gas Shareholders understand and agree not to engage in any hedging transactions involving the Acquisition Shares prior to the end of the Distribution Compliance Period unless such transactions are in compliance with the provisions of the 1933 Act; (g) The Xilan Natural Gas Shareholders hereby acknowledge and agree to Coventure making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described herein. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COVENTURE Representations and Warranties 3.1 Coventure hereby represents and warrants in all material respects to Xilan Natural Gas and the Xilan Natural Gas Shareholders, with the intent that Xilan Natural Gas and the Xilan Natural Gas Shareholders will rely thereon in entering into this Agreement and in approving and completing the transactions contemplated hereby, that: 8 Coventure - Corporate Status and Capacity (a) Incorporation. Coventure is a corporation duly incorporated and validly subsisting under the laws of the State of Delaware, and is in good standing with the office of the Secretary of State for the State of Delaware; (b) Carrying on Business. Coventure conducts the business described in its filings with the Securities and Exchange Commission and does not conduct any other business. Coventure is duly authorized to carry on such business in Alberta, Canada. The nature of the Coventure Business does not require Coventure to register or otherwise be qualified to carry on business in any other jurisdictions; (c) Corporate Capacity. Coventure has the corporate power, capacity and authority to own the Coventure Assets and to enter into and complete this Agreement; (d) Reporting Status; Listing. Coventure is required to file current reports with the Securities and Exchange Commission pursuant to section 12(g) of the Securities Exchange Act of 1934, the Coventure Common Shares are quoted on the NASD "Bulletin Board", and all reports required to be filed by Coventure with the Securities and Exchange Commission or NASD have been timely filed; Coventure - Capitalization (e) Authorized Capital. The authorized capital of Coventure consists of 30,000,000 Coventure Common Shares, $0.0001 par value and 5,000,000 shares of preferred stock. $0.0001 par value, of which 7,022,200 Coventure Common Shares, and no shares of preferred stock are presently issued and outstanding; (f) No Option, Warrant or Other Right. No person, firm or corporation has any agreement, option, warrant, preemptive right or any other right capable of becoming an agreement, option, warrant or right for the acquisition of Coventure Common Shares or for the purchase, subscription or issuance of any of the unissued shares in the capital of Coventure; Coventure - Records and Financial Statements (g) Charter Documents. The charter documents of Coventure and its subsidiaries have not been altered since the incorporation of each, respectively, except as filed in the record books of Coventure or its subsidiaries, as the case may be; (h) Corporate Minute Books. The corporate minute books of Coventure and its subsidiaries are complete and each of the minutes contained therein accurately reflect the actions that were taken at a duly called and held meeting or by consent without a meeting. All actions by Coventure and its subsidiaries which required director or shareholder approval are reflected on the corporate minute books of Coventure and its subsidiaries. Coventure and its subsidiaries are not in violation or breach of, or in default with respect to, any term of their respective Certificates of Incorporation (or other charter documents) or By-laws. (i) Coventure Financial Statements. The Coventure Financial Statements present fairly, in all material respects, the assets and liabilities (whether accrued, absolute, contingent or otherwise) of Coventure, on a consolidated basis, as of the respective dates thereof, and the sales and earnings of the Coventure Business during the periods covered thereby, in all material respects and have been prepared in substantial accordance with generally accepted accounting principles consistently applied; 9 (j) Coventure Accounts Payable and Liabilities. There are no material liabilities, contingent or otherwise, of Coventure or its subsidiaries which are not disclosed in Schedule "B" hereto or reflected in the Coventure Financial Statements except those incurred in the ordinary course of business since the date of the said schedule and the Coventure Financial Statements, and neither Coventure nor its subsidiaries have guaranteed or agreed to guarantee any debt, liability or other obligation of any person, firm or corporation. Without limiting the generality of the foregoing, all accounts payable and liabilities of Coventure as of July 31, 2005, are described in Schedule "B" hereto; (k) Coventure Accounts Receivable. All the Coventure Accounts Receivable result from bona fide business transactions and services actually rendered without, to the knowledge and belief of Coventure, any claim by the obligor for set-off or counterclaim. Without limiting the generality of the foregoing, all accounts receivable of Coventure as of July 31, 2005, are described in Schedule "C" hereto; (l) Coventure Bank Accounts. All of the Coventure Bank Accounts, their location, numbers and the authorized signatories thereto are as set forth in Schedule "D" hereto; (m) No Debt to Related Parties. Except as disclosed in Schedule "E" hereto, neither Coventure nor any of its subsidiaries is, and on Closing will not be, indebted to any affiliate, director or officer of Coventure except accounts payable on account of bona fide business transactions of Coventure incurred in normal course of the Coventure Business, including employment agreements, none of which are more than 30 days in arrears; (n) No Related Party Debt to Coventure. No director or officer or affiliate of Coventure is now indebted to or under any financial obligation to Coventure or any subsidiary on any account whatsoever, except for advances on account of travel and other expenses not exceeding $1,000 in total; (o) No Dividends. No dividends or other distributions on any shares in the capital of Coventure have been made, declared or authorized since the date of Coventure Financial Statements; (p) No Payments. No payments of any kind have been made or authorized since the date of the Coventure Financial Statements to or on behalf of officers, directors, shareholders or employees of Coventure or its subsidiaries or under any management agreements with Coventure or its subsidiaries, except payments made in the ordinary course of business and at the regular rates of salary or other remuneration payable to them; (q) No Pension Plans. There are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting Coventure; (r) No Adverse Events. Since the date of the Coventure Financial Statements (i) there has not been any material adverse change in the consolidated financial position or condition of Coventure, its subsidiaries, its liabilities or the Coventure Assets or any damage, loss or other change in circumstances materially 10 affecting Coventure, the Coventure Business or the Coventure Assets or Coventure' right to carry on the Coventure Business, other than changes in the ordinary course of business, (ii) there has not been any damage, destruction, loss or other event (whether or not covered by insurance) materially and adversely affecting Coventure, its subsidiaries, the Coventure Business or the Coventure Assets, (iii) there has not been any material increase in the compensation payable or to become payable by Coventure to any of Coventure' officers, employees or agents or any bonus, payment or arrangement made to or with any of them, (iv) the Coventure Business has been and continues to be carried on in the ordinary course, (v) Coventure has not waived or surrendered any right of material value, (vi) neither Coventure nor its subsidiaries have discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business, and (vii) no capital expenditures in excess of $10,000 individually or $30,000 in total have been authorized or made. Coventure - Income Tax Matters (s) Tax Returns. All tax returns and reports of Coventure and its subsidiaries required by law to be filed have been filed and are true, complete and correct, and any taxes payable in accordance with any return filed by Coventure and its subsidiaries or in accordance with any notice of assessment or reassessment issued by any taxing authority have been so paid; (t) Current Taxes. Adequate provisions have been made for taxes payable for the current period for which tax returns are not yet required to be filed and there are no agreements, waivers, or other arrangements providing for an extension of time with respect to the filing of any tax return by, or payment of, any tax, governmental charge or deficiency by Coventure or its subsidiaries. Coventure is not aware of any contingent tax liabilities or any grounds which would prompt a reassessment including aggressive treatment of income and expenses in filing earlier tax returns; Coventure - Applicable Laws and Legal Matters (u) Licenses. Coventure and its subsidiaries hold all licenses and permits as may be requisite for carrying on the Coventure Business in the manner in which it has heretofore been carried on, which licenses and permits have been maintained and continue to be in good standing except where the failure to obtain or maintain such licenses or permits would not have a material adverse effect on the Coventure Business; (v) Applicable Laws. Neither Coventure nor its subsidiaries have been charged with or received notice of breach of any laws, ordinances, statutes, regulations, by-laws, orders or decrees to which they are subject or which apply to them the violation of which would have a 11 material adverse effect on the Coventure Business, and to Coventure' knowledge, neither Coventure nor its subsidiaries are in breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees the contravention of which would result in a material adverse impact on the Coventure Business; (w) Pending or Threatened Litigation. There is no material litigation or administrative or governmental proceeding pending or threatened against or relating to Coventure, its subsidiaries, the Coventure Business, or any of the Coventure Assets nor does Coventure have any knowledge of any deliberate act or omission of Coventure or its subsidiaries that would form any material basis for any such action or proceeding; (x) No Bankruptcy. Neither Coventure nor its subsidiaries have made any voluntary assignment or proposal under applicable laws relating to insolvency and bankruptcy and no bankruptcy petition has been filed or presented against Coventure or its subsidiaries and no order has been made or a resolution passed for the winding-up, dissolution or liquidation of Coventure or its subsidiaries; (y) Labor Matters. Neither Coventure nor its subsidiaries are party to any collective agreement relating to the Coventure Business with any labor union or other association of employees and no part of the Coventure Business has been certified as a unit appropriate for collective bargaining or, to the knowledge of Coventure, has made any attempt in that regard; (z) Finder's Fees. Neither Coventure nor its subsidiaries are party to any agreement which provides for the payment of finder's fees, brokerage fees, commissions or other fees or amounts which are or may become payable to any third party in connection with the execution and delivery of this Agreement and the transactions contemplated herein; Execution and Performance of Agreement (aa) Authorization and Enforceability. The execution and delivery of this Agreement, and the completion of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of Coventure; (bb) No Violation or Breach. The execution and performance of this Agreement will not: (i) violate the charter documents of Coventure or result in any breach of, or default under, any loan agreement, mortgage, deed of trust, or any other agreement to which Coventure or its subsidiaries are party, (ii) give any person any right to terminate or cancel any agreement including, without limitation, the Coventure Material Contracts, or any right or rights enjoyed by Coventure or its subsidiaries, (iii) result in any alteration of Coventure' or its subsidiaries' obligations under any agreement to which Coventure or its subsidiaries are party including, without limitation, the Coventure Material Contracts, (iv) result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the Coventure Assets, (v) result in the imposition of any tax liability to Coventure or its subsidiaries relating to the Coventure Assets, or (vi) violate any court order or decree to which either Coventure or its subsidiaries are subject; The Coventure Assets - Ownership and Condition (cc) Business Assets. The Coventure Assets comprise all of the property and assets of the Coventure Business, and no other person, firm or corporation owns any assets used by Coventure or its subsidiaries in operating the Coventure Business, whether under a lease, rental agreement or other arrangement, other than as disclosed in Schedules "F" or "I" hereto; (dd) Title. Coventure or its subsidiaries are the legal and beneficial owner of the Coventure Assets, free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as disclosed in Schedules "F" or "I" hereto; (ee) No Option. No person, firm or corporation has any agreement or option or a right capable of becoming an agreement for the purchase of any of the Coventure Assets; (ff) Coventure Insurance Policies. Coventure and its subsidiaries maintain the public liability insurance and insurance against loss or damage to the Coventure Assets and the Coventure Business as described in Schedule "G" hereto; (gg) Coventure Material Contracts. The Coventure Material Contracts listed in Schedule "I" constitute all of the material contracts of Coventure and its subsidiaries; (hh) No Default. There has not been any default in any material obligation of Coventure or any other party to be performed under any of the Coventure Material Contracts, each of which is in good standing and in full force and effect and unamended (except as disclosed in Schedule "I" hereto), and Coventure is not aware of any default in the obligations of any other party to any of the Coventure Material Contracts; (ii) No Compensation on Termination. There are no agreements, commitments or understandings relating to severance pay or separation allowances on termination of employment of any employee of Coventure or its subsidiaries. Neither Coventure nor its subsidiaries are obliged to pay benefits or share profits with any employee after termination of employment except as required by law; Coventure Assets - Coventure Equipment (jj) Coventure Equipment. The Coventure Equipment has been maintained in a manner consistent with that of a reasonably prudent owner and such equipment is in good working condition; Coventure Assets - Coventure Goodwill and Other Assets (kk) Coventure Goodwill. Coventure and its subsidiaries does not carry on the Coventure Business under any other business or trade names. Coventure does not have any knowledge of any infringement by Coventure or its subsidiaries of any patent, trademarks, copyright or trade secret; 12 The Coventure Business (ll) Maintenance of Business. Since the date of the Coventure Financial Statements, Coventure and its subsidiaries have not entered into any material agreement or commitment except in the ordinary course and except as disclosed herein; (mm) Subsidiaries. Except for the Coventure Canada, Inc., Coventure does not own any subsidiaries and does not otherwise own, directly or indirectly, any shares or interest in any other corporation, partnership, joint venture or firm; and Coventure - Acquisition Shares (nn) Acquisition Shares. The Acquisition Shares when delivered to the Xilan Natural Gas Shareholders pursuant to the Acquisition shall be validly issued and outstanding as fully paid and non-assessable shares and the Acquisition Shares shall be transferable upon the books of Coventure, in all cases subject to the provisions and restrictions of all applicable securities laws. Non-Merger and Survival 3.2 The representations and warranties of Coventure contained herein will be true at and as of Closing in all material respects as though such representations and warranties were made as of such time. Notwithstanding the completion of the transactions contemplated hereby, the waiver of any condition contained herein (unless such waiver expressly releases a party from any such representation or warranty) or any investigation made by Xilan Natural Gas or the Xilan Natural Gas Shareholders, the representations and warranties of Coventure shall survive the Closing. Indemnity 3.3 Coventure agrees to indemnify and save harmless Xilan Natural Gas and the Xilan Natural Gas Shareholders from and against any and all claims, demands, actions, suits, proceedings, assessments, judgments, damages, costs, losses and expenses, including any payment made in good faith in settlement of any claim (subject to the right of Coventure to defend any such claim), resulting from the breach by it of any representation or warranty made under this Agreement or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished by Coventure to Xilan Natural Gas or the Xilan Natural Gas Shareholders hereunder. ARTICLE 4 COVENANTS OF COVENTURE Covenants 4.1 Coventure covenants and agrees with Xilan Natural Gas and the Xilan Natural Gas Shareholders that it will: (a) Conduct of Business. Until the Closing, conduct the Coventure Business diligently and in the ordinary course consistent with the manner in which the Coventure Business generally has been operated up to the date of execution of this Agreement; (b) Preservation of Business. Until the Closing, use its best efforts to preserve the Coventure Business and the Coventure Assets and, without limitation, preserve for Xilan Natural Gas Coventure's and its subsidiaries' relationships with any third party having business relations with them; 13 (c) Access. Until the Closing, give Xilan Natural Gas, the Xilan Natural Gas Shareholders, and their representatives full access to all of the properties, books, contracts, commitments and records of Coventure, and furnish to Xilan Natural Gas, the Xilan Natural Gas Shareholders and their representatives all such information as they may reasonably request; (d) Procure Consents. Until the Closing, take all reasonable steps required to obtain, prior to Closing, any and all third party consents required to permit the Acquisition and to preserve and maintain the Coventure Assets notwithstanding the change in control of Xilan Natural Gas arising from the Acquisition; (e) Stock Dividend. Within ten (10) days from the Closing Date, Coventure shall effectuate a four-for-one forward split of the Coventure Common Shares by way of stock dividend; (f) Name Change. Forthwith after the Closing, take such steps are required to change the name of Coventure to "Asia Natural Gas, Inc." or such similar name as may be acceptable to the board of directors of Xilan Natural Gas; (g) Sale of Business. Within thirty (30) days from the Closing Date, Coventure shall sell its business operations, as they exist immediately prior to the Closing, to John Hromyk. In consideration of the sale, Mr. Hromyk shall forgive all debt owned to him by Coventure (in the amount of $43,179.13). Other than indebtedness of Xilan Natural Gas, Coventure shall have no indebtedness or other liability of any kind or nature after the sale of the business to Mr. Hromyk, save and except for liabilities incurred in connection with the Acquisition; and (h) Return of Shares. Concurrently with the Closing, John Hromyk shall return to Coventure without further consideration the 5,971,178 Coventure Common Shares which he owns. Authorization 4.2 Coventure hereby agrees to authorize and direct any and all federal, state, municipal, foreign and international governments and regulatory authorities having jurisdiction respecting Coventure and its subsidiaries to release any and all information in their possession respecting Coventure and its subsidiaries to the Xilan Natural Gas Shareholders. Coventure shall promptly execute and deliver to the Xilan Natural Gas Shareholders any and all consents to the release of information and specific authorizations which the Xilan Natural Gas Shareholders reasonably requires to gain access to any and all such information. Survival 4.3 The covenants set forth in this Article shall survive the Closing for the benefit of Xilan Natural Gas and the Xilan Natural Gas Shareholders. 14 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE XILAN NATURAL GAS SHAREHOLDERS Representations and Warranties 5.1 The Xilan Natural Gas Shareholders hereby jointly and severaly represent and warrant in all material respects to Coventure, with the intent that it will rely thereon in entering into this Agreement and in approving and completing the transactions contemplated hereby, that: Xilan Natural Gas - Company Status and Capacity (a) Formation. Xilan Natural Gas is a company duly formed and validly subsisting under the laws of the People's Republic of China; (b) Carrying on Business. Xilan Natural Gas carries on the Xilan Natural Gas Business primarily in the People's Republic of China and does not carry on any material business activity in any other jurisdiction. Xilan Natural Gas is duly authorized to carry on the Xilan Natural Gas Business in the People's Republic of China. The nature of the Xilan Natural Gas Business does not require Xilan Natural Gas to register or otherwise be qualified to carry on business in any other jurisdiction; (c) Legal Capacity. Xilan Natural Gas has the legal power, capacity and authority to own Xilan Natural Gas Assets, to carry on the Business of Xilan Natural Gas and to enter into and complete this Agreement; Xilan Natural Gas - Capitalization (d) Authorized Capital. The authorized capital of Xilan Natural Gas consists of 69,000,000 shares of capital stock; (e) Ownership of Xilan Natural Gas Shares. The registered, issued and outstanding share capital of Xilan Natural Gas will on Closing consist of 69,000,000 capital shares (being the Xilan Natural Gas Shares), which shares on Closing shall be validly issued and outstanding as fully paid and non-assessable shares. The Xilan Natural Gas Shareholders will be at Closing the registered and beneficial owners of the 69,000,000 Xilan Natural Gas Shares. The Xilan Natural Gas Shares owned by the Xilan Natural Gas Shareholders will on Closing be free and clear of any and all liens, charges, pledges, encumbrances, restrictions on transfer and adverse claims whatsoever; (f) No Option, Warrant or Other Right. No person, firm or corporation has any agreement, option, warrant, preemptive right or any other right capable of becoming an agreement, option, warrant or right for the acquisition of Xilan Natural Gas Shares held by the Xilan Natural Gas Shareholders or for the purchase, subscription or issuance of any of the unissued shares in the capital of Xilan Natural Gas; (g) No Restrictions. There are no restrictions on the transfer, sale or other disposition of Xilan Natural Gas Shares contained in the charter documents of Xilan Natural Gas or under any agreement; 15 Xilan Natural Gas - Records and Financial Statements (h) Charter Documents. The charter documents of Xilan Natural Gas have not been altered since its formation date, except as filed in the record books of Xilan Natural Gas; (i) Minute Books. The minute books of Xilan Natural Gas are complete and each of the minutes contained therein accurately reflect the actions that were taken at a duly called and held meeting or by consent without a meeting. All actions by Xilan Natural Gas which required director or shareholder approval are reflected on the corporate minute books of Xilan Natural Gas. Xilan Natural Gas is not in violation or breach of, or in default with respect to, any term of its Certificate of Incorporation (or other charter documents) or by-laws. (j) Xilan Natural Gas Financial Statements. The Xilan Natural Gas Financial Statements present fairly, in all material respects, the assets and liabilities (whether accrued, absolute, contingent or otherwise) of Xilan Natural Gas as of the date thereof, and the sales and earnings of the Xilan Natural Gas Business during the periods covered thereby, in all material respects, and have been prepared in substantial accordance with generally accepted accounting principles consistently applied; (k) Xilan Natural Gas Accounts Payable and Liabilities. There are no material liabilities, contingent or otherwise, of Xilan Natural Gas which are not disclosed in Schedule "K" hereto or reflected in the Xilan Natural Gas Financial Statements except those incurred in the ordinary course of business since the date of the said schedule and the Xilan Natural Gas Financial Statements, and Xilan Natural Gas has not guaranteed or agreed to guarantee any debt, liability or other obligation of any person, firm or corporation. Without limiting the generality of the foregoing, all accounts payable and liabilities of Xilan Natural Gas as of September 30, 2005 are described in Schedule "K" hereto; (l) Xilan Natural Gas Accounts Receivable. All the Xilan Natural Gas Accounts Receivable result from bona fide business transactions and services actually rendered without, to the knowledge and belief of the Xilan Natural Gas Shareholders, any claim by the obligor for set-off or counterclaim. Without limiting the generality of the foregoing, all accounts receivable of Xilan Natural Gas as of September 30, 2005, are described in Schedule "L" hereto; (m) Xilan Natural Gas Bank Accounts. All of the Xilan Natural Gas Bank Accounts, their location, numbers and the authorized signatories thereto are as set forth in Schedule "M" hereto; (n) No Debt to Related Parties. Except as disclosed in Schedule "N" hereto, Xilan Natural Gas is not and on Closing will not be, indebted to the Xilan Natural Gas Shareholders nor to any family member thereof, nor to any affiliate, director or officer of Xilan Natural Gas or the Xilan Natural Gas Shareholders except accounts payable on account of bona fide business transactions of Xilan Natural Gas incurred in normal course of Xilan Natural Gas Business, including employment agreements with the Xilan Natural Gas Shareholders, none of which are more than 30 days in arrears; (o) No Related Party Debt to Xilan Natural Gas. Except as set forth on Schedule "S" hereto, no Xilan Natural Gas Shareholder nor any 16 director, officer or affiliate of Xilan Natural Gas is now indebted to or under any financial obligation to Xilan Natural Gas on any account whatsoever, except for advances on account of travel and other expenses not exceeding $5,000 in total; (p) No Dividends. No dividends or other distributions on any shares in the capital of Xilan Natural Gas have been made, declared or authorized since the date of the Xilan Natural Gas Financial Statements; (q) No Payments. No payments of any kind have been made or authorized since the date of the Xilan Natural Gas Financial Statements to or on behalf of the Xilan Natural Gas Shareholders or to or on behalf of officers, directors, shareholders or employees of Xilan Natural Gas or under any management agreements with Xilan Natural Gas, except payments made in the ordinary course of business and at the regular rates of salary or other remuneration payable to them; (r) No Pension Plans. There are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting Xilan Natural Gas, except as set forth in the Xilan Natural Gas Financial Statements; (s) No Adverse Events. Since the date of the Xilan Natural Gas Financial Statements: (i) there has not been any material adverse change in the consolidated financial position or condition of Xilan Natural Gas, its liabilities or the Xilan Natural Gas Assets or any damage, loss or other change in circumstances materially affecting Xilan Natural Gas, the Xilan Natural Gas Business or the Xilan Natural Gas Assets or Xilan Natural Gas's right to carry on the Xilan Natural Gas Business, other than changes in the ordinary course of business, (ii) there has not been any damage, destruction, loss or other event (whether or not covered by insurance) materially and adversely affecting Xilan Natural Gas, the Xilan Natural Gas Business or the Xilan Natural Gas Assets, (iii) there has not been any material increase in the compensation payable or to become payable by Xilan Natural Gas to the Xilan Natural Gas Shareholders or to any of Xilan Natural Gas's officers, employees or agents or any bonus, payment or arrangement made to or with any of them, (iv) the Xilan Natural Gas Business has been and continues to be carried on in the ordinary course, (v) Xilan Natural Gas has not waived or surrendered any right of material value, (vi) Xilan Natural Gas has not discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business, and (vii) no capital expenditures in excess of $10,000 individually or $30,000 in total have been authorized or made; Xilan Natural Gas - Income Tax Matters (t) Tax Returns. All tax returns and reports of Xilan Natural Gas required by law to be filed have been filed and are true, complete and correct, 17 and any taxes payable in accordance with any return filed by Xilan Natural Gas or in accordance with any notice of assessment or reassessment issued by any taxing authority have been so paid; (u) Current Taxes. Adequate provisions have been made for taxes payable for the current period for which tax returns are not yet required to be filed and there are no agreements, waivers, or other arrangements providing for an extension of time with respect to the filing of any tax return by, or payment of, any tax, governmental charge or deficiency by Xilan Natural Gas. Xilan Natural Gas is not aware of any contingent tax liabilities or any grounds which would prompt a reassessment including aggressive treatment of income and expenses in filing earlier tax returns; Xilan Natural Gas - Applicable Laws and Legal Matters (v) Licenses. Xilan Natural Gas holds all licenses and permits as may be requisite for carrying on the Xilan Natural Gas Business in the manner in which it has heretofore been carried on, which licenses and permits have been maintained and continue to be in good standing except where the failure to obtain or maintain such licenses or permits would not have a material adverse effect on the Xilan Natural Gas Business; (w) Applicable Laws. Xilan Natural Gas has not been charged with or received notice of breach of any laws, ordinances, statutes, regulations, by-laws, orders or decrees to which they are subject or which applies to them the violation of which would have a material adverse effect on the Xilan Natural Gas Business, and, to the knowledge of the Xilan Natural Gas Shareholders, Xilan Natural Gas is not in breach of any laws, ordinances, statutes, regulations, by-laws, orders or decrees the contravention of which would result in a material adverse impact on the Xilan Natural Gas Business; (x) Pending or Threatened Litigation. There is no material litigation or administrative or governmental proceeding pending or threatened against or relating to Xilan Natural Gas, the Xilan Natural Gas Business, or any of the Xilan Natural Gas Assets, nor do the Xilan Natural Gas Shareholders have any knowledge of any deliberate act or omission of Xilan Natural Gas that would form any material basis for any such action or proceeding; (y) No Bankruptcy. Xilan Natural Gas has not made any voluntary assignment or proposal under applicable laws relating to insolvency and bankruptcy and no bankruptcy petition has been filed or presented against Xilan Natural Gas and no order has been made or a resolution passed for the winding-up, dissolution or liquidation of Xilan Natural Gas; (z) Labor Matters. Xilan Natural Gas is not party to any collective agreement relating to the Xilan Natural Gas Business with any labor union or other association of employees and no part of the Xilan Natural Gas Business has been certified as a unit appropriate for collective bargaining or, to the knowledge of the Xilan Natural Gas Shareholders, has made any attempt in that regard; (aa) Finder's Fees. Xilan Natural Gas is not a party to any agreement which provides for the payment of finder's fees, brokerage fees, commissions or other fees or amounts which are or may become payable to any third party in connection with the execution and delivery of this Agreement and the transactions contemplated herein; 18 Execution and Performance of Agreement (bb) Authorization and Enforceability. The execution and delivery of this Agreement, and the completion of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of Xilan Natural Gas; (cc) No Violation or Breach. The execution and performance of this Agreement will not (i) violate the charter documents of Xilan Natural Gas or result in any breach of, or default under, any loan agreement, mortgage, deed of trust, or any other agreement to which Xilan Natural Gas is a party, (ii) give any person any right to terminate or cancel any agreement including, without limitation, Xilan Natural Gas Material Contracts, or any right or rights enjoyed by Xilan Natural Gas, (iii) result in any alteration of Xilan Natural Gas's obligations under any agreement to which Xilan Natural Gas is a party including, without limitation, the Xilan Natural Gas Material Contracts, (iv) result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the Xilan Natural Gas Assets, (v) result in the imposition of any tax liability to Xilan Natural Gas relating to Xilan Natural Gas Assets or the Xilan Natural Gas Shares, or (vi) violate any court order or decree to which either Xilan Natural Gas is subject; Xilan Natural Gas Assets - Ownership and Condition (dd) Business Assets. The Xilan Natural Gas Assets, comprise all of the property and assets of the Xilan Natural Gas Business, and neither the Xilan Natural Gas Shareholders nor any other person, firm or corporation owns any assets used by Xilan Natural Gas in operating the Xilan Natural Gas Business, whether under a lease, rental agreement or other arrangement, other than as disclosed in Schedules "O" or "R" hereto; (ee) Title. Xilan Natural Gas is the legal and beneficial owner of the Xilan Natural Gas Assets, free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as disclosed in Schedules "O" or "R" hereto; (ff) No Option. No person, firm or corporation has any agreement or option or a right capable of becoming an agreement for the purchase of any of the Xilan Natural Gas Assets; (gg) Xilan Natural Gas Insurance Policies. Xilan Natural Gas maintains the public liability insurance and insurance against loss or damage to the Xilan Natural Gas Assets and the Xilan Natural Gas Business as described in Schedule "P" hereto; 19 (hh) Xilan Natural Gas Material Contracts. The Xilan Natural Gas Material Contracts listed in Schedule "R" constitute all of the material contracts of Xilan Natural Gas; (ii) No Default. There has not been any default in any material obligation of Xilan Natural Gas or any other party to be performed under any of Xilan Natural Gas Material Contracts, each of which is in good standing and in full force and effect and unamended (except as disclosed in Schedule "R"), and Xilan Natural Gas is not aware of any default in the obligations of any other party to any of the Xilan Natural Gas Material Contracts; (jj) No Compensation on Termination. There are no agreements, commitments or understandings relating to severance pay or separation allowances on termination of employment of any employee of Xilan Natural Gas. Xilan Natural Gas is not obliged to pay benefits or share profits with any employee after termination of employment except as required by law; Xilan Natural Gas Assets - Xilan Natural Gas Equipment (kk) Xilan Natural Gas Equipment. The Xilan Natural Gas Equipment has been maintained in a manner consistent with that of a reasonably prudent owner and such equipment is in good working condition; Xilan Natural Gas Assets - Xilan Natural Gas Goodwill and Other Assets (ll) Xilan Natural Gas Goodwill. Xilan Natural Gas carries on the Xilan Natural Gas Business only under the name "Xi'an Xilan Natural Gas Co., Ltd." and variations thereof and under no other business or trade names. The Xilan Natural Gas Shareholders do not have any knowledge of any infringement by Xilan Natural Gas of any patent, trademark, copyright or trade secret; The Business of Xilan Natural Gas (mm) Maintenance of Business. Since the date of the Xilan Natural Gas Financial Statements, the Xilan Natural Gas Business has been carried on in the ordinary course and Xilan Natural Gas has not entered into any material agreement or commitment except in the ordinary course; and (nn) Subsidiaries. Xilan Natural Gas does not own any subsidiaries and does not otherwise own, directly or indirectly, any shares or interest in any other corporation, partnership, joint venture or firm and Xilan Natural Gas does not own any subsidiary and does not otherwise own, directly or indirectly, any shares or interest in any other corporation, partnership, joint venture or firm. Non-Merger and Survival 5.2 The representations and warranties of Xilan Natural Gas contained herein will be true at and as of Closing in all material respects as though such representations and warranties were made as of such time. Notwithstanding the completion of the transactions contemplated hereby, the waiver of any condition contained herein (unless such waiver expressly releases a party from any such representation or warranty) or any investigation made by Coventure, the representations and warranties of Xilan Natural Gas shall survive the Closing. 20 Indemnity 5.3 The Xilan Natural Gas Shareholders agree to indemnify and save harmless Coventure from and against any and all claims, demands, actions, suits, proceedings, assessments, judgments, damages, costs, losses and expenses, including any payment made in good faith in settlement of any claim (subject to the right of the Xilan Natural Gas Shareholders to defend any such claim), resulting from the breach by any of them of any representation or warranty of such party made under this Agreement or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished by Xilan Natural Gas or the Xilan Natural Gas Shareholders to Coventure hereunder. ARTICLE 6 COVENANTS OF XILAN NATURAL GAS AND THE XILAN NATURAL GAS SHAREHOLDERS Covenants 6.1 Xilan Natural Gas and the Xilan Natural Gas Shareholders covenant and agree with Coventure that they will: (a) Conduct of Business. Until the Closing, conduct the Xilan Natural Gas Business diligently and in the ordinary course consistent with the manner in which the Xilan Natural Gas Business generally has been operated up to the date of execution of this Agreement; (b) Preservation of Business. Until the Closing, use their best efforts to preserve the Xilan Natural Gas Business and the Xilan Natural Gas Assets and, without limitation, preserve for Coventure Xilan Natural Gas's relationships with their suppliers, customers and others having business relations with them; (c) Access. Until the Closing, give Coventure and its representatives full access to all of the properties, books, contracts, commitments and records of Xilan Natural Gas relating to Xilan Natural Gas, the Xilan Natural Gas Business and the Xilan Natural Gas Assets, and furnish to Coventure and its representatives all such information as they may reasonably request; (d) Procure Consents. Until the Closing, take all reasonable steps required to obtain, prior to Closing, any and all third party consents required to permit the Acquisition and to preserve and maintain the Xilan Natural Gas Assets, including the Xilan Natural Gas Material Contracts, notwithstanding the change in control of Xilan Natural Gas arising from the Acquisition; (e) Reporting and Internal Controls. From and after the Closing, the Xilan Natural Gas Shareholders shall forthwith take all required actions to implement internal controls on the business of Xilan Natural Gas to ensure that Xilan Natural Gas and Coventure comply with Section 13(b)(2) of the Securities and Exchange Act of 1934; (f) Stock Dividend. Within ten (10) days from the Closing Date, Xilan Natural Gas and the Xilan Natural Gas Shareholders shall cause Coventure to effectuate a four-for-one forward split of the Coventure Common Shares by way of stock dividend; 21 (g) Name Change. Forthwith after the Closing, Xilan Natural Gas and the Xilan Natural Gas Shareholders shall take such steps are required to change the name of Coventure to "Asia Natural Gas, Inc." or such similar name as may be acceptable to the board of directors of Coventure; (h) Sale of Business. Within thirty (30) days from the Closing Date, Coventure shall sell its business operations, as they exist immediately prior to the Closing, to John Hromyk. In consideration of the sale, Mr. Hromyk shall forgive all debt owned to him by Coventure (in the amount of $43,179.13); (i) No Reverse Stock Splits. For a period of twelve (12) months following the Closing, take any action to cause or result in any way in a reverse stock split of the capital stock of Coventure; and (j) 1934 Act Reports. From and after the Closing Date, take all such steps as are necessary to discharge all reporting obligations imposed upon them by the Securities Exchange Act of 1934. Authorization 6.2 Xilan Natural Gas hereby agrees to authorize and direct any and all federal, state, municipal, foreign and international governments and regulatory authorities having jurisdiction respecting Xilan Natural Gas to release any and all information in their possession respecting Xilan Natural Gas to Coventure. Xilan Natural Gas shall promptly execute and deliver to Coventure any and all consents to the release of information and specific authorizations which Coventure reasonably require to gain access to any and all such information. Xilan Natural Gas Shareholders hereby authorize Minqing Lu to execute all certificates or other representations required to complete the transactions contemplated by this Agreement. Survival 6.3 The covenants set forth in this Article shall survive the Closing for the benefit of Coventure. ARTICLE 7 CONDITIONS PRECEDENT Conditions Precedent in favor of Coventure 7.1 Coventure's obligations to carry out the transactions contemplated hereby are subject to the fulfillment of each of the following conditions precedent on or before the Closing: (a) all documents or copies of documents required to be executed and delivered to Coventure hereunder will have been so executed and delivered; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by Xilan Natural Gas or the Xilan Natural Gas Shareholders at or prior to the Closing will have been complied with or performed; (c) title to the Xilan Natural Gas Shares held by the Xilan Natural Gas Shareholders and to the Xilan Natural Gas Assets will be free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as disclosed herein, and the Xilan Natural Gas Shares shall be duly transferred to Coventure; 22 (d) subject to Article 8 hereof, there will not have occurred (i) any material adverse change in the financial position or condition of Xilan Natural Gas, its liabilities or the Xilan Natural Gas Assets or any damage, loss or other change in circumstances materially and adversely affecting Xilan Natural Gas, the Xilan Natural Gas Business or the Xilan Natural Gas Assets or Xilan Natural Gas's right to carry on the Xilan Natural Gas Business, other than changes in the ordinary course of business, none of which has been materially adverse, or (ii) any damage, destruction, loss or other event, including changes to any laws or statutes applicable to Xilan Natural Gas or the Xilan Natural Gas Business (whether or not covered by insurance) materially and adversely affecting Xilan Natural Gas, the Xilan Natural Gas Business or the Xilan Natural Gas Assets; and (e) the transactions contemplated hereby shall have been approved by all other regulatory authorities having jurisdiction over the subject matter hereof, if any. Waiver by Coventure 7.2 The conditions precedent set out in the preceding section are inserted for the exclusive benefit of Coventure and any such condition may be waived in whole or in part by Coventure at or prior to the Closing by delivering to Xilan Natural Gas a written waiver to that effect signed by Coventure. In the event that the conditions precedent set out in the preceding section are not satisfied on or before the Closing, Coventure shall be released from all obligations under this Agreement. Conditions Precedent in Favor of Xilan Natural Gas and the Xilan Natural Gas Shareholders 7.3 The obligations of Xilan Natural Gas and the Xilan Natural Gas Shareholders to carry out the transactions contemplated hereby are subject to the fulfillment of each of the following conditions precedent on or before the Closing: (a) all documents or copies of documents required to be executed and delivered to Xilan Natural Gas hereunder will have been so executed and delivered; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by Coventure at or prior to the Closing will have been complied with or performed; (c) Coventure will have delivered the Acquisition Shares to be issued pursuant to the terms of the Acquisition to Xilan Natural Gas at the Closing and the Acquisition Shares will be registered on the books of Coventure in the name of the holder of Xilan Natural Gas Shares at the time of Closing; (d) title to the Acquisition Shares will be free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever; (e) subject to Article 8 hereof, there will not have occurred (i) any material adverse change in the financial position or condition of Coventure, its subsidiaries, their liabilities or 23 the Coventure Assets or any damage, loss or other change in circumstances materially and adversely affecting Coventure, the Coventure Business or the Coventure Assets or Coventure' right to carry on the Coventure Business, other than changes in the ordinary course of business, none of which has been materially adverse, or (ii) any damage, destruction, loss or other event, including changes to any laws or statutes applicable to Coventure or the Coventure Business (whether or not covered by insurance) materially and adversely affecting Coventure, its subsidiaries, the Coventure Business or the Coventure Assets; (f) the transactions contemplated hereby shall have been approved by all other regulatory authorities having jurisdiction over the subject matter hereof, if any; and (g) the satisfaction of all liabilities of Coventure on or prior to the Closing Date, other than those liabilities to be transferred to Mr. Hromyk, save and except for liabilities incurred in connection with the Acquisition. Waiver by Xilan Natural Gas and the Xilan Natural Gas Shareholders 7.4 The conditions precedent set out in the preceding section are inserted for the exclusive benefit of Xilan Natural Gas and the Xilan Natural Gas Shareholders and any such condition may be waived in whole or in part by Xilan Natural Gas or the Xilan Natural Gas Shareholders at or prior to the Closing by delivering to Coventure a written waiver to that effect signed by Xilan Natural Gas and the Xilan Natural Gas Shareholders. In the event that the conditions precedent set out in the preceding section are not satisfied on or before the Closing, Xilan Natural Gas and the Xilan Natural Gas Shareholders shall be released from all obligations under this Agreement. Nature of Conditions Precedent 7.5 The conditions precedent set forth in this Article are conditions of completion of the transactions contemplated by this Agreement and are not conditions precedent to the existence of a binding agreement. Each party acknowledges receipt of the sum of $1.00 and other good and valuable consideration as separate and distinct consideration for agreeing to the conditions of precedent in favor of the other party or parties set forth in this Article. Termination 7.6 Notwithstanding any provision herein to the contrary, if the Closing does not occur on or before December 15, 2005, this Agreement will be at an end and will have no further force or effect, unless otherwise agreed upon by the parties in writing. Confidentiality 7.7 Notwithstanding any provision herein to the contrary, the parties hereto agree that the existence and terms of this Agreement are confidential and that if this Agreement is terminated pursuant to the preceding section the parties agree to return to one another any and all financial, technical and business documents delivered to the other party or parties in connection with the negotiation and execution of this Agreement and shall keep the terms of this Agreement and all information and documents received from Xilan Natural Gas and Coventure and the contents thereof confidential and not utilize nor reveal or release same, provided, however, that Coventure will be required to issue a news 24 release regarding the execution and consummation of this Agreement and file a Current Report on Form 8-K with the Securities and Exchange Commission respecting the proposed Acquisition contemplated hereby together with such other documents as are required to maintain the currency of Coventure's filings with the Securities and Exchange Commission. ARTICLE 8 RISK Material Change in the Business of Xilan Natural Gas 8.1 If any material loss or damage to the Xilan Natural Gas Business occurs prior to Closing and such loss or damage, in Coventure' reasonable opinion, cannot be substantially repaired or replaced within sixty (60) days, Coventure shall, within two (2) days following any such loss or damage, by notice in writing to Xilan Natural Gas, at its option, either: (a) terminate this Agreement, in which case no party will be under any further obligation to any other party; or (b) elect to complete the Acquisition and the other transactions contemplated hereby, in which case the proceeds and the rights to receive the proceeds of all insurance covering such loss or damage will, as a condition precedent to Coventure' obligations to carry out the transactions contemplated hereby, be vested in Xilan Natural Gas or otherwise adequately secured to the satisfaction of Coventure on or before the Closing Date. Material Change in the Coventure Business 8.2 If any material loss or damage to the Coventure Business occurs prior to Closing and such loss or damage, in Xilan Natural Gas's reasonable opinion, cannot be substantially repaired or replaced within sixty (60) days, Xilan Natural Gas shall, within two (2) days following any such loss or damage, by notice in writing to Coventure, at its option, either: (a) terminate this Agreement, in which case no party will be under any further obligation to any other party; or (b) elect to complete the Acquisition and the other transactions contemplated hereby, in which case the proceeds and the rights to receive the proceeds of all insurance covering such loss or damage will, as a condition precedent to Xilan Natural Gas's obligations to carry out the transactions contemplated hereby, be vested in Coventure or otherwise adequately secured to the satisfaction of Xilan Natural Gas on or before the Closing Date. ARTICLE 9 CLOSING Closing 9.1 The Acquisition and the other transactions contemplated by this Agreement will be closed at the Place of Closing in accordance with the closing procedure set out in this Article. 25 Documents to be Delivered by Xilan Natural Gas 9.2 On or before the Closing, Xilan Natural Gas and the Xilan Natural Gas Shareholders will deliver or cause to be delivered to Coventure: (a) the original or certified copies of the charter documents of Xilan Natural Gas and all corporate records documents and instruments of Xilan Natural Gas, the corporate seal of Xilan Natural Gas and all books and accounts of Xilan Natural Gas; (b) all reasonable consents or approvals required to be obtained by Xilan Natural Gas for the purposes of completing the Acquisition and preserving and maintaining the interests of Xilan Natural Gas under any and all Xilan Natural Gas Material Contracts and in relation to Xilan Natural Gas Assets; (c) certified copies of such resolutions of the directors of Xilan Natural Gas as are required to be passed to authorize the execution, delivery and implementation of this Agreement; (d) an acknowledgement from Xilan Natural Gas and the Xilan Natural Gas Shareholders of the satisfaction of the conditions precedent set forth in section 7.3 hereof; (e) the certificates or other evidence of ownership of the Xilan Natural Gas Shares, together with such other documents or instruments required to effect transfer of ownership of the Xilan Natural Gas Shares to Coventure; and (f) such other documents as Coventure may reasonably require to give effect to the terms and intention of this Agreement. Documents to be Delivered by Coventure 9.3 On or before the Closing, Coventure shall deliver or cause to be delivered to Xilan Natural Gas and the Xilan Natural Gas Shareholders: (a) share certificates representing the Acquisition Shares duly registered in the names of the holders of shares of Xilan Natural Gas Common Stock; (b) certified copies of such resolutions of the directors of Coventure as are required to be passed to authorize the execution, delivery and implementation of this Agreement; (c) a certified copy of a resolution of the directors of Coventure dated as of the Closing Date appointing the nominees of Xilan Natural Gas as officers of Xilan Natural Gas and appointing the nominee of the Xilan Natural Gas Shareholders to the board of directors of Coventure; (d) undated resignation of John Hromyk as a director of Coventure; (e) an acknowledgement from Coventure of the satisfaction of the conditions precedent set forth in section 7.1 hereof; (f) such other documents as Xilan Natural Gas may reasonably require to give effect to the terms and intention of this Agreement. 26 ARTICLE 10 POST-CLOSING MATTERS Forthwith after the Closing, Coventure, Xilan Natural Gas and the Xilan Natural Gas Shareholders, as the case may be, agree to use all their best efforts to: (a) issue a news release reporting the Closing; (b) file with the Securities and Exchange Commission a report on Form 14f1 disclosing the change in control of Coventure and, 10 days after such filing, forthwith date and accept the resignation of John Hromyk as a director of Coventure; (c) file a Form 8-K with the Securities and Exchange Commission disclosing the terms of this Agreement within 4 business days of the Closing which includes full Form 10 disclosure and the audited financial statements of Xilan Natural Gas, as well as pro forma financial information of Xilan Natural Gas and Coventure as required by Item 310 of Regulation SB as promulgated by the Securities and Exchange Commission; (d) file reports on Forms 13D and 3 with the Securities and Exchange Commission disclosing the acquisition of the Acquisition Shares by the Xilan Natural Gas Shareholders; (e) within 10 days of the Closing, take such steps are required to change the name of Coventure to "Asia Natural Gas, Inc." or such similar name as may be acceptable to the board of directors of Coventure; and (f) within 10 days of the Closing, take such steps are required to effectuate a four-for-one forward split of the Coventure Common Shares by way of stock dividend. ARTICLE 11 GENERAL PROVISIONS Arbitration 11.1 The parties hereto shall attempt to resolve any dispute, controversy, difference or claim arising out of or relating to this Agreement by negotiation in good faith. If such good negotiation fails to resolve such dispute, controversy, difference or claim within fifteen (15) days after any party delivers to any other party a notice of its intent to submit such matter to arbitration, then any party to such dispute, controversy, difference or claim may submit such matter to arbitration in the City of New York, New York. Notice 11.2 Any notice required or permitted to be given by any party will be deemed to be given when in writing and delivered to the address for notice of the intended recipient by personal delivery, prepaid single certified or registered mail, or telecopier. Any notice delivered by mail shall be deemed to have been received on the fourth business day after and excluding the date of mailing, except in the event of a disruption in regular postal service in which event such notice shall be deemed to be delivered on the actual date of receipt. Any notice delivered personally or by telecopier shall be deemed to have been received on the actual date of delivery. 27 Addresses for Service 11.3 The address for service of notice of each of the parties hereto is as follows: (a) Coventure: Coventure International Inc. 118 First Avenue West Suite 206 PO Box 1900 Cochrane, Alberta, Canada T4C 1A5 Attn: John Hromyk, President Phone: (403) 851-2600 Telecopier: (403) 851-2044 (b) Xilan Natural Gas or the Xilan Natural Gas Shareholders: Xi'an Xilan Natural Gas Co., Ltd. Tang Xing Shu Ma Building, Suite 418 Tang Xing Road Xian High Tech Area Xian, Shaanxi Province China Attn: Minqing Lu, CEO Phone: 86-29-88323325 Telecopier: 86-29-88390609 With a copy to: Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 Attn: Marc Ross, Esq. Phone: (212) 930-9700 Telecopier: (212) 930-9725 Change of Address 11.4 Any party may, by notice to the other parties change its address for notice to some other address and will so change its address for notice whenever the existing address or notice ceases to be adequate for delivery by hand. A post office box may not be used as an address for service. Further Assurances 11.5 Each of the parties will execute and deliver such further and other documents and do and perform such further and other acts as any other party may reasonably require to carry out and give effect to the terms and intention of this Agreement. Time of the Essence 11.6 Time is expressly declared to be the essence of this Agreement. 28 Entire Agreement 11.7 The provisions contained herein constitute the entire agreement among Xilan Natural Gas, the Xilan Natural Gas Shareholders and Coventure respecting the subject matter hereof and supersede all previous communications, representations and agreements, whether verbal or written, among Xilan Natural Gas, the Xilan Natural Gas Shareholders and Coventure with respect to the subject matter hereof. Enurement 11.8 This Agreement will enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns. Assignment 11.9 This Agreement is not assignable without the prior written consent of the parties hereto. Counterparts 11.10 This Agreement may be executed in counterparts, each of which when executed by any party will be deemed to be an original and all of which counterparts will together constitute one and the same Agreement. Delivery of executed copies of this Agreement by telecopier will constitute proper delivery, provided that originally executed counterparts are delivered to the parties within a reasonable time thereafter. Applicable Law 11.11 This Agreement is subject to the laws of the State of New York. [Remainder of page intentionally left blank.] 29 IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written. COVENTURE INTERNATIONAL INC. By: /s/ JOHN HROMYK ---------------------- John Hromyk, President XI'AN XILAN NATURAL GAS CO., LTD. By: /s/ QINAN JI ---------------- Qinan Ji, Chairman SHAREHOLDERS /s/ QINAN JI --------------------- Qinan Ji /s/ XIANG JI ----------------- Xiang Ji /s/ SHAOHU JIA Shaohu Jia /s/ RONG BAI ---------------- Rong Bai /s/ WEIPING WU ------------------ Weiping Wu /s/ MINGSHAN HAN -------------------- Mingshan Han /s/ TAO ZHANG -------------------- Tao Zhang /s/ MINQING LU --------------------- Minqing Lu /s/ LIYIN SHI --------------- Liyin Shi /s/ SHENGMING LI ---------------------- Shengming Li /s/ YUAI SHE ------------------- Yuai She XIAN SUNWAY TECHNOLOGY & INDUSTRY CO., LTD. By: /s/ LINGJUN HU ----------------------- Name: Lingjuhn Hu Title: CEO YANGLING BODISEN BIOTECH DEVELOPMENT CO., LTD. By:/s/ QIONG WANG ------------------ Name: Qiong Wang Title: CEO, Chairman EX-10 3 dec720058kex102.txt RETURN TO TREASURY AGREEMENT THIS AGREEMENT is made as of the 6th day of December, 2005 BETWEEN: COVENTURE INTERNATIONAL INC., a corporation formed pursuant to the laws of the State of Delaware and having an office for business located at 118 First Avenue West, Suite 206, PO Box 1900, Cochrane, Alberta Canada T4C 1 (the "Company") AND: JOHN HROMYK, an individual having an address located at 118 First Avenue West, Suite 206, PO Box 1900, Cochrane, Alberta Canada T4C 1 (the "Shareholder"). WHEREAS: A. The Shareholder is the registered and beneficial owner of 5,971,178 shares of the Company's common stock. B. The Company has entered into an Share Purchase Agreement with Xi'an Xilan Natural Gas Co., Ltd., a company formed pursuant to the laws of the People's Republic of China, and certain other parties (the "Purchase Agreement"). C. As a condition to the aforementioned Purchase Agreement, the Shareholder has agreed to return the 5,971,178 shares of the Company's common stock (the "Surrendered Shares") held by him to the treasury of the Company for the sole purpose of the Company retiring the Surrendered Shares. NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and sum of $1.00 now paid by the Company to the Shareholder, the receipt and sufficiency whereof is hereby acknowledged, the parties hereto hereby agree as follows: Surrender of Shares 1. The Shareholder hereby surrenders to the Company the Surrendered Shares by delivering to the Company herewith a share certificate or certificates representing the Shares, duly endorsed for transfer in blank, signatures medallion guaranteed. The Company hereby acknowledges receipt from the Shareholder of the certificates for the sole purpose of retiring the Surrendered Shares. Retirement of Shares 2. The Company agrees, subject to section 3 hereof, to forthwith after the closing of the Merger Agreement to retire the Surrendered Shares pursuant to ss.243 of the Delaware General Corporation Law. Condition Precedent 3. Notwithstanding any other provision herein, in the event that the transactions contemplated by the Purchase Agreement do not close on or before the deadline set forth is said Purchase Agreement, this Agreement shall terminate and the Company shall forthwith return to the Shareholder the certificates representing the Surrendered Shares. Representations and Warranties 4. The Shareholder represents and warrants to the Company that it is the owner of the Surrendered Shares and that it has good and marketable title to the Surrendered Shares and that the Surrendered Shares are free and clear of all liens, security interests or pledges of any kind whatsoever. General 5. Each of the parties will execute and deliver such further and other documents and do and perform such further and other acts as any other party may reasonably require to carry out and give effect to the terms and intention of this Agreement. 6. Time is expressly declared to be the essence of this Agreement. 7. The provisions contained herein constitute the entire agreement among the Company and the Shareholder respecting the subject matter hereof and supersede all previous communications, representations and agreements, whether verbal or written, among the Company and the Shareholder with respect to the subject matter hereof. 8. This Agreement will enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns. 9. This Agreement is not assignable without the prior written consent of the parties hereto. 10. This Agreement may be executed in counterparts, each of which when executed by any party will be deemed to be an original and all of which counterparts will together constitute one and the same Agreement. Delivery of executed copies of this Agreement by telecopier will constitute proper delivery, provided that originally executed counterparts are delivered to the parties within a reasonable time thereafter. IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written. COVENTURE INTERNATIONAL INC. By: /s/ MINQING LU ------------------------- Minqing Lu, Chief Executive Officer /s/ JOHN HROMYK -------------------------- John Hromyk EX-16 4 ex161.txt MANNING ELLIOTT | 11th Floor 1050 West Pender Street, | Vancouver, BC, Canada, V6E 3S7 CHARTERED ACCOUNTANTS | Phone: 604.714.3600 Fax: 604.714.3669 | Web: manningelliott.com Exhibit 16.1 Re: Coventure International Inc. This letter will confirm that we reviewed Item 4.01 of the Company's Form 8-K dated December 6, 2005, captioned "Changes in Registrant's Certifying Accountant " and that we agree with the statements made therein as they relate to Manning Elliott LLP. We are not in a position to agree or disagree with the statements in Item 4.01 regarding the engagement of Kabani and Company, Inc. or the approval of such engagement by the Board of Directors. We hereby consent to the filing of this letter as an exhibit to the foregoing report on Form 8-K. /s/ "Manning Elliott LLP" - ------------------------- MANNING ELLIOTT LLP CHARTERED ACCOUNTANTS Vancouver, Canada December 7, 2005 -----END PRIVACY-ENHANCED MESSAGE-----