PRE 14C 1 v201718_pre14c.htm Unassociated Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.   20549
 
SCHEDULE 14C

Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934

Check the appropriate box:

x
Preliminary Information Statement

¨
Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)(2))

¨
Definitive Information Statement

 
CHINA INSONLINE CORP.
 
(Name of Registrant as Specified in Charter)

Payment of Filing Fee (Check the appropriate box):

o No Fee required.

x Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

(1) Title of each class of securities to which transaction applies:
Ownership of 100% of Ding Neng Holdings Limited

(2) Aggregate number of securities to which transaction applies:
Ownership of 100% of Ding Neng Holdings Limited

(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which filing fee is calculated and state how it was determined):
The maximum being paid for the ownership of 100% of Ding Neng Holdings Limited is $1,071.  The transaction value is based on the average of the high and low price of the registrant’s common stock reported on the NASDAQ Capital Market on November 10, 2010.

(4) Proposed maximum aggregate value of transaction:
$5,352,100

(5) Total fee paid:
$1,071

o Fee paid previously with preliminary materials.

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:

 
 

 

CHINA INSONLINE CORP.
Room 42, 4F, New Henry House, 10 Ice House Street
Central, Hong Kong
(011) 852-25232986

NOTICE OF STOCKHOLDER ACTION
TO BE TAKEN WITHOUT A MEETING

Dear Stockholders of China INSOnline Corp.:
 
The purpose of this letter and the enclosed Information Statement is to inform you that the stockholders holding a majority of our issued and outstanding shares of common stock, par value $0.001 per share (“Common Stock”) have executed written consents in lieu of a meeting to approve:
 
 
(1)
the acquisition (the “Acquisition”) by us, China INSOnline Corp. (the “Company”), by the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition, for 100% of Ding Neng Holdings Limited, a BVI holding company  (“Ding Neng Holdings”), that owns (i) 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong company (“DBT”), which owns (ii) 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“Fuhua”), a foreign investment enterprise organized under the laws of the People’s Republic of China, or PRC, and which has, (iii) through various contractual agreements, management control and the rights to the profits of Fujian Zhangzhou Dingneng Bio-technology Co., Ltd. (“Ding Neng Bio-tech”), a corporation organized under the laws of the PRC, which engages in the production, refinement and distribution of bio-diesel fuel in southern China.  The Acquisition is being made pursuant to a Share Exchange Agreement, dated November 12, 2010, between the Company, Ding Neng Holdings and the shareholders of Ding Neng Holdings, as identified therein (the “Ding Neng Holdings Shareholders”). The completion of the Acquisition will result in the change of control of the Company under the NASDAQ Stock Market Rules.  The closing of the Acquisition will take place on or after __________ ___, 2010.
 
 
(2)
An amendment to the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”) to effect a reverse stock split at a ratio of not less than one-for-twenty and not more than one-for-forty (the “Reverse Stock Split”).  We are effecting the Reverse Stock Split pursuant to the Share Exchange Agreement primarily to increase the value of our per share stock price such that the post-Acquisition entity will be able to meet the initial listing requirements of the Nasdaq Capital Market and remain listed thereon.
 
 
(3)
An amendment to the Company’s Certificate of Incorporation to change the Company’s name from and after the closing of the Acquisition to China Bio-Energy Corp. (the “Name Change”).
 
On November 11, 2010, the Company’s board of directors and stockholders collectively holding approximately 55% of the Company’s outstanding Common Stock, respectively, executed written consents approving (1) the Acquisition pursuant to the Share Exchange Agreement, (2) the Reverse Stock Split, and (3) the Name Change. The consents we have received constitute the only stockholder approval required for such items under the Delaware General Corporation Law (the “DGCL”) and the Company’s existing Certificate of Incorporation, as amended, and its Amended and Restated Bylaws. Pursuant to Rule 14c-2 of the Securities Exchange Act of 1934, as amended, stockholder approval of the Acquisition, the Reverse Stock Split and the Name Change will become effective on or after __________ ___, 2010, which is 20 calendar days following the date we first mail the Information Statement to our stockholders.  As soon as practicable after such date, we intend to consummate the Acquisition and file a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of Delaware effecting the Reverse Stock Split and Name Change.
 
 
 

 

We are furnishing the Information Statement to you solely to inform you of the approval of the Acquisition, the Reverse Stock Split and the Name Change by the holders of a majority of the Company’s issued and outstanding Common Stock.  Section 228 of the DGCL requires that we notify you of these approvals because they were obtained by written consent of stockholders in lieu of a meeting. This letter and the Information Statement are intended to provide such notice. No action is required by you.

WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.

The Information Statement is for information purposes only.  Please read it carefully.
 
 
By order of the Board of Directors
   
 
Zhenyu Wang
 
Chairman of the Board of Directors
   
__________ ___, 2010
 

 
 

 

CHINA INSONLINE CORP.
Room 42, 4F, New Henry House, 10 Ice House Street
Central, Hong Kong
(011) 852-25232986

INFORMATION STATEMENT
PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
 
This Information Statement (the “Information Statement”) is being mailed on or about __________ ___, 2010 to the stockholders of record of China INSOnline Corp., a Delaware corporation (referred to herein as “we,” “us,” “our,” or “the Company”), as of the close of business on November 12, 2009 (the “Record Date”).  This Information Statement is being furnished to you for information purposes only, to inform you that holders of shares representing a majority of our issued and outstanding shares of common stock, par value $0.001 per share (“Common Stock”) have adopted, by written consent, resolutions authorizing us to:
 
 
(1)
Consummate the acquisition (the “Acquisition”) by us, China INSOnline Corp. (the “Company”), by the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition, for 100% of Ding Neng Holdings Limited, a BVI holding company  (“Ding Neng Holdings”), that owns (i) 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong company (“DBT”), which owns (ii) 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“Fuhua”), a foreign investment enterprise organized under the laws of the People’s Republic of China, or PRC, and which has, (iii) through various contractual agreements, management control and the rights to the profits of Fujian Zhangzhou Dingneng Bio-technology Co., Ltd. (“Ding Neng Bio-tech”), a corporation organized under the laws of the PRC, which engages in the production, refinement and distribution of bio-diesel fuel in southern China.  The Acquisition is made pursuant to a Share Exchange Agreement, dated November 12, 2010, between the Company, Ding Neng Holdings and the shareholders of Ding Neng Holdings, as identified therein (the “Ding Neng Holdings Shareholders”). The completion of the Acquisition will result in the change of control of the Company under the NASDAQ Stock Market Rules.  The closing of the Acquisition will take place on or after __________ ___, 2010.
 
 
(2)
Amend our Certificate of Incorporation, as amended (the “Certificate of Incorporation”) to effect a reverse stock split at a ratio of not less than one-for-twenty and not more than one-for-forty (the “Reverse Stock Split”).  We are effecting the Reverse Stock Split pursuant to the Share Exchange Agreement primarily to increase the value of our per share stock price such that the post-Acquisition entity will be able to meet the initial listing requirements of the Nasdaq Capital Market and remain listed thereon.
 
 
(3)
Amend our Certificate of Incorporation to change our name from and after the closing of the Acquisition to China Bio-Energy Corp. (the “Name Change”).
 
Board of Directors and Consenting Stockholders

On November 11, 2010, our board of directors (the “Board”) unanimously adopted resolutions authorizing the Acquisition, the Reverse Stock Split and the Name Change.

Section 228 of the Delaware General Corporation Law (the “DGCL”) provides that the written consent of the holders of the issued and outstanding shares of voting capital stock, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, may be substituted for a meeting. In order to eliminate the costs and management time involved in obtaining proxies and in order to effect the above actions as early as possible to accomplish the purposes hereafter described, the Board elected to seek the written consent of the holders of a majority of our issued and outstanding shares of voting capital stock to reduce the costs and implement the Acquisition, the Reverse Stock Split and the Name Change in a timely manner.

 
 

 

As of the Record Date, there were issued and outstanding 46,000,000 shares of our Common Stock. These issued and outstanding shares of Common Stock constitute our only voting securities and each stockholder is entitled to cast one vote for each share of Common Stock held by the stockholder. On November 11, 2010, stockholders of the Company, who collectively own 55% of our Common Stock, consented in writing to the Acquisition, the Reverse Stock Split and the Name Change (the “Consenting Stockholders”).  The Consenting Stockholders included 16,008,960 shares, or 34.8%, held by Zhenyu Wang, our chief executive officer and chairman of the Board, and 5,280,000 shares, or 11.5%, held by Junjun Xu, a former officer and director.

The actions described in this Information Statement have been consented to by the Consenting Stockholders. Accordingly, the written consent executed by the Consenting Stockholders pursuant to Section 228 of the DGCL and delivered to us is sufficient to approve the Acquisition, the Reverse Stock Split and the Name Change, which includes the corresponding amendments to our Certificate of Incorporation, and no further stockholder vote or other action is required.

Pursuant to Section 228 of the DGCL, we are required to provide prompt notice of the taking of this corporate action without a meeting to the stockholders who are entitled to vote and have not consented in writing to such action. This Information Statement is intended to provide such notice.
 
The entire cost of furnishing this Information Statement will be borne by us.  We will request brokerage firms, nominees, custodians, fiduciaries and other like parties to forward this Information Statement to the beneficial owners of our Common Stock held of record by them and will reimburse such persons for their reasonable charges and expenses in connection therewith.
 
 
 

 

TABLE OF CONTENTS

DESCRIPTION
 
PAGE
     
THE ACQUISITION TRANSACTION
    1
       
MATERIAL TERMS OF THE ACQUISITION
    1
       
SUMMARY OF THE ACQUISITION
    2
       
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    6
       
RISK FACTORS
    7
       
DETAILS OF THE ACQUISITION
    19
       
THE SHARE EXCHANGE AGREEMENT
    23
       
CERTAIN AGREEMENTS RELATING TO THE ACQUISITION
    28
       
INFORMATION ABOUT CHINA INSONLINE CORP
    29
       
DESCRIPTION OF BUSINESS
    29
DESCRIPTION OF PROPERTY
    33
LEGAL PROCEEDINGS
    33
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    34
MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    35
DESCRIPTION OF THE COMPANY’S COMMON STOCK
    38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    38
       
INFORMATION ABOUT DING NENG HOLDINGS
    40
       
MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS
    40
MARKET FOR DING NENG HOLDINGS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    47
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE
    47
DIRECTORS AND EXECUTIVE OFFICERS
    47
EXECUTIVE COMPENSATION
    49
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
    50
BENEFICIAL OWNERSHIP OF SECURITIES
    51
       
AMENDMENT TO CERTIFICATE OF INCORPORATION FOR REVERSE STOCK SPLIT
    52
       
AMENDMENT TO CERTIFICATE OF INCORPORATION FOR NAME CHANGE
    55
       
DISSENTERS’ RIGHTS OF APPRAISAL
    56
       
STOCKHOLDERS SHARING AN ADDRESS
    56
       
WHERE YOU CAN FIND MORE INFORMATION
    56
       
INDEX TO FINANCIAL INFORMATION
    F-1
 
Annexes
 
A – Form of Share Exchange Agreement
 
B – Certificate of Amendment to Certificate of Incorporation for Reverse Stock Split
 
C – Certificate of Amendment to Certificate of Incorporation for Name Change

 
-i-

 

THE ACQUISITION TRANSACTION
 
MATERIAL TERMS OF THE ACQUISITION
 
This section summarizes information related to the Acquisition, the Reverse Stock Split and the Name Change. These items are described in greater detail elsewhere in this information statement. You should carefully read this entire information statement and the other documents to which you are referred.
 
The parties to the Share Exchange Agreement are:
 
 
·
China INSOnline Corp.;
 
 
·
Ding Neng Holdings is a company organized and existing under the laws of the British Virgin Islands.  Ding Neng Holdings owns (i) 100% of DBT, which owns (ii) 100% of Fuhua, which has, (iii) through various contractual agreements, management control and the rights to the profits of Ding Neng Bio-tech, which engages in the production, refinement and distribution of bio-diesel fuel in southern China; and

 
·
The Ding Neng Holdings Shareholders.
 
Pursuant to the Share Exchange Agreement, within 10 days of being notified that the conditions to closing have satisfied or waived, the Company will acquire from the Ding Neng Holdings Shareholders 100% of Ding Neng Holdings in exchange for shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition.  See “Details of the Acquisition.”
 
After the Acquisition is completed, the Company’s existing stockholders are expected to beneficially own approximately 10.5% of the outstanding shares of the Company.
 
The closing of the Acquisition is subject to the satisfaction by each party of various conditions prior to closing. See “The Share Exchange Agreement — Conditions to Closing.”
 
Upon the closing of the Acquisition, the officers of the Company will be: Sanfu Huang – Chief Executive Officer, Jingmei Weng – Chief Financial Officer and Zhibin Jin – Corporate Secretary.  See “Details of the Acquisition.”
 
Immediately prior to the closing of the Acquisition, the Company shall effect the Reverse Stock Split.  See “Amendment to Certificate of Incorporation for Reverse Stock Split.”
 
Upon the closing of the Acquisition, the Company shall effect the Name Change.  See “Amendment to Certificate of Incorporation for Name Change.”
 
 
1

 

SUMMARY OF THE ACQUISITION
 
This summary highlights selected information from this information statement and does not contain all of the information that is important to you. To better understand the Acquisition, as well as the other proposals, you should read carefully this entire document and the other documents to which this information statement refers you, including the Share Exchange Agreement attached as Annex A to this information statement. The Share Exchange Agreement is the legal document that governs the Acquisition. The Share Exchange Agreement is also described in detail elsewhere in this information statement.
 
The Parties to the Share Exchange Agreement
 
The Company
 
The Company currently has no business operations.  Prior to winding down its operations during the quarter ended June 30, 2010, the Company was an Internet services and media company focused on the PRC insurance industry. The Company primarily offered a network portal through its industry website, www.soobao.cn, to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development.  This primarily entailed the offer of online insurance products and services in China including (a) a network portal for the Chinese insurance industry (www.soobao.cn), offering industry professionals a forum for the advertising and promotion of products and services, (b) website construction for marketing teams and others in the insurance industry, (c) software development, (d) insurance agency services whereby the Company generated sales commissions on motor vehicle insurance, property insurance and life insurance and (e) accompanying client support services.
 
The Company’s principal executive offices are located at Room 42, 4F, New Henry House, 10 Ice House Street, Central, Hong Kong.  Telephone number (011) 852-25232986
 
Ding Neng Holdings; Ding Neng Holdings Shareholders
 
Ding Neng Holdings is a company organized and existing under the laws of the British Virgin Islands.  Ding Neng Holdings owns 100% of the outstanding capital stock of DBT, which owns 100% of Fuhua which controls Ding Neng Bio-tech through certain contractual arrangements.
 
As the principal operating subsidiary, Ding Neng Bio-tech engages in the production, refinement and distribution of bio-diesel fuel, which is manufactured from agricultural products. Currently, the primary ingredients in its biodiesel fuel are animal fat and plant oil. Ding Neng Bio-tech also operates a biodiesel manufacturing facility in the Fujian province in the PRC, the aggregate capacity of which currently produces approximately 40,000 tons of biodiesel annually.
 
The Acquisition; Acquisition Consideration
 
The Share Exchange Agreement dated November 12, 2010, provides for an acquisition transaction in which the Company through the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition, will acquire 100% of Ding Neng Holdings.  Ding Neng Holdings owns 100% of the outstanding capital stock of Fuhua, which has, through various contractual agreements, management control and the rights to the profits of Ding Neng Bio-tech.
 
The parties plan to complete the Acquisition as soon as reasonably practical; provided that the conditions specified in the Share Exchange Agreement have been satisfied or waived.
 
Management of the Company Upon Completion of the Acquisition
 
Upon the consummation of the Acquisition, the Board will consist of seven directors, as set forth below. At least four of the directors will be “independent directors” as defined by the rules of the Securities and Exchange Commission and the NASDAQ Marketplace Rules. Such independent directors will serve as members of the audit, nominating and compensation committees.
 
 
2

 
 
Upon the consummation of the Acquisition, the post-acquisition entity’s executive officers and directors are expected to be:
 
 
Name
 
Position / Title
 
 
Xinfeng Nie
 
Chairman of the Board of Directors
 
 
Sanfu Huang
 
Chief Executive Officer and Director
 
 
Jingmei Weng
 
Chief Financial Officer and Director
 
 
Zhibin Jin
 
Corporate Secretary
 
 
Jianjun Xu
 
Director
 
 
He Huang
 
Director
 
 
Fulun Su
 
Director
 
 
Bin Zhao
  
Director
 
 
See the section entitled “Directors and Executive Officers” for biographical information about the directors and executive officers after the consummation of the Acquisition.
 
Approval of the Shareholders Ding Neng Holdings
 
All of the Ding Neng Holdings Shareholders are parties to the Share Exchange Agreement. Accordingly, no further action by the Ding Neng Holdings Shareholders is needed to approve the Acquisition.
 
Reverse Stock Split
 
The NASDAQ Stock Market has indicated that because the Company does not have any business operations, it is categorized as a “public shell.”  Based on this status, the post-acquisition entity must meet the initial listing requirements of the NASDAQ Capital Market which requires a minimum bid price of $4.00 per share.  To ensure that the post-acquisition entity meets this minimum bid requirement, the Company will effect the Reverse Stock Split immediately prior to the consummation of the Acquisition.
 
The Name Change
 
Upon consummation of the Acquisition, the Company will file an Amended and Restated Certificate of Incorporation to change its name from and after the closing of the Acquisition to China Bio-Energy Corp.
 
Interests of the Officers, Directors and Affiliates of China INSOnline Corp. in the Acquisition
 
In approving the Acquisition, the Reverse Stock Split and the Name Change, the executive officers and the Board may have had interests in the transaction that are different from, or in addition to, your interests as a stockholder. These interests include, among other thing, that upon completion of the Acquisition:
 
 
·
Zhenyu Wang, Mingfei Yang, Yuefeng Wang, Yinan Zhang, Renbin Yu, Yong Bian and Xiaoshuang Chen will resign as directors and officers of the Company;
 
 
·
Pursuant to an employment agreement, Mr. Wang will be employed by the post-acquisition entity for a term of two years at an annual salary of $150,000 and equity of the post-acquisition entity equal to 1% upon execution of the employment agreement, plus an additional 0.5% over the term of the employment agreement (0.25% after the first year and 0.25% after the second year);
 
 
·
Mr. Wang, our chief executive officer and chairman of the board, will own 3.7% of the post-acquisition entity; and
 
 
·
Junjun Xu, currently an 11.5% shareholder, will own 1.2% of the post-acquisition entity.
 
 
3

 
 
Conditions to the Closing of the Share Exchange Agreement
 
The consummation of the transactions contemplated by the Share Exchange Agreement is subject to a number of other conditions to the obligations of each of the parties to complete the Acquisition, including the accuracy of each of the parties’ representations and warranties, the compliance by each party with its covenants and obligations, the delivery of certain ancillary documents and the Company’s continuous listing on the NASDAQ Capital Market. See “The Share Exchange Agreement – Conditions to Closing.”
 
Exclusivity; No Other Negotiation
 
The Share Exchange Agreement contains detailed provisions prohibiting each of the Company, Ding Neng Holdings and the Ding Neng Holdings Shareholders from seeking an alternative transaction. These covenants generally prohibit the Company, Ding Neng Holdings and the Ding Neng Holdings Shareholders, as well as their officers, directors, subsidiaries, employees, agents and representatives, from taking any action to solicit an alternative acquisition proposal.
 
Quotation
 
The Company’s outstanding Common Stock is quoted on the NASDAQ Capital Market under the symbol CHIO.  The Company intends to apply to NASDAQ to retain its listing upon completion of the Acquisition. NASDAQ’s approval will require that the post-acquisition entity meet NASDAQ’s initial listing requirements.  There is no assurance that the post-acquisition entity will meet NASDAQ’s initial listing requirements.  If the post-acquisition entity does not meet NASDAQ’s initial listing requirements, we expect the Common Stock to be quoted on the OTC Bulletin Board or the OTCQX or OTCQB.
 
Material Federal Income Tax Consequences of the Acquisition
 
The following section is a summary regarding material United States federal income tax consequences of the Acquisition to holders of Common Stock. This discussion addresses only those security holders of the Company that hold their securities as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code, and does not address all the United States federal income tax consequences that may be relevant to particular holders in light of their individual circumstances or to holders that are subject to special rules, such as:
 
 
·
financial institutions;
 
 
·
investors in pass-through entities;
 
 
·
tax-exempt organizations;
 
 
·
dealers in securities or currencies;
 
 
·
traders in securities that elect to use a mark to market method of accounting;
 
 
·
persons that hold Common Stock as part of a straddle, hedge, constructive sale or conversion transaction; and
 
 
·
persons who are not citizens or residents of the United States.
 
This summary of material federal income tax consequences is based upon the Code, applicable treasury regulations thereunder, published rulings and court decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or federal laws other than those pertaining to the income tax, are not addressed.
 
Neither the Company nor Ding Neng Holdings intends to request any ruling from the Internal Revenue Service as to the United States federal income tax consequences of the Acquisition.
 
It is anticipated that the Acquisition will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and no gain or loss will be recognized by the Company, Ding Neng Holdings, or their respective shareholders as a result of the Acquisition.
 
 
4

 

This discussion is intended to provide all material United States federal income tax consequences of the Acquisition to the Company and its stockholders who hold their stock as a capital asset. This discussion is not a complete analysis or description of all potential United States federal tax consequences of the Acquisition to other holders who are subject to special rules. It does not address any non-income tax or any foreign, state or local tax consequences of the Acquisition. Accordingly, you are strongly urged to consult with your tax advisor to determine the particular United States federal, state, local or foreign income or other tax consequences to you of the Acquisition.
 
Anticipated Accounting Treatment
 
The Acquisition will be accounted for as a reverse merger, whereby Ding Neng Holdings will be the continuing entity for financial reporting purposes and will be deemed to be the acquirer of the Company. The Acquisition is being accounted for as a reverse merger because after the Acquisition the former Ding Neng Holdings Shareholders will hold the majority of the outstanding shares of the Company and will have the ability, initially, to appoint the majority of the members of the board of directors of the Company.
 
In accordance with the applicable guidance for accounting for the Acquisition as a reverse merger, first Ding Neng Holdings will be deemed to have undergone a recapitalization, whereby its outstanding ordinary shares were converted into shares of Common Stock. Immediately thereafter Ding Neng Holdings, which is the continuing accounting entity, will be deemed to have acquired the assets and assumed the liabilities of the Company in exchange for the issuance of the Company’s shares.  However, because the Company will not have any assets and liabilities at the time of consummation of the Acquisition, the proposed transaction will have no impact on the historical assets and liabilities of Ding Neng Holdings.
 
 
5

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This information statement contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this information statement regarding the Company’s and Ding Neng Holdings’ strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
 
The parties may not actually achieve the plans, intentions or expectations disclosed in the forward-looking statements, and you should not place undue reliance on the forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements made by the parties. The parties to this information statement have included important factors in the cautionary statements included in this information statement, particularly in the “Risk Factors” section, that the parties believe could cause actual results or events to differ materially from the forward-looking statements made by the parties, including, among others:
 
 
·
legislation or regulatory environments, requirements or changes adversely affecting the business in which Ding Neng Holdings is engaged;
 
 
·
continued compliance with government regulations;
 
 
·
fluctuations in customer demand;
 
 
·
management of rapid growth;
 
 
·
the time to develop and market new products;
 
 
·
general economic conditions;
 
 
·
geopolitical events; and
 
 
·
changes in accounting principles generally accepted in the United States.
 
Further, the forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, dividends or investments made by the Company or Ding Neng Holdings.
 
You should read this information statement, including all annexes to this information statement with the understanding that actual future results may be materially different from what the parties expect. Neither the Company nor Ding Neng Holdings assumes any obligation to update any forward-looking statements.
 
 
6

 

RISK FACTORS
 
You should carefully consider the following risk factors, together with all of the other information included in this information statement, before you decide whether to vote or direct your vote to be cast to approve the Acquisition or the other proposals.
 
If the Company completes the Acquisition pursuant to the Share Exchange Agreement, the resulting company will be subject to a number of risks. You should carefully consider the risks described below and the other information included in this information statement. Following the closing of the Share Exchange Agreement, the market price of the Company’s securities could decline due to any of these risks, in which case you could lose all or part of your investment.
 
In assessing these risks, you should also refer to the other information included in this information statement, including the consolidated financial statements and the accompanying notes. You should note that the Company will be a holding company with substantial operations in the PRC. As a result, the Company will be subject to legal and regulatory environments that differ in many respects from those of the United States. The Company’s business, financial condition or results of operations could be affected materially and adversely by any of the risks discussed below.
 
Risks Related to Ding Neng Holdings’ Business and Operations
 
Risks Related to Ding Neng Holdings’ Overall Business
 
Ding Neng Holdings has a limited operating history, which makes it difficult to evaluate its financial position and future success.
 
Ding Neng Holdings began generating revenue in 2006 and had limited business operations. Accordingly, there is limited prior operating history by which to evaluate the likelihood of success or its ability to exist as a going concern. Although Ding Neng Holdings has been producing and selling biodiesel from its plant in Zhangzhou, Fujian Province, China, its production and sales have not reached full capacity and there is no assurance its production and sales capacity will increase in the near future or at all.
 
Ding Neng Holdings is a holding company and there are significant limitations on its ability to receive distributions from its subsidiaries.
 
Ding Neng Holdings conducts substantially all of its operations through subsidiaries and through contractual arrangements with an affiliated variable interest entity (“VIE”), and are dependent on dividends or other intercompany transfers of funds from its subsidiaries and affiliated VIE to meet its obligations. Ding Neng Holdings’ subsidiaries have not made significant distributions to it and may not have funds legally available for dividends or distributions in the future. In addition, Ding Neng Holdings may enter into credit or other agreements that would contractually restrict its subsidiaries or affiliated VIE from paying dividends or making distributions.
 
New environmental laws, new interpretations of existing environmental laws, increased governmental enforcement of environmental laws or other developments could require Ding Neng Holdings to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at Ding Neng Bio-tech’s production facilities.
 
Ding Neng Holdings is and will continue to be subject to extensive air, water and other environmental regulations and will need to obtain a number of environmental permits to construct and operate its plant. If for any reason, any of these permits are not granted, construction costs for the plants may increase, or the plants may not be constructed at all.  If constructed, there may be substantial regulatory restrictions and other compliance matters that would have an effect on Ding Neng Bio-tech’s operations.  Additionally, any changes in environmental laws and regulations, both at the state and local level, could require Ding Neng Holdings to invest or spend considerable resources to comply with future environmental regulations. The expense of compliance could be significant enough to reduce profits.
 
 
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Environmental laws and regulations applicable to Ding Neng Bio-tech’s operations now or in the future, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a negative impact on Ding Neng Holdings results of operations and financial condition. For example, carbon dioxide is a byproduct of the biodiesel fuel manufacturing process and may be released into the atmosphere. Emissions of carbon dioxide resulting from the manufacturing process are not currently subject to applicable permit requirements.  If new laws or regulations are passed relating to the production, disposal or emissions of carbon dioxide, Ding Neng Bio-tech may be required to incur significant costs to comply with such new laws or regulations.
 
Ding Neng Bio-tech’s manufacturing operations and sales in China subject Ding Neng Holdings to risks associated with domestic and foreign laws, policies and economies. Ding Neng Bio-tech’s biodiesel manufacturing plant is located in China and it may construct and operate other biodiesel plants in China in the future. In 2009 and 2008, 100% of its biodiesel sales have been to customers in China. Manufacturing operations are subject to inherent risks, all of which could have a material adverse effect on its financial condition or results of operations. Risks affecting its operations include:
 
 
·
unexpected changes in regulatory requirements;
 
 
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political and economic instability;
 
 
·
terrorism and civil unrest;
 
 
·
work stoppages or strikes;
 
 
·
difficulties in staffing and managing operations; and
 
 
·
variations in tariffs, quotas, taxes and other market barriers;
 
Ding Neng Bio-tech’s production is entirely dependent on the operations of one biodiesel production facility in Zhangzhou City. An operational disruption at this facility halt all operations.
 
All of Ding Neng Holdings’ revenues are, and in the near-term will continue to be, derived from the sale of biodiesel produced at Ding Neng Bio-tech’s production facility in Zhangzhou City. This facility may be subject to significant interruption if it experiences a major accident or is damaged by severe weather or other natural disasters. In addition, this facility may be subject to labor disruptions and unscheduled downtime, or other operational hazards inherent in Ding Neng Holdings’ industry, such as equipment failures, fires, explosions, pipeline ruptures and transportation accidents. Some of these hazards may cause severe damage to, or destruction of, property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Any such delay or disruption can be expected to harm Ding Neng Holdings’ financial condition, results of operation and future growth prospects.
 
Gross margins are principally dependent on the spread between feedstock prices and biodiesel prices. If the cost of feedstock increases and the cost of biodiesel does not similarly increase or if the cost of biodiesel decreases and the cost of feedstock does not similarly decrease, gross margins will decrease and Ding Neng Holdings’ results of operations could be harmed.
 
Ding Neng Holdings’ gross margins depend principally on the spread between feedstock and biodiesel prices. This spread has fluctuated significantly in recent periods.
 
From 2006 to the fall of 2008, prices for all varieties of feedstock increased to record levels. The price of petroleum diesel and biodiesel increased at approximately a similar pace. In the fall of 2008, the global economic downturn created significant declines in prices for petroleum diesel and biodiesel. In 2009, prices increased slowly. In general, higher feedstock prices produce lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow Ding Neng Bio-tech to pass along increased feedstock costs to its customers. The price of feedstock is influenced by general economic, market and regulatory factors. These factors include weather conditions, farmer planting decisions, government policies and subsidies with respect to agriculture and international trade and global supply and demand. The significance and relative impact of these factors on the price of feedstock is difficult to predict. Factors such as severe weather or crop disease could have an adverse impact on Ding Neng Bio-tech’s business. Any event that tends to negatively impact the supply of Ding Neng Bio-tech’s chosen feedstock or the demand for biodiesel will potentially harm its financial condition and results of operation.
 
 
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Consumer acceptance or rejection of biodiesel will have a material impact on Ding Neng Holdings’ future operations prospects.
 
The market in China for biodiesel has only recently begun to develop and is rapidly evolving. Therefore, widespread acceptance of Ding Neng Holdings’ biodiesel is not assured. Its success depends upon market acceptance of biodiesel as an addition, or an alternative, to petroleum diesel or other petroleum products. Because this market is new, it is difficult to predict its potential size or future growth rate. In addition, a long-term customer base has not been adequately defined. Ding Neng Bio-tech’s success in generating revenue in this emerging market will depend, among other things, on its ability to educate potential customers and end-users about the practical benefits of biodiesel.
 
Unanticipated problems or delays with product quality or product performance could result in a decrease in customers and revenue, unexpected expenses and loss of market share.
 
Ding Neng Holdings’ cash flow depends on its ability to timely and economically operate its Zhangzhou biodiesel refinery. Refinery operations require significant amounts of capital to procure and process feedstock before receiving payment for finished biodiesel.
 
The production of biodiesel is complex, and Ding Neng Bio-tech’s product must meet stringent quality requirements. Concerns about fuel quality may impact its ability to successfully market its biodiesel to a larger market. If its biodiesel does not meet the industry quality standard, its credibility and the market acceptance and sales of its biodiesel could be negatively affected. In addition, actual or perceived problems with quality control in the industry generally may lead to a lack of consumer confidence in biodiesel. Prolonged problems may threaten the commercial viability of Ding Neng Bio-tech’s refinery.
 
Ding Neng Bio-tech’s business will suffer if it cannot maintain necessary permits or licenses.
 
Ding Neng Bio-tech’s operations require licenses, permits and in some cases renewals of these licenses and permits from various governmental authorities. Ding Neng Bio-tech’s ability to sustain, or renew such licenses and permits on acceptable, commercially viable terms are subject to change as, among other things, the regulations and policies of applicable governmental authorities may change. Ding Neng Bio-tech’s inability to extend a license or a loss of any of these licenses or permits may have a material adverse effect on its financial condition and future operating prospects.
 
Ding Neng Bio-tech primarily sells its biodiesel through distributors and if its relationships with one or more of those distributors were to end its operating results would be harmed.
 
Ding Neng Bio-tech markets and distributes a substantial portion of its biodiesel through independent distributors. Ding Neng Bio-tech’s operating results and financial condition could be significantly disrupted by the loss of one or more of its current distributors, by pricing discounts that it may offer to reward significant customers not procured by the distributor, order cancellations or the failure of its distributors to successfully sell its products.
 
Ding Neng Bio-tech’s operations are subject to hazards that may cause personal injury or property damage, thereby subjecting it to liabilities and possible losses that may not be covered by insurance and which could have a material adverse effect on its results of operations and financial condition.
 
 
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Ding Neng Bio-Tech’s workers are subject to the hazards associated with producing biodiesel fuel.  Operating hazards can cause personal injury and loss of life, damage to, or destruction of, property, plant and equipment and environmental damage.  Hazards and risks, such as fires, natural disasters, explosions and abnormal pressures and blowouts, associated with producing and transporting biodiesel fuel also may result in personal injury and other claims.  In the event Ding Neng Bio-tech does not have adequate insurance coverage, its financial condition and future operating prospects may be harmed.
 
Financial instability in the Chinese financial markets could materially and adversely affect results of operations and financial condition.
 
The Chinese financial market and the Chinese economy are influenced by economic and market conditions in other countries, particularly in other Asian emerging market countries and the United States. Financial turmoil in Asia, Russia and elsewhere in the world in recent years has affected the Chinese economy. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies operating in other countries, including China. A loss in investor confidence in the financial systems of other emerging markets may cause increased volatility in Chinese financial markets and, indirectly, in the Chinese economy in general. Financial disruptions could harm Ding Neng Holdings’ stock price, results of operations and financial condition.
 
Natural calamities could have a negative impact on the Chinese and other economies and harm Ding Neng Bio-tech’s business.
 
China has experienced natural calamities such as earthquakes, floods, droughts and a tsunami in recent years. The extent and severity of these natural disasters determines their impact on the economies in the local communities that experience these calamities. Ding Neng Bio-tech’s plant is located very near the ocean and prolonged spells of abnormal rainfall and other natural calamities could subject its facility to flooding or other damage which would have a negative effect on Ding Neng Bio-tech’s operations and its business. In addition, natural disasters could have an adverse impact on the economies in the geographic regions in which it operates, which could adversely affect its operating and growth prospects.
 
The biodiesel production and marketing industry is extremely competitive. Many of Ding Neng Bio-tech’s competitors have greater financial and other resources and one or more of these competitors could use such resources to gain market share at Ding Neng Bio-tech’s expense.
 
The primary type of fuel used in China is petroleum diesel. Ding Neng Bio-tech competes with existing oil companies as well as other biodiesel production companies. They currently compete for the sale of its products primarily on a regional basis within the Fujian Province. Ding Neng Bio-tech’s primary competitors in these areas are Gushan Environmental Energy Ltd. and Zhejiang Eastriver Energy Technology Ltd. These competitors have substantially greater production, financial, personnel and marketing resources. As a result, its competitors are able to compete more aggressively and sustain that competition over a longer period of time. Their lack of resources relative to these competitors may cause them to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce their competitiveness and cause a decline in their market share, sales and profitability.
 
Ding Neng Bio-tech also faces competition from other producers of biodiesel with respect to the procurement of feedstock. Such competition could intensify, thus driving up the cost of feedstock and reducing their profit margin. Competition will likely increase as the commodities market prices of hydrocarbon-based energy, including petroleum and biodiesel, rise as they have in recent years. Additionally, new companies are constantly entering the market, thus increasing competition, although barriers to entry are relatively high.
 
These companies may have greater success in the recruitment and retention of qualified employees, as well as in conducting their own refining and fuel marketing operations, and may have greater access to feedstock, market presence, economies of scale, financial resources and engineering, technical and marketing capabilities, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the Acquisition of additional assets and interests. If Ding Neng Bio-tech is unable to compete effectively or adequately respond to competitive pressures, this may materially adversely affect Ding Neng Holdings’ results of operation and financial condition.
 
 
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Growth may impose a significant burden on Ding Neng Bio-tech’s administrative and operational resources which, if not effectively managed, could impair its growth.
 
Ding Neng’s strategy envisions a period of rapid growth that may impose a significant burden on its administrative and operational resources. The growth of its business will require significant investments of capital and management’s close attention. Ding Neng Bio-tech’s ability to effectively manage its growth will require it to substantially expand the capabilities of its administrative and operational resources and to attract, train, manage and retain qualified management, technicians and other personnel. Ding Neng Bio-tech’s failure to successfully manage its growth could result in its sales not increasing commensurately with capital investments. If Ding Neng Bio-tech is unable to successfully manage its growth, the Company may be unable to achieve its growth goals.
 
Ding Neng Bio-tech may be unable to protect its intellectual property, which could negatively affect its ability to compete.
 
Ding Neng Bio-tech relies on a combination of trademark, trade name, confidentiality agreements, and other contractual restrictions on disclosure to protect its intellectual property rights. Ding Neng Bio-tech also enters into confidentiality agreements with its employees, consultants, and corporate partners, and controls access to and distribution of its confidential information. These measures may not preclude the disclosure of its confidential or proprietary information. Despite efforts to protect proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use Ding Neng Bio-tech’s proprietary information. Monitoring unauthorized use of its confidential information is difficult, and Ding Neng Bio-tech cannot be certain that the steps it takes to prevent unauthorized use of its confidential information, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the U.S., will be effective.
 
Ding Neng Bio-tech will be required to hire and retain skilled technical and managerial personnel.
 
Personnel qualified to operate and manage biodiesel plants are in demand. Ding Neng Bio-tech’s success depends in large part on its ability to attract, train, motivate and retain qualified management and highly-skilled employees, particularly managerial, technical, sales and marketing personnel, technicians, and other critical personnel. Any failure to attract and retain trained managerial and technical personnel may have a negative impact on the operations of Ding Neng Bio-tech, which would have a negative impact on revenues. There can be no assurance it will be able to attract and retain skilled persons.
 
Ding Neng Bio-tech is dependent upon its officers for management and direction and the loss of any of these persons could adversely affect its operations and results.
 
Ding Neng Bio-tech is dependent upon its officers for implementation of its proposed expansion strategy and execution of its business plan. The loss of any of its officers could have a material adverse effect upon its results of operations and financial position. Ding Neng Bio-tech does not maintain “key person” life insurance for any of its officers. The loss of any of its officers could delay or prevent the achievement of its business objectives.
 
Ding Neng Holdings’ lack of business diversification could result in the devaluation of its securities if it does not generate revenue from its primary products or such revenues decrease.
 
Ding Neng Holdings’ current business consists solely of the production and sales of biodiesel in China. Currently, sales of biodiesel products account for 100% of Ding Neng Holdings’ revenues.  Its lack of business diversification could cause you to lose all or some of your investment, since Ding Neng Holdings does not have any other lines of business or alternative revenue sources.
 
Risks Related to the VIE Agreements
 
The PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.
 
 
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Ding Neng Holdings manages and operates the business of Ding Neng Bio-tech through Fuhua pursuant to the rights it holds under the VIE Agreements. Almost all economic benefits and risks arising from Ding Neng Bio-tech’s operations are transferred to Ding Neng Holdings under these agreements.
 
There are risks involved with the operation of Ding Neng Bio-tech’s business in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable.  If the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:
 
 
imposing economic penalties;
 
 
discontinuing or restricting the operations of Fuhua or Ding Neng Bio-tech;
 
 
imposing conditions or requirements in respect of the VIE Agreements with which Ding Neng Bio-tech may not be able to comply;
 
 
requiring Ding Neng Holdings to restructure the relevant ownership structure or operations;
 
 
taking other regulatory or enforcement actions that could adversely affect its business; and
 
 
revoking the business licenses and/or the licenses or certificates of Ding Neng Bio-tech and/or voiding the VIE Agreements.
 
Any of these actions could adversely affect Ding Neng Holdings’ ability to manage, operate and gain the financial benefits of Ding Neng Bio-tech, which represents its sole operations, which would have a material adverse impact on its business, financial condition and results of operations.
 
Ding Neng Holdings’ ability to manage and operate Ding Neng Bio-tech under the VIE Agreements may not be as effective as direct ownership.
 
Following the Acquisition, Ding Neng Holdings will conduct its biodiesel manufacturing, processing and sales businesses in the PRC through Ding Neng Bio-tech and generate virtually all of its revenues through the VIE Agreements.  Ding Neng Holdings’ plans for future growth are based substantially on growing the operations of Ding Neng Bio-tech.  However, the VIE Agreements may not be as effective in providing Ding Neng Holdings with control over Ding Neng Bio-tech as direct ownership.  Under the current VIE arrangements, as a legal matter, if Ding Neng Bio-tech fails to perform its obligations under these contractual arrangements, it may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under PRC law, which it cannot be sure would be effective.  Therefore, if Ding Neng Holdings is unable to effectively control Ding Neng Bio-tech, it may have an adverse effect on its ability to achieve its business objectives and grow its revenues.
 
Risks Related to Doing Business in the PRC
 
The Chinese government exerts substantial influence over the manner in which Ding Neng Bio-tech must conduct its business activities.
 
Ding Neng Bio-tech is dependent on its relationship with the local government in the province in which it operates.  The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership.  Ding Neng Bio-tech’s ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters.  The central or local governments of in the PRC jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on Ding Neng Bio-tech’s part to ensure its compliance with such regulations or interpretations.  Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require Ding Neng Holdings to divest itself of any interest it then holds in Chinese properties.
 
 
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Future inflation in China may inhibit Ding Neng Bio-tech’s ability to conduct business in China. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation.  Rapid economic growth can lead to growth in the money supply and rising inflation.  If prices for Ding Neng Bio-tech’s products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability.  These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.  High inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for biodiesel products.
 
Ding Neng Bio-tech’s operations and assets in China are subject to significant political and economic uncertainties and Ding Neng Holdings may lose all of its assets and operations if the Chinese government alters its policies to further restrict foreign participation in business operating in the PRC.
 
Changes in PRC laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on Ding Neng Bio-tech’s business, results of operations and financial condition.  Under its current leadership, the Chinese government has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization.  There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.  Ding Neng Holdings may lose all of its assets and operations if the Chinese government alters its policies to further restrict foreign participation in business operating in the PRC.
 
Ding Neng Holdings derives all of its sales in China and a slowdown or other adverse developments in the PRC economy may materially and adversely affect Ding Neng Bio-tech’s customers, demand for its products and its business.
 
All of Ding Neng Bio-tech’s sales are generated in China and it anticipates that sales of its biodiesel fuel in China will continue to represent all of its total sales in the near future.  Although the PRC economy has grown significantly in recent years, no assurances can be given that such growth will continue.  The industry in which Ding Neng Bio-tech is involved in the PRC is relatively new and growing, but Ding Neng Bio-tech does not know how sensitive it is to a slowdown in economic growth or other adverse changes in the PRC economy which may affect demand for biodiesel products.  In addition, the Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.  Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in reduced demand for biodiesel products.  A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for biodiesel products and materially and adversely affect the business, results of operations and future operating prospects of Ding Neng Bio-tech.
 
Currency fluctuations and restrictions on currency exchange may adversely affect Ding Neng Bio-tech’s business, including limiting the ability to convert Chinese Renminbi into foreign currencies and, if Chinese Renminbi were to decline in value, reducing Ding Neng Holdings’ financial results in U.S. dollar terms.

 
13

 
 
Ding Neng Holdings’ reporting currency is the U.S. dollar and Ding Neng Bio-tech’s operations in China use its local currency as its functional currency.  Substantially all of Ding Neng Holdings’ revenue and expenses are in the Chinese currency, the Renminbi, or RMB.  Ding Neng Holdings is subject to the effects of exchange rate fluctuations with respect to any of these currencies.  For example, the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international economic and political developments, as well as supply and demand in the local market.  Since 1994, the official exchange rate for the conversion of the Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar.  In July 2005, the Chinese government changed its policy of pegging the value of the Renminbi to the U.S. dollar.  Under this policy, which was halted in 2008 due to the worldwide financial crisis, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies.  In June 2010, the Chinese government announced its intention to again allow the Renminbi to fluctuate within the 2005 parameters.  It is possible that the Chinese government could adopt an even more flexible currency policy, which could result in more significant fluctuation of Renminbi against the U.S. dollar, or it could adopt a more restrictive policy.  Thus, the Renminbi may not be stable against the U.S. dollar or any other foreign currency.
 
Ding Neng Holdings’ financial statements are translated into U.S. dollars at the average exchange rates in each applicable period.  To the extent the U.S. dollar strengthens against the RMB, the translation of RMB-denominated transactions results in reduced revenue, operating expenses and net income for Ding Neng Bio-tech’s operations.  Similarly, to the extent the U.S. dollar weakens against the RMB, the translation of RMB-denominated transactions results in increased revenue, operating expenses and net income.  Ding Neng Holdings is also exposed to foreign exchange rate fluctuations as it converts the financial statements of its foreign consolidated subsidiaries into U.S. dollars in consolidation.  If there is a change in RMB exchange rates, such conversion into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income.  Ding Neng Holdings has not entered into agreements or purchased instruments to hedge its exchange rate risks, although it may do so in the future.  The availability and effectiveness of any hedging transaction may be limited and Ding Neng Holdings may not be able to hedge its exchange rate risks.
 
The State Administration of Foreign Exchange (“SAFE”) restrictions on currency exchange may limit Ding Neng Holdings’ ability to receive and use its funds effectively and to pay dividends.
 
All of Ding Neng Holdings’ sales revenue and expenses are denominated in the Chinese currency, Renminbi.  Under PRC law, the Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans.  Currently, Ding Neng Bio-tech may purchase foreign currencies for settlement of current account transactions, including distributions in the form of consulting fees and payments of dividends to Ding Neng Holdings, without the approval of SAFE, by complying with certain procedural requirements.  However, the relevant PRC government authorities may limit or eliminate Ding Neng Bio-tech’s ability to purchase foreign currencies in the future.
 
All of Ding Neng Holdings’ income is derived from the consulting fees it receives from Ding Neng Bio-tech through the VIE Agreements.  SAFE restrictions may delay the payment of dividends, since Ding Neng Bio-tech has to comply with certain procedural requirement and it may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the distribution of the consulting fees or payment of dividends from the profits of Fuhua.
 
Foreign exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE.  In particular, if Ding Neng Bio-tech borrows foreign currency through loans from Ding Neng Holdings or other foreign lenders, these loans must be registered with SAFE, and if Ding Neng Bio-tech is financed by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or their respective local counterparts.  These limitations could affect Ding Neng Bio-tech’s ability to obtain foreign exchange through debt or equity financing.
 
The PRC government also may at its discretion restrict access in the future to foreign currencies for current account transactions.  If the foreign exchange control system prevents Ding Neng Holdings from obtaining foreign currency, it may be unable to pay dividends or meet obligations that may be incurred in the future that require payment in foreign currency.

 
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The SAFE restrictions on the use of offshore holding companies in mergers and acquisitions in China may create regulatory uncertainties that could restrict or limit Ding Neng Bio-tech’s ability to operate.
 
In November 2005, SAFE issued a public notice, known as Circular 75, concerning foreign exchange registrations that are required in order to use of offshore holding companies in mergers and acquisitions in China.  The public notice provides that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities.  The public notice also suggested that registration with the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of shares in an offshore holding company that owns an onshore company.  PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations.
 
Additionally, in accordance with The Provisions on the Takeover of Domestic Enterprises by Foreign Investors (No. 10 [2006]) issued by six ministries and commissions of the PRC State Council, where a domestic company, enterprise or individual intends to take over its domestic affiliated company in the name of a company which it lawfully established or controls, it shall be subject to the examination and approval of the Ministry of Commerce. The parties concerned shall not avoid the aforesaid requirements by making investments within China through the foreign-funded enterprise, or by other means
 
Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by, among other things,: (i) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (ii) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity and (iii) covering the use of existing offshore entities for offshore financings.  The PRC regulatory authorities may take the view that Ding Neng Holdings’ acquisition of indirect ownership and controlling interest in Ding Neng Bio-tech through VIE arrangements shall be subject to SAFE approval and registration. Any adverse action taken by PRC regulatory authorities could significantly and negatively impact Ding Neng Bio-tech’s operations.
 
Based on Ding Neng Holdings' understanding, such provisions do not apply to the contractual arrangement between Fuhua and Ding Neng Bio-Tech. However, a competent government authority may make further amendments or revisions to such rules which may require approval for such arrangements in the future.
 
Because all of Ding Neng Holdings’ assets are located outside of the United States and half of its directors, including its Chairman, and the majority of its officers reside outside of the United States, it may be difficult for you to enforce your rights against Ding Neng Holdings based on United States federal securities laws or against these persons in the United States or to enforce judgments of United States courts against Ding Neng Holdings or the officers or directors of Ding Neng Holdings in the PRC.
 
The Chairman of the Board and principal executive officer of Ding Neng Holdings, Mr. Nie, resides in China.  In addition, another of its directors and a majority of its officers are also located in China.  Furthermore, the operating subsidiary, Ding Neng Bio-tech, is located in the PRC and all of its assets are located outside of the United States.  China does not have a treaty with United States providing for the reciprocal recognition and enforcement of judgments of courts.  It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States federal securities laws against Ding Neng Holdings in the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in the PRC courts.  Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against Ding Neng Holdings or its officers and directors of criminal penalties, under the United States federal securities laws or otherwise.
 
Ding Neng Holdings may have limited legal recourse under PRC laws if disputes arise under contracts with third parties.
 
The Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade.  However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and Ding Neng Holdings’ ability to enforce commercial claims or to resolve commercial disputes is unpredictable.  If Ding Neng Bio-tech’s new business ventures are unsuccessful, or other adverse circumstances arise from these transactions, it faces the risk that the parties to these ventures may seek ways to terminate the transactions, or, may hinder or prevent Ding Neng Bio-tech from accessing important information regarding the financial and business operations of these acquired companies.  The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights Ding Neng Bio-tech may have to specific performance, or to seek an injunction under PRC laws, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, Ding Neng Bio-tech may be unable to prevent these situations from occurring.  The occurrence of any such events could have a material adverse effect on Ding Neng Holdings’ business, financial condition and results of operations.  Although legislation in China has significantly improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the legal protection available to Ding Neng Bio-tech and foreign investors.  The inability to enforce or obtain a remedy under any of Ding Neng Bio-tech’s future agreements could result in a significant loss of business, business opportunities or capital and could have a material adverse impact on Ding Neng Holdings’ operations and future business prospects.

 
15

 

If Ding Neng Holdings makes equity compensation grants to persons who are PRC citizens, they may be required to register with SAFE.  Ding Neng Bio-tech may also face regulatory uncertainties that could restrict its ability to adopt equity compensation plans for its directors and employees and other parties under PRC laws.
 
On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also know as “Circular 78.”  It is not clear whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan.
 
Ding Neng Holdings may adopt an equity incentive plan and make numerous stock option grants under the plan to its officers, directors and employees, some of whom are PRC citizens and may be required to register with SAFE.  If it is determined that any of Ding Neng Holdings’ equity compensation plans are subject to Circular 78, failure to comply with such provisions may subject it and participants of its equity incentive plan who are PRC citizens to fines and legal sanctions and prevent Ding Neng Holdings from being able to grant equity compensation to PRC employees. In that case, Ding Neng Holdings’ ability to compensate its and Ding Neng Bio-tech’s employees and directors through equity compensation would be hindered and business operations may be adversely affected.
 
Due to various restrictions under PRC laws on the distribution of dividends by PRC operating subsidiaries and VIE affiliates, Ding Neng Holdings may not be able to pay dividends to its stockholders.
 
The Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises, such as Fuhua, may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, Fuhua is required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds.  These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes.
 
Furthermore, if the consolidated subsidiaries and VIE affiliate of Ding Neng Holdings in China incur debt on their own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If Ding Neng Holdings or its consolidated subsidiaries and VIE affiliate are unable to receive all of the revenues from operations due to these contractual or dividend arrangements, Ding Neng Holdings may be unable to pay dividends.

 
16

 
 
Ding Neng Holdings may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.
 
The PRC historically has been deficient in western style management, governance and financial reporting concepts and practices, as well as in modern banking, and other control systems.  Ding Neng Holdings’ current management has little experience with western style management, governance and financial reporting concepts and practices, and it may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC.  As a result of these factors, and especially given that Ding Neng Holdings expects to be a publicly listed company in the U.S. and subject to regulation as such, it may experience difficulty in establishing management, governance legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards.  Ding Neng Holdings may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.  Therefore, it may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and other applicable laws, rules and regulations.  This may result in significant deficiencies or material weaknesses in its internal controls which could impact the reliability of its financial statements and prevent it from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002.  Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on Ding Neng Holdings’ business and the public announcement of such deficiencies could adversely impact its stock price.
 
If Ding Neng Bio-tech’s land use rights are revoked, it would have no operational capabilities.
 
Under Chinese law land is owned by the state or rural collective economic organizations. The state issues to tenants the rights to use property.  Use rights can be revoked and the tenants forced to vacate at any time when redevelopment of the land is in the public interest.  The public interest rationale is interpreted quite broadly and the process of land appropriation may be less than transparent.  Ding Neng Bio-tech relies on these land use rights as the cornerstone of its operations for both its manufacturing facility and its corporate headquarters.  The loss of such rights would have a material adverse effect on Ding Neng Bio-tech as it would be required to relocate its facilities and obtain new land use rights, and there is a risk that it would not be able to accomplish such a relocation with reasonable cost or at all.
 
Risks Relating to the Acquisition
 
Upon completion of the Acquisition, voting control by Ding Neng Holdings Shareholders may limit your ability to influence the outcome of director elections and other matters requiring shareholder approval.
 
Upon consummation of the Acquisition, the Ding Neng Holdings Shareholders will own 85% of the common stock of the Company. These Ding Neng Holdings Shareholders will be able to control substantially all matters requiring approval by the Company’s stockholders, including the election of a majority of the Company’s directors and the approval of other business transactions. This concentration of ownership could have the effect of delaying or preventing a future change in control of the Company or discouraging a potential acquirer from attempting to obtain control of the Company, which in turn could have a material adverse effect on the market price of the Common Stock or prevent the Company’s stockholders from realizing a premium over the market price for their common stock.
 
Because the Company does not intend to pay dividends, stockholders will benefit from an investment in the Common Stock only if those shares appreciate in value.
 
The Company has never declared or paid any cash dividends on the shares of its common stock. Upon completion of the Acquisition, the Company currently intends to retain all future earnings, if any, for use in the operations and expansion of the business. As a result, the Company does not anticipate paying cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of the Board and will depend on factors its board of directors deems relevant, including among others, the Company’s results of operations, financial condition and cash requirements, business prospects, and the terms of the Company’s credit facilities, if any, and any other financing arrangements. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of the Common Stock, and there is no guarantee that the Common Stock will appreciate in value.

 
17

 
 
The Board approved the Acquisition without obtaining a fairness opinion.
 
The Company did not obtain a fairness opinion with respect to the Acquisition of Ding Neng Holdings. If the Board erred in concluding that the Share Exchange Agreement is in the best interest of its stockholders, then its stockholders could suffer adverse consequences such as a decline in the value of their shares following the consummation of the transaction. In addition, at a minimum, any litigation over the board’s exercise of its fiduciary duties would divert management’s time and attention from completing the transactions described herein and would likely also involve the expenditure of substantial amounts for legal fees.
 
Ding Neng Holdings may have difficulty establishing adequate management, legal and financial controls in the PRC.
 
Most PRC companies historically have been less focused on establishing Western style management and financial reporting concepts and practices, as well as modern banking, computer and other internal control systems, than companies in the U.S. and certain other Western countries. Ding Neng Holdings may have difficulty in hiring and retaining a sufficient number of qualified internal control employees to work in the PRC. As a result of these factors, Ding Neng Holdings may experience difficulty in establishing management, legal and financial controls, collecting financial data, preparing financial statements, books of account and corporate records, and instituting business practices that meet Western standards.
 
Section 404 of the Sarbanes-Oxley Act of 2002 will require the Company to document and test its internal controls over financial reporting in future periods. Any delays or difficulty in satisfying these requirements could adversely effect its future results of operations and The Company’s stock price.
 
Section 404 of the Sarbanes-Oxley Act of 2002 will require the Company to document and test the effectiveness of Ding Neng Holdings’ internal control over financial reporting in accordance with an established internal control framework and to report on its conclusion as to the effectiveness of such internal controls. It may cost the Company more than it expects to comply with these control and procedure-related requirements.
 
The Company may discover in the future areas of its internal control that need improvement, particularly with respect to Ding Neng Holdings Group or other businesses that it may acquire. The Company cannot be certain that any remedial measures it takes will provide it with adequate internal control over its financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could harm the Company’s operating results or cause it to fail to meet its reporting obligations. If the Company is unable to conclude that it has effective internal control over financial reporting, or if its independent auditors are unable to provide it with an unqualified report regarding the effectiveness of its internal control over financial reporting in future periods as required by Section 404, investors could lose confidence in the reliability of its financial statements, which could result in a decrease in the value of the Common Stock. In addition, failure to comply with Section 404 could potentially subject the Company to sanctions or investigations by the SEC or other regulatory authorities.
 
 
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DETAILS OF THE ACQUISITION
 
General Description of the Acquisition
 
The following discussion of the principal terms of the Share Exchange Agreement is subject to, and is qualified in its entirety by reference to, the Share Exchange Agreement. A copy of the Share Exchange Agreement, as amended, is attached as Annex A to this Information Statement and is incorporated by reference into this Information Statement.
 
The Share Exchange Agreement provides for an acquisition transaction in which the Company will acquire from the Ding Neng Holdings Shareholders 100% of Ding Neng Holdings’ outstanding capital stock in exchange for shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition.  Ding Neng Holdings is a holding company that owns 100% of DBT, which owns 100% of Fuhua, which has, through various contractual agreements, management control and the rights to the profits of Ding Neng Bio-tech., which engages in the production, refinement and distribution of bio-diesel fuel in southern China.
 
Background of the Acquisition
 
The terms of the Acquisition are the result of arms-length negotiations between representatives of the Company and Ding Neng Holdings.  The following is a discussion of the background of these negotiations, the Acquisition and related transactions.
 
In July 2010, Mr. Karl Brenza from Maxim Group LLP (“Maxim”) reviewed the idea of merging Ding Neng Holdings into a nationally listed company on a U.S. exchange with Mr. Shan Huang of Wealth Index LLC, the 100% shareholder of Ding Neng Holdings. Mr. Huang and Maxim have had a relationship since early 2010 pertaining to certain portfolio investments of Wealth Index.
 
In August 2010, Maxim identified the Company as a potential vehicle for a merger through Jenny Zhang of Panda Investment LLC. Ms. Zhang’s firm was then retained by Ding Neng Holdings to introduce the Company to Ding Neng Holdings.
 
On September 6, 2010, Maxim was retained by Ding Neng Holdings to act as its advisor. On September 8, 2010 Maxim met with Zhenyu Wang, chief executive officer of the Company, and his advisor Chao Jiang, to discuss a potential merger between the Company and Ding Neng Holdings. Over the course of the next two weeks, the Company, Ding Neng Holdings and Maxim met and spoke several times to discuss the structure for the potential merger. A term sheet was drafted by Maxim and substantially agreed to by the parties.
 
On September 23, 2010, Maxim met with Messrs. Nie and Huang in Beijing China and further discussed the potential merger between Ding Neng Holdings and the Company. Final adjustments were made to the deal structure and agreed to by the parties. On September 27, 2010, a letter of intent was signed by the Company and Ding Neng Holdings, and the Company issued a press release related to the signing of the letter of intent on September 30, 2010.
 
From October 4, through October 20, 2010, additional meetings and calls were held among the Company and its advisors, including its legal counsel, and Ding Neng Holdings, its legal counsel and Maxim.  Key topics discussed during this time period included timing of the deal, the exchange of due diligence materials, responding to NASDAQ concerning potential delisting, preparation of the Ding Neng Holdings financial audit and pro forma financial statements, terms of the Share Exchange Agreement and drafting of the 14C Information Statement.
 
On October 15, 2010, an initial draft of the Share Exchange Agreement was distributed which was further negotiated by the Company, Ding Neng Holdings and their advisors over the next two weeks. From October 27, through October 29, 2010, the management team of Ding Neng Holdings, including Messrs. Nie and Huang, met with the Company and Maxim in New York to discuss additional terms of the merger.

 
19

 
 
Final terms of the merger were then negotiated form November 1 through November 11, 2010.  On November 12, 2010, the Share Exchange Agreement was signed by the Company, Ding Neng Holdings and the Ding Neng Holdings Shareholders. Also on November 11, 2010, the Company received the consents of the Board and 55% of its shareholders approving the Acquisition.

The Company’s Reasons for the Acquisition and Recommendation of the Company’s Board

The Board unanimously concluded that the Share Exchange Agreement is in the best interests of the Company’s stockholders. The Board did not obtain a fairness opinion on which to base its assessment.

In determining the Acquisition consideration, the Board focused on one primary value that the Company shareholders would have if the Acquisition occurred, namely the value of their stock in the combined company.

During the quarter ended June 30, 2010, the Company began winding down its operations.  During the fourth quarter ended June 30, 2010, the Company did not have any operating income.  The weak economic market, which resulted in a significant decline in revenues of all areas of the Company’s business, led to the Company’s decision to wind down its operations.  Thus, the Company currently has no business operations and is considered a shell company.  Thus, the Board determined that a reverse acquisition with an operating entity is the best choice for the Company.

In considering the combined companies, the Board believed that the most important component of the transaction were the assets and operations of Ding Neng Bio-tech. During the negotiations, Ding Neng Bio-tech’s management provided the Company with financial statements for the fiscal year ended December 2009 and the three and six months ended June 30, 2010.   These financial statements showed that Ding Neng Bio-tech is a growing company with potential for additional growth in both revenue and net income.   For the year ended December 31, 2009 and the six months ended June 30, 2010, Ding Neng Bio-tech had net income of approximately $2.1 million and $3.2 million, respectively, and revenues of approximately $15.3 million and $14.8 million.  The Board also considered the Company’s current lack of business operations and its rapid decline in revenue over the past year, its current stock price and its stock price for the past year and terms of the Share Exchange Agreement.  The Board also noted that the Company’s stock had traded under $1 since November 2009 and had recently been trading at prices as low as $0.11 per share.

As described below, the Board considered both the potential advantages and disadvantages of the Acquisition.

Potential Advantages of the Acquisition with Ding Neng Holdings

In considering and deciding to enter into the Share Exchange Agreement, the Board gave considerable weight to the positive factors discussed below, and they also considered the negative factors discussed under the heading “Potential Disadvantages of the Ding Neng Holdings Acquisition.”

 
·
The Company’s stockholders receive an ownership interest in Ding Neng Holdings, which is currently a more profitable entity than the Company, and which the Company’s management believes has future growth potential.
 
·
Ding Neng Holdings had revenues and net income of $15.3 million and $2.1 million for the year ended December 31, 2009 and $14.8 million and $3.2 million for the six months ended June 30, 2010, respectively, which shows a potential for growth and value.
 
·
Ding Neng Holdings currently has ongoing operations, whereas the Company has wound down its operations.

Potential Disadvantages of the Ding Neng Holdings Acquisition

The Board evaluated potential disadvantages of entering into the Share Exchange Agreement, as discussed below. They were not able to identify any factors associated specifically with the Ding Neng Holdings acquisition that outweighed the advantages of the Acquisition.
 
 
20

 
 
 
·
Although Common Stock is currently traded on the NASDAQ Capital Market, it will need to re-apply to NASDAQ to retain its listing upon completion of the Acquisition. NASDAQ’s approval will require that the post-acquisition entity meet NASDAQ’s initial listing requirements. If the post-acquisition entity is unable to meet NASDAQ’s initial listing requirements, the Company will no longer trade on the NASDAQ Capital Market.
 
·
Upon the completion of the Acquisition, the Ding Neng Holdings Shareholders will own a majority of the Company’s outstanding Common Stock. As such, they will be in a position to control substantially all matters requiring approval by the Company’s stockholders, including the election of a majority of the Company’s directors and the approval of other business transactions.

The Board concluded that, following the Acquisition, the overall advantages to the Company’s stockholders would outweigh the disadvantages the Board had identified in its analysis.

Fees and Expenses

All fees and expenses incurred in connection with the Share Exchange Agreement will be paid by the party incurring such expenses whether or not the Share Exchange Agreement is consummated. The Company anticipates that it will incur total transaction costs of approximately $250,000. Such costs do not include transaction costs of approximately $400,000 anticipated to be incurred by Ding Neng Holdings.  These Ding Neng Holdings costs will ultimately diminish the cash resources of the combined company after the Acquisition.

Material Federal Income Tax Consequences of the Acquisition

The following section is a summary regarding material United States federal income tax consequences of the Acquisition to holders of Common Stock. This discussion addresses only those stockholders of the Company that hold their securities as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code), and does not address all the United States federal income tax consequences that may be relevant to particular holders in light of their individual circumstances or to holders that are subject to special rules, such as:

 
·
financial institutions;

 
·
investors in pass-through entities;

 
·
tax-exempt organizations;

 
·
dealers in securities or currencies;

 
·
traders in securities that elect to use a mark to market method of accounting;

 
·
persons that hold Common Stock as part of a straddle, hedge, constructive sale or conversion transaction; and

 
·
persons who are not citizens or residents of the United States

This summary of material federal income tax consequences is based upon the Code, applicable treasury regulations thereunder, published rulings and court decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or federal laws other than those pertaining to the income tax, are not addressed.

Neither the Company nor Ding Neng Holdings intends to request any ruling from the Internal Revenue Service as to the United States federal income tax consequences of the Acquisition.

It is anticipated that the Acquisition will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and no gain or loss will be recognized by the Company or Ding Neng Holdings as a result of the Acquisition.

This discussion is intended to provide all material United States federal income tax consequences of the Acquisition to the Company and its stockholders who hold their stock as a capital asset. This discussion is not a complete analysis or description of all potential United States federal tax consequences of the Acquisition to other holders who are subject to special rules. It does not address any non-income tax or any foreign, state or local tax consequences of the Acquisition. Accordingly, you are strongly urged to consult with your tax advisor to determine the particular United States federal, state, local or foreign income or other tax consequences to you of the Acquisition.
 
 
21

 
 
Anticipated Accounting Treatment

The Acquisition will be accounted for as a reverse merger, whereby Ding Neng Holdings will be the continuing entity for financial reporting purposes and will be deemed to be the acquirer of the Company. The acquisition is being accounted for as a reverse merger because after the Acquisition the former Ding Neng Holdings Shareholders will hold the majority of the outstanding shares of the Company and will have the ability to initially appoint the majority of the members of the board of directors of the Company.

In accordance with the applicable accounting guidance for accounting for the Acquisition as a reverse merger, first Ding Neng Holdings will be deemed to have undergone a recapitalization, whereby its outstanding ordinary shares were converted into shares of Common Stock.  Immediately thereafter Ding Neng Holdings, which is the continuing accounting entity, will have been deemed to have acquired the assets and assumed the liabilities of the Company in exchange for the issuance of the Company’s shares.

Regulatory Matters

The Acquisition and the transactions contemplated by the Share Exchange Agreement are not subject to any additional federal or state regulatory requirements or approvals, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR Act.
 
 
22

 

THE SHARE EXCHANGE AGREEMENT

The discussion in this information statement of the Acquisition and the principal terms of the Share Exchange Agreement described below are qualified in their entirety by reference to the copy of the Share Exchange Agreement attached as Annex A, hereto and incorporated herein by reference. The following description summarizes the material provisions of the Share Exchange Agreement, which agreement we urge you to read carefully because it is the principal legal document that governs the Acquisition.

The representations and warranties described below and included in the Share Exchange Agreement were made by the Company, Ding Neng Holdings and the Ding Neng Holdings Shareholders as of November 12, 2010, the date of Share Exchange Agreement. The assertions embodied in these representations and warranties are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Share Exchange Agreement. The representations and warranties may also be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk among the parties. The Share Exchange Agreement is described in this Information Statement and included as Annex A only to provide you with information regarding its terms and conditions at the time it was entered into by the parties. Accordingly, you should read the representations and warranties in the Share Exchange Agreement not in isolation but rather in conjunction with the other information contained in this document.

Basic Deal Terms

The Share Exchange Agreement provides for an acquisition transaction in which the Company will acquire from the Ding Neng Holdings Shareholders, 100% of Ding Neng Holdings in exchange for the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition.  Ding Neng Holdings is a holding company that owns (i) 100% of Fuhua, which has, through various contractual agreements, management control and the rights to the profits of Ding Neng Bio-tech.

Upon completion of the Acquisition, the current owners of the Company and the Ding Neng Holdings Shareholders will own 10.5% and 85%, respectively, of the post-acquisition entity’s Common Stock issued and outstanding.  4.5% will be issued to Maxim in connection with its services provided to complete the Acquisition.

Representations and Warranties

In the Share Exchange Agreement, Ding Neng Holdings, DBT, Fuhua and Ding Neng Bio-tech, make certain representations and warranties (subject to certain exceptions) relating to, among other things:

 
·
organization and standing;

 
·
capital structure;

 
·
corporate structure;

 
·
financial statements accuracy

 
·
accuracy of statements included in this Information Statement

 
·
absence of certain changes or events

 
·
absence of litigation;

 
·
material contracts

 
·
absence of conflicts;

 
·
consents and approvals;

 
·
compliance with applicable laws;

 
·
authority and enforceability

 
·
validity of the Share Exchange Agreement; and

 
·
transactions with affiliates.
 
 
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In the Share Exchange Agreement, the Ding Neng Holdings Shareholders make certain representations and warranties (subject to certain exceptions) relating to, among other things:

 
·
good title to shares;

 
·
power and authority;

 
·
absence of conflicts;

 
·
purchase of the Common Stock in the Acquisition for investment purposes; and

 
·
status as an exempt person under Regulation S.

In the Share Exchange Agreement, the Company makes certain representations and warranties (subject to certain exceptions) relating to, among other things:

 
·
organization and standing;

 
·
capital structure;

 
·
subsidiaries and predecessors;

 
·
financial statement accuracy;

 
·
accuracy of statements included in this Information Statement

 
·
absence of certain changes or events;

 
·
absence of litigation;

 
·
material contracts;

 
·
absence of conflicts;

 
·
consents and approval required;

 
·
compliance with applicable laws;

 
·
Nasdaq listing;

 
·
registration of securities with the SEC;

 
·
actions against takeover provisions;

 
·
transactions with affiliates;

 
·
bank accounts and powers of attorney;

 
·
validity and enforceability;

 
·
title to property;

 
·
illegal payments;

 
·
solvency;

 
·
Office of Foreign Assets Control of the U.S. Treasury Department;

 
·
intellectual property;

 
·
employee benefit plans or programs;

 
·
absence of certain changes;

 
·
taxes;

 
·
restrictions on business activities;

 
·
Investment Company Act;

 
·
books and records;

 
·
finder’s fees;

 
·
environmental issues;

 
·
past business operations;
 
 
24

 
 
 
·
business practices; and

 
·
possession of license and permits.

Conditions to Closing

Ding Neng Holdings and Ding Neng Holdings Shareholders Conditions to Closing

The obligations of Ding Neng Holdings and Ding Neng Holdings Shareholders to enter into and complete the closing are subject to the fulfillment on or prior to the closing date of, among other items, the following conditions by the Company, any one or more of which may be waived by Ding Neng Holdings and Ding Neng Holdings Shareholders:

 
·
the representations and warranties made by the Company in the Share Exchange Agreement shall be true as of the date thereof and the closing and the Company shall have performed and complied with the covenants and conditions therein;

 
·
the Reverse Stock Split must have been effected;

 
·
the Name Change must have been approved by the Company’s Board and shareholders, Nasdaq and FINRA;

 
·
the Company must have been continuously listed on the Nasdaq Capital Market through the date of closing;

 
·
Ding Neng Holdings must have received a copy of an irrevocable letter to the Company’s transfer agent authorizing the issuance of Common Stock to the Ding Neng Holdings Shareholders;

 
·
no litigation, proceeding, investigation or inquiry will be pending or, to the Company’s knowledge, have been threatened, which may result in an action to enjoin or prevent the completion of the Acquisition, to the extent not already disclosed;

 
·
no order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality which prohibits the consummation of the Acquisition; and

 
·
all consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles in connection with the Acquisition must have been obtained.

The Company’s Conditions to Closing

The obligations of the Company to enter into and complete the closing are subject to the fulfillment on or prior to the closing date of, among other items, the following conditions by Ding Neng Holdings and Ding Neng Holdings Shareholders, any one or more of which may be waived by the Company in writing:

 
·
the representations and warranties made by Ding Neng Holdings and the Ding Neng Holdings Shareholders in the Share Exchange Agreement shall be true as of the date thereof and the closing and Ding Neng Holdings and the Ding Neng Holdings Shareholders shall have performed and complied with the covenants and conditions therein;

 
·
no order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality which prohibits the consummation of the Acquisition; and

 
·
all consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles in connection with the Acquisition must have been obtained.

Covenants of the Parties

In the Share Exchange Agreement, Ding Neng Holdings and Ding Neng Holdings Shareholders have covenanted to the following:
 
 
25

 
 
 
·
Ding Neng Holdings has agreed to deliver to Company (i) audited financial statements prepared in accordance with U.S. GAAP for each fiscal year, beginning with the year ended December 31, 2009 and 2008, and (ii) unaudited interim financial statements prepared in accordance with U.S. GAAP for the nine months ended September 30, 2010 at the closing;

 
·
to cooperate in order to obtain any required third party consents to the Share Exchange Agreement and the Acquisition;

 
·
not to seek an alternative transaction or from taking any action to solicit an alternative acquisition proposal; and

 
·
to carry on business in the ordinary and usual course consistent with past practice and not sell, pledge or assign assets, except in the regular course of business, declare dividends, redeem or sell securities, incur newly funded liabilities, acquire or dispose of fixed assets, enter into any material or long-term contract, guarantee the obligations of a third party, settle or discharge any account receivable for less than its stated amount, pay more on any liability than its stated amount, or enter into any other transaction other than in the regular course of business.

In the Share Exchange Agreement, the Company has covenanted to the following:

 
·
deliver the corporate minute books and records;

 
·
to cooperate in order to obtain any required third party consents to the Share Exchange Agreement and the Acquisition;

 
·
Zhenyu Wang will resign as the chief executive officer;

 
·
Zhenyu Wang will use his reasonable best efforts to provide information in connection with any securities filings with the SEC;

 
·
not to seek an alternative transaction or from taking any action to solicit an alternative acquisition proposal;

 
·
to carry on business in the ordinary and usual course consistent with past practice and not sell, pledge or assign assets, except in the regular course of business, declare dividends, redeem or sell securities, incur newly funded liabilities, acquire or dispose of fixed assets, enter into any material or long-term contract, guarantee the obligations of a third party, settle or discharge any account receivable for less than its stated amount, pay more on any liability than its stated amount, or enter into any other transaction other than in the regular course of business; and

 
·
not to amend the Company’s certificate of incorporation or its bylaws, except as contemplated by the Share Exchange Agreement.

Indemnification

Zhenyu Wang has agreed, for one year after the closing, to indemnify and hold harmless Ding Neng Holdings and its affiliates, and their respective officers, directors, employees and agents from and against any liabilities resulting from any material breach or inaccuracy by the Company of any representations, warranties, covenants or agreements included in the Share Exchange Agreement and any fraud committed by the willful breach of the Share Exchange Agreement.  There is no provision for indemnification by Ding Neng Holdings or Ding Neng Holdings Shareholders.

Termination

Unless waived in writing, the transactions contemplated by the Share Exchange Agreement may be terminated and/or abandoned at any time prior to the closing:

 
·
by mutual written consent of the parties to the Share Exchange Agreement;

 
·
by written notice of the Company if the closing conditions have not been satisfied by Ding Neng Holdings or the Ding Neng Holdings Shareholders, as the case may be;

 
·
by written notice of Ding Neng Holdings or the Ding Neng Holdings Shareholders if the closing conditions have not been satisfied by the Company;
 
 
26

 
 
 
·
by written notice by either the Company or Ding Neng Holdings if the Acquisition has been permanently restrained, enjoined, or otherwise prevented or prohibited by a government authority;

 
·
by written notice of any party if there has been a breach by any other party hereto of any of its material representations, warranties, covenants or agreements, or if any material representation or warranty of any other party shall have become untrue or inaccurate, and the breach or inaccuracy cannot be cured prior to closing or is not cured within twenty days of notice of such breach or inaccuracy; and

 
·
by written notice by the Company or Ding Neng Holdings, if either party discovers any fact or circumstance that has, or could reasonably be expected to have, a material adverse effect, that was discovered in connection with the completion of the due diligence review of the other parties hereto.

Exclusivity; No Other Negotiation

The Share Exchange Agreement contains detailed provisions prohibiting each of the Company, Ding Neng Holdings, Ding Neng Bio-tech and the Ding Neng Holdings Shareholders and Ding Neng Bio-tech from seeking an alternative transaction. These covenants generally prohibit the Company, Ding Neng Holdings, Ding Neng Bio-tech and the Ding Neng Holdings Shareholders and Ding Neng Bio-tech which are parties to the Share Exchange Agreement, as well as their officers, directors, subsidiaries, employees, agents and representatives, from taking any action to solicit an alternative acquisition proposal.

Effect of Termination; No Termination Fee

If the Share Exchange Agreement is terminated in accordance with its termination provisions, then each party will be responsible for the payment of the expenses and fees incurred by it in connection with or related to the transactions contemplated thereby, all further obligations of the parties shall terminate, no party shall have any right against the other party thereto, and each party will bear its own costs and expenses.

Conclusion of the Company’s Board of Directors

After careful consideration of all relevant factors, the Board unanimously determined that the Acquisition pursuant to the Share Exchange Agreement is in the best interests of the Company and its stockholders.  The foregoing discussion of the information and factors considered by the Board is not meant to be exhaustive, but includes the material information and factors considered by the board of directors.
 
 
27

 

CERTAIN AGREEMENTS RELATING TO THE ACQUISITION

Employment Agreement with Zhenyu Wang

At the time of closing the Acquisition, Ding Neng Holdings and Zhenyu Wang will enter into a 2 year employment agreement which will include an understanding by Mr. Wang that he will not take any steps adverse to the interests of the post-acquisition entity and its other shareholders.  Pursuant to the employment agreement, Mr. Wang will receive an annual salary of $150,000 and equity of the post-acquisition entity equal to 1.0% upon execution of the agreement plus an additional 0.5% over the term of the employment agreement (.25% after the first year and .25% after the second).
 
 
28

 

INFORMATION ABOUT CHINA INSONLINE CORP.

DESCRIPTION OF BUSINESS

History of the Company

China INSOnline Corp. was initially incorporated on December 23, 1988 as Lifequest Medical, Inc. (“DEXT”) as a Delaware corporation and commenced operations on January 1, 1989 as a distributor of instruments, equipment and surgical supplies used in hand-assisted laparoscopic surgery (“HALS”).  In August 1992, we completed our initial public offering of our common stock, par value $0.001 per share.  In March 1999, we acquired Dexterity Incorporated, a Delaware corporation (“Dexterity”), which was located in the Philadelphia, Pennsylvania and had the exclusive rights to the Dexterity Pneumo Sleeve and Dexterity Protractor proprietary instruments, equipment and supplies used in HALS. In connection with this acquisition, we changed our name from LifeQuest Medical, Inc. to Dexterity Surgical, Inc.

On April 19, 2004, DEXT filed a voluntary petition for relief for reorganization (the “Reorganization”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas Houston Division. We underwent numerous operating changes and operated our business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court.  On March 2, 2005, the Bankruptcy Court entered an Order confirming its First Amended Plan of Liquidation.  In connection with that Plan, DEXT’s assets were scheduled to be auctioned, which auction culminated in the sale of substantially all of DEXT’s assets as approved by the Bankruptcy Court on March 17, 2006.  The First Amended Plan of Liquidation was subsequently amended on March 2, 2006, by an order titled “Order Approving Modification of the First Amended Plan” (the “Order”). The amendments provided for in the Order included the Bankruptcy Court’s authorization of a $50,000 Debtor-In-Possession Loan (the “DIP Loan”) for payment of administrative expenses of the bankruptcy, which converted into 6,000,000 shares of Common Stock (the “Section 1145 Shares”) and 3,000,000 warrants (the “Section 1145 Warrants”) under Section 1145 of the U.S. Bankruptcy Code at the option of the holder(s) of the DIP Loan. Immediately prior to the Exchange (as defined and discussed in detail herein below), the Section 1145 Warrants were cancelled. For an additional $125,000, the Bankruptcy Court authorized the sale of 25,000,000 restricted shares of Common Stock to an investor for the payment of both administrative claims and creditor claims. The Bankruptcy Court also provided as follows:
 
·
All of the old shares of the Company’s preferred stock, stock options and warrants shall be (and have been) cancelled;

·
The Company shall issue (and did issue) 29,800 new shares of Common Stock under Section 1145 of the U.S. Bankruptcy Code;

·
The Company shall issue up to 25,000 shares of Common Stock under Section 1145 of the U.S. Bankruptcy Code to those persons deemed appropriate by the Directors (it was not necessary to issue these shares and therefore they have been cancelled); and

·
Appoint new Board members, amend the Certificate of Incorporation to increase the authorized shares of Common Stock to 100,000,000, amend the Bylaws, change the fiscal year, execute a share exchange agreement and issue shares in which effective control or majority ownership is given, all without stockholder approval.

Pursuant to the Bankruptcy Court Order, by filing a Certificate of Amendment to the Certificate of Incorporation, the Company increased its authorized Common Stock, and effected a 1-for-500 reverse split of all issued and outstanding Common Stock. Immediately following the Exchange, there were 35,706,250 shares of Common Stock issued and outstanding and 4,293,750 Section 1145 Shares issuable pursuant to the Reorganization. As of September 30, 2010, all of the 4,293,750 Section 1145 Shares have been issued and 46,000,000 shares are now issued and outstanding.
 
 
29

 

On December 18, 2007 (the “Closing Date”), the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Rise and Grow Limited, a Hong Kong limited company (“Rise & Grow”) and Newise Century Inc., a British Virgin Islands company and sole stockholder of Rise & Grow (the “Stockholder”). As a result of the share exchange, DEXT acquired all of the issued and outstanding securities of Rise & Grow, an inactive holding company, from the Stockholder in exchange for Twenty-Six Million Four Hundred Thousand (26,400,000) newly-issued shares of Common Stock, representing 73.94% of DEXT’s issued and outstanding Common Stock (the “Exchange”) as of the Closing Date and sixty-six percent (66%) of the total number of issued and outstanding shares of Common Stock after the issuance of the remaining 4,293,750 “Section 1145” shares. As a result of the Exchange, Rise & Grow became our wholly-owned and chief operating subsidiary.

On October 28, 2008, the Company, through its subsidiary, acquired 100% ownership of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, in exchange for US$5,846,244 (RMB40,000,000).  GHIA is an insurance agent company which operates in the PRC.

June 2010 Sale of Subsidiaries

On June 30, 2010, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Hong Kong Jing Nuo International Limited, a Hong Kong limited company (the “Buyer”), a third party not affiliated with the Company or any of the Company’s subsidiaries.  Pursuant to the terms of the Share Purchase Agreement, the Company sold to the Buyer, and the Buyer purchased from the Company (the “Transaction”) all of the issued and outstanding ownership shares of Rise & Grow, for a purchase price equal to US$100,000. As a result of the Transaction, the Company sold all of its interests in (1) Rise & Grow, (2) New Fortune Associate (Beijing) Information Technology Co., Ltd. (“NFA”), a limited liability company organized under the laws of the People’s Republic of China (the “PRC”) and a wholly owned subsidiary of R&G, and (3) Beijing ZYTX Technology Co., Ltd (“ZYTX”), a Variable Interest Entity (“VIE”) and a limited liability company organized under the laws of PRC.  ZYTX was wholly controlled by R&G through NFA, through a series of contractual agreements.

In anticipation of the Transaction, the Company engaged in an earlier transaction on June 23, 2010 whereby all the issued and outstanding ownership interest of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, which was then a wholly-owned subsidiary of Rise & Grow through  ZYTX acting as its legal owner in the PRC, were transferred and sold, for consideration received, to Ever Trend Investment Limited (“ETI”), a Hong Kong limited company and a wholly owned subsidiary of the Company, and Beijing San Teng Da Fei Technology Development Co., Ltd. (“STDF”), a company organized under the laws of the PRC and a VIE controlled by ETI through its wholly-owned PRC subsidiary Run Ze Yong Cheng (Beijing) Technology Co., Ltd., a limited liability company organized under the laws of the PRC, pursuant to that certain Share Purchase Agreement dated as of June 23, 2010 (the “Purchase Agreement”) by and among Rise & Grow and ZYTX, together as the GHIA seller, and ETI and STDF, together as the GHIA purchaser. The terms of the Purchase Agreement allowed the Company to retain its ownership interest in GHIA notwithstanding the Transaction consummated on June 30, 2010. As a result of the transaction consummated on June 23, 2010, GHIA became a wholly-owned subsidiary of ETI through STDF acting as its legal owner in the PRC.
 
 
30

 
 
A graphical depiction of the Transaction and the transactions under the Purchase Agreement is as follows:
 

Also in connection with the Transaction, the Company’s subsidiary ZYTX entered into a Tri-party Creditor’s Rights Transfer Agreement (“Creditor’s Agreement”) with the Company’s subsidiary STDF and a third party, Beijing Yingtong Jixun Sci-Tech Development Co., Ltd. (“YTJX”), a limited liability company organized under the laws of the PRC.  At the time, the Company had prepaid approximately US$20.5 million, to YTJX for wireless Internet terminal products.  Pursuant to the Creditor’s Agreement, ZYTX transferred and sold, for consideration received, a portion of its prepaid account with YTJX to STDF, with YTJX’s express approval of the transfer. Concurrently, ZYTX entered into a Software Copyright Transfer Agreement (“Software Agreement”) with STDF, pursuant to which ZYTX transferred and sold, for consideration received, certain software, copyright and intellectual property rights to STDF. As a result of the Creditor’s Agreement and the Software Agreement, the Company retained the certain assets of ZYTX, whose equity was subsequently sold to a third party in the Transaction.
 
 
31

 

The structure of the Company after the June 2010 transactions is illustrated as follows:
 

Winding Down of Operations

During the quarter ended June 30, 2010, the Company began winding down its operations.  During the fourth quarter ended June 30, 2010, the Company did not have any operating income.  The weak economic market, which resulted in a significant decline in revenues of all areas of the Company’s business, led to the Company’s decision to wind down its operations.  Thus, the Company currently has no business operations and is considered a shell company.  Management is currently looking to either sell shares of the Company to a third party through a reverse acquisition or complete a business combination or other similar transaction.

The Company currently has some nominal office equipment remaining on the books.  The Company is currently looking for a buyer to purchase these assets.

Going Concern

We received a report from our independent registered public accountants, relating to our June 30, 2010 audited consolidated financial statements, containing an explanatory paragraph regarding our ability to continue as a going concern.

As a company with no operating business, management believes that the Company will not be able to generate operating cash flows sufficient to fund its operations in the next twelve months . Based upon our current limited cash resources and without the infusion of additional capital, management does not believe the Company can operate as a going concern beyond one year.
 
 
32

 
 
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, our consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Since winding down our operations in the quarter ended June 30, 2010, we have had no continuing business operations. Accordingly, the results of our operations for years ended June 30, 2010 and 2009 are not comparable.

Business Operations Prior to Winding Down

Prior to winding down our operations during the quarter ended June 30, 2010, we were an Internet services and media company focused on the PRC insurance industry. The Company primarily offered a network portal through its industry website, www.soobao.cn (hereinafter also referred to as “Soobao”), to insurance companies, agents and consumers for advertising, online inquiry, news circulation, online transactions, statistic analysis and software development.  This primarily entailed the offer of online insurance products and services in China including (a) a network portal for the Chinese insurance industry (www.soobao.cn), offering industry professionals a forum for the advertising and promotion of products and services, (b) website construction for marketing teams and others in the insurance industry, (c) software development, (d) insurance agency services whereby the Company generated sales commissions on motor vehicle insurance, property insurance and life insurance and (e) accompanying client support services.

Employees

As of September 30, 2010, the Company had 7 full-time employees. None of our employees are covered by a collective bargaining agreement.

Intellectual Property

We currently do not own any trademarks or patents. In April 2007, the Company filed for its website (www.soobao.cn) with the Beijing Industrial Commercial Bureau.

Government Regulation

Because we currently have no business operations, produce no products nor provide any services, we are not presently subject to any governmental regulation in this regard.  However, in the event that we complete a business combination transaction, we will become subject to all governmental approval requirements to which the reorganized, merged or acquired entity is subject or may become subject.

DESCRIPTION OF PROPERTY

GHIA had one (1) office during the year ended June 30, 2010 at Room 508 Shangdu International Center, No.8 Dongdaqiao Road, Chaoyang District, Beijing, China.  This was GHIA’s operating office, which consisted of approximately one hundred and sixty seven (167) square meters.  GHIA paid RMB 18,000 (US$2,698) per month to lease this office during the fiscal year ended June 30, 2010.  At September 30, 2010, GHIA continues to use this same location as its office.

LEGAL PROCEEDINGS

In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of the date of filing this Report, there is no outstanding litigation.
 
 
33

 
 
On March 15, 2010, the Wall Street Transcript Corp. (the “Plaintiff”) filed complaint against China INSOnline Corp. regarding an invoice of $1,450 that was outstanding since July 23, 2008, for certain webcasting services provided to the Company at Collins Stewart Fourth Annual Growth Conference on July 8-10, 2008. The Company settled with Plaintiff on April 26, 2010.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

Our Common Stock is quoted on the NASDAQ Capital Market under the symbol “CHIO”. The following table sets forth on a per share basis for the periods shown, the high and low sales prices of our Common Stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 
  
 
Fiscal Year
Ended June 30,
2009
   
Fiscal Year Ended
June 30, 2010
   
Fiscal Year Ended
June 30, 20111
 
  
 
Low
   
High
   
Low
   
High
   
Low
   
High
 
First Quarter ended September 30
  $ 3.00     $ 4.74     $ 0.87     $ 1.92     $ 0.18     $ 0.38  
Second Quarter ended December 31
  $ 1.09     $ 3.69     $ 0.62     $ 1.64     $ 0.11 *   $ 0.35 *
Third Quarter ended March 31
  $ 0.17     $ 1.69     $ 0.40     $ 0.95       N/A       N/A  
Fourth Quarter ended June 30
  $ 0.42     $ 2.17     $ 0.33     $ 0.42       N/A       N/A  
 
*
This information is provided through November 10, 2010.

On November 10, 2010, the closing price for our common stock, as reported by the NASDAQ Capital Market, was $0.138 per share.

Holders of Common Equity

As of November 12, 2010, we have an aggregate of 46,000,000 shares of our Common Stock issued and outstanding and 251 stockholders of record.

As of November 12, 2010, Ding Neng Holdings has an aggregate of 50,000 ordinary shares issued and outstanding and 14 shareholders.

Dividends

We have never declared or paid any cash dividends or distributions on our Common Stock. We currently intend to retain our future earnings to support operations and to finance future growth and expansion and, therefore, do not anticipate paying any cash dividends on our Common Stock in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

The following table discloses information as of June 30, 2010 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
 
  
(a)
 
(b)
 
(c)
 
Plan Category
Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
 
Equity Compensation plans approved by security holders
    -       -       6,000,000 (1) 
Equity Compensation plans not approved by security holders
    -       -       -  
Total
    -       -       6,000,000  
 
 
34

 
 
(1) In June 2010, the Company’s shareholders approved and adopted the 2010 Stock Option Plan, which authorized the potential issuance of up to 6,000,000 shares of Common Stock to employees, directors and consultants.  Options granted under the 2010 Stock Option Plan generally have a term of ten years from the date of grant unless otherwise specified in the option agreement. The 2010 Stock Option Plan expires in June 2020.

Subsequent to June 30, 2010, the Company made the following issuances of unregistered securities:

On July 8, 2010, the Company issued to two engineering consultants, options to purchase an aggregate of up to 3,000,000 shares of Common Stock as compensation for IT consulting and advisory services.  The options had an exercise price of $0.001 per share and were scheduled to expire on July 8, 2020.  On July 19, 2010, the consultants exercised the options for all 3,000,000 shares.  We relied upon the exemption from registration under Section 4(2) in connection with these issuances.
 
On July 15, 2010, the Company issued to two financial consultants, options to purchase an aggregate of up to 3,000,000 shares of Common Stock as compensation to provide public relationship services in (1) referring the investment banks, funds, investors and potential merger and acquisition targets to the Company and assisting the Company in negotiating the contractual terms, (2) assisting the Company to make a marketing and investor relations plan to improve the liquidity of stock, (3) arranging road shows for the Company and meeting with potential investors and potential merger and acquisition targets, and (4) providing other financial advisory and services.  The options had an exercise price of $0.001 per share and were scheduled to expire on July 15, 2020.  On July 21, 2010, the financial consultants exercised the options for all 3,000,000 shares.  We relied upon the exemption from registration under Section 4(2) in connection with these issuances.

Transfer Agent and Registrar

Our transfer agent is Corporate Stock Transfer, located at 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209. Their telephone number is (303) 282-4800.

MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward Looking Statements

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “ believes ” “ anticipates ”, “ may ”, “ will ”, “ should ”, “ expect ”, “ intend ”, “ estimate ”, “ continue ” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be place on these forward-looking statements which speak only as of the date of filing this Report. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Annual Report.
 
 
35

 
 
Overview

China INSOnline Corp. was incorporated on December 23, 1988 as a Delaware corporation and commenced operations on January 1, 1989.

During the quarter ended June 30, 2010, the Company began winding down its operations.

Sale of Subsidiaries

On June 30, 2010, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Hong Kong Jing Nuo International Limited, a Hong Kong limited company (the “Buyer”), a third party not affiliated with the Company or any of the Company’s subsidiaries.  Pursuant to the terms of the Share Purchase Agreement, the Company sold to the Buyer, and the Buyer purchased from the Company (the “Transaction”) all of the issued and outstanding ownership shares of Rise & Grow, for a purchase price equal to US$100,000. As a result of the Transaction, the Company sold all of its interests in (1) Rise & Grow, (2) New Fortune Associate (Beijing) Information Technology Co., Ltd. (“NFA”), a limited liability company organized under the laws of the People’s Republic of China (the “PRC”) and a wholly owned subsidiary of R&G, and (3) Beijing ZYTX Technology Co., Ltd (“ZYTX”), a Variable Interest Entity (“VIE”) and a limited liability company organized under the laws of PRC.  ZYTX was wholly controlled by R&G through NFA, through a series of contractual agreements.

In anticipation of the Transaction, the Company engaged in an earlier transaction on June 23, 2010 whereby all the issued and outstanding ownership interest of Guang Hua Insurance Agency Company Limited (“GHIA”), a limited liability company organized under the laws of the PRC, which was then a wholly-owned subsidiary of Rise & Grow through  ZYTX acting as its legal owner in the PRC, were transferred and sold, for consideration received, to Ever Trend Investment Limited (“ETI”), a Hong Kong limited company and a wholly owned subsidiary of the Company, and Beijing San Teng Da Fei Technology Development Co., Ltd. (“STDF”), a company organized under the laws of the PRC and a VIE controlled by ETI through its wholly-owned PRC subsidiary Run Ze Yong Cheng (Beijing) Technology Co., Ltd., a limited liability company organized under the laws of the PRC, pursuant to that certain Share Purchase Agreement dated as of June 23, 2010 (the “Purchase Agreement”) by and among Rise & Grow and ZYTX, together as the GHIA seller, and ETI and STDF, together as the GHIA purchaser. The terms of the Purchase Agreement allowed the Company to retain its ownership interest in GHIA notwithstanding the Transaction consummated on June 30, 2010. As a result of the transaction consummated on June 23, 2010, GHIA became a wholly-owned subsidiary of ETI through STDF acting as its legal owner in the PRC.

Also in connection with the Transaction, the Company’s subsidiary ZYTX entered into a Tri-party Creditor’s Rights Transfer Agreement (“Creditor’s Agreement”) with the Company’s subsidiary STDF and a third party, Beijing Yingtong Jixun Sci-Tech Development Co., Ltd. (“YTJX”), a limited liability company organized under the laws of the PRC.  At the time, the Company had prepaid approximately US$20.5 million, to YTJX for wireless Internet terminal products.  Pursuant to the Creditor’s Agreement, ZYTX transferred and sold, for consideration received, a portion of its prepaid account with YTJX to STDF, with YTJX’s express approval of the transfer. Concurrently, ZYTX entered into a Software Copyright Transfer Agreement (“Software Agreement”) with STDF, pursuant to which ZYTX transferred and sold, for consideration received, certain software, copyright and intellectual property rights to STDF. As a result of the Creditor’s Agreement and the Software Agreement, the Company retained the certain assets of ZYTX, whose equity was subsequently sold to a third party in the Transaction.

Winding Down of Operations

During the quarter ended June 30, 2010, the Company began winding down its operations.  During the fourth quarter ended June 30, 2010, the Company did not have any operating income.  The weak economic market, which resulted in a significant decline in revenues of all areas of the Company’s business, led to the Company’s decision to wind down its operations.  Thus, the Company currently has no business operations and is considered a shell company.  Management is currently looking to either sell shares of the Company to a third party through a reverse acquisition or complete a business combination or other similar transaction.
 
 
36

 
 
The Company currently has some nominal office equipment remaining on the books.  The Company is currently looking for a buyer to purchase these assets.

Going Concern

We received a report from our independent registered public accountants, relating to our June 30, 2010 audited consolidated financial statements, containing an explanatory paragraph regarding our ability to continue as a going concern.

As a company with no operating business, management believes that the Company will not be able to generate cash flows sufficient for the next twelve months. Based upon our current limited cash resources and without the infusion of additional capital, management does not believe the Company can operate as a going concern beyond one year.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, our consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

As a result of winding down all our core operations during the quarter ended June 30, 2010, we have classified the results of our operations as discontinued operations for all periods presented. Accordingly, the results of our operations for years ended June 30, 2010 and 2009 are not comparable.

Liquidity and Capital Resources

As of June 30, 2010, the Company had approximately $92,092 in cash and cash equivalents.  Since the Company ceased all business operations, in order for us to continue as a going concern, we hope to obtain necessary financing by ways of capital injection from potential investors as well as seeking other growth opportunities by way of merger or acquisition. There can be no assurance that we will be able to secure additional funding or that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us to meet all our future obligations.

Related Party Transactions

During the years ended June 30, 2010 and 2009, the Chairman of the Company, Mr. Wang Zhenyu, made advances to the Company for working capital purposes.  At June 30, 2010 and 2009, the amount outstanding was $403,600 and $253,506, respectively.  As of September 30, 2010, the amount outstanding was $317,506.  The outstanding amounts are non-interest bearing, unsecured and have no fixed repayment terms.

Off-balance Sheet Arrangements

None.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
 
On August 4, 2010 (the “Dismissal Date”), the Company notified Weinberg & Company, P.A. (“Weinberg”) that it was dismissing Weinberg as its independent registered public accounting firm, effective immediately. The Board approved the dismissal of Weinberg as its independent registered public accounting firm.  Weinberg audited the Company's financial statements for the fiscal years ended June 30, 2009 and 2008 and reviewed the subsequent interim quarters through the Dismissal Date.  Weinberg's reports on the Company's financial statements did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. On August 5, 2010, the Company, with the Board's approval, engaged Friedman LLP (“Friedman”) to serve as its independent registered public accounting firm to audit the Company’s consolidated financial statements for the fiscal year ended June 30, 2010 and to issue a report on the Company’s financial statements for such fiscal year.
 
 
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 During the Company’s most recent two (2) fiscal years, as well as the subsequent interim period through the Dismissal Date, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of Weinberg would have caused Weinberg to make reference in connection with its opinion to the subject matter of the disagreement.

Aside from the matter identified below, during the Company’s most recent two (2) fiscal years, as well as the subsequent interim period through the Dismissal Date, Weinberg did not advise the Company of any of the matters identified in Item 304(a)(1)(v)(A) - (D) of Regulation S-K.  During the most recent two (2) fiscal years and during the subsequent interim period through the Dismissal Date, there was one “reportable event,” as defined in Regulation S-K Item 304(a)(1)(v). In performing the audit of the Company’s consolidated financial statements for the fiscal year ended June 30, 2009, Weinberg advised the Company’s management and the Board of Directors that it had identified the following material weakness: there was a lack of sufficient accounting staff which resulted in a lack of effective controls necessary for a good system of internal control for financial reporting and there was a weakness in the internal controls relating to the financial statement closing process which resulted primarily from the fact that certain parts of the work of the Company’s accounting staff may not be monitored or reviewed correctly. The material weakness described above existed on June 30, 2009 and continued to exist as of June 30, 2010.  For a further discussion of the foregoing material weakness please refer to Item 9A of the Company’s Annual Report on Form 10-K, filed with the Commission on October 13, 2010.

DESCRIPTION OF THE COMPANY’S COMMON STOCK

The Company’s authorized capital stock currently consists of One Hundred Million (100,000,000) shares of common stock, par value $0.001 per share, of which there are 46,000,000 shares of common stock issued and outstanding. There are no shares of preferred stock authorized, issued or outstanding. Holders of Common Stock are entitled to one (1) vote for each share on all matters to be voted on by the Company’s stockholders. Holders of Common Stock do not have cumulative voting rights. Holders of Common Stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board in its discretion from funds legally available therefore. In the event of any liquidation, dissolution or winding up, the holders of Common Stock are entitled to a pro-rata share of all assets remaining after payment in full of all liabilities and preferential payments, if any, to holders of preferred stock. Holders of Common Stock have no preemptive rights to purchase additional Common Stock. Furthermore, there are no conversion or redemption rights or sinking fund provisions with respect to the Common Stock.

Anti-Takeover Effects of Provisions of Delaware Law

Provisions of Delaware law could make the Acquisition of the Company through a tender offer, a proxy contest or other means more difficult and could make the removal of incumbent officers and directors more difficult. The Company expects these provisions to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company to first negotiate with the Board.  The Company believes that the benefits provided by its ability to negotiate with the proponent of an unfriendly or unsolicited proposal outweigh the disadvantages of discouraging these proposals. The Company believes the negotiation of an unfriendly or unsolicited proposal could result in an improvement of its terms.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth each person known by us to be the beneficial owner of five (5%) percent or more of the Common Stock of the Company, all directors individually and all directors and officers as a group as of November 12, 2010. Each person named below has sole voting and investment power with respect to the shares shown unless otherwise indicated.
 
 
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Name and Address of
Beneficial Owner(1)
 
Amount of
Direct
Ownership
   
Amount of
Indirect
Ownership
   
Total
Beneficial
Ownership
   
Percentage of
Class(2)
 
Zhenyu Wang, Chairman of the Board
   
16,008,960
     
-
     
16,008,960
     
34.8
%
Mingfei Yang, Chief Financial Officer
   
-
     
-
     
-
     
-
%
Yuefeng Wang, Director
   
-
     
-
     
-
     
-
%
Yinan Zhang, Director
   
-
     
-
     
-
     
-
%
Xiaoshuang Chen, Director
   
-
     
-
     
-
     
-
%
Renbin Yu, Director
   
-
     
-
     
-
     
-
%
Yong Bian, Director
   
-
     
-
     
-
     
-
%
All directors and officers as a group (7 persons)
   
16,008,960
             
16,008,960
     
34.8
%
                                 
5% Shareholders
                               
Yanling Chen
Room 704, Zhenxing District Yijing Street, 33# No.2,
Dandong City, Liaoning Province, China
   
2,999,040
     
-
     
2,999,040
     
6.5
%
                                 
Junjun Xu
   
5,280,000
     
-
     
5,280,000
     
11.5
%
Room 807, Block A, Ding Xiu Xin Yuan
No 1.Nanli Shiliu Yuan, Fengtai District
Beijing, 100075 , China
                               
 
(1)           Unless otherwise noted, each beneficial owner has the same address as the Company.

(2)           Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Under those rules and for purposes of the table above (a) if a person has decision making power over either the voting or the disposition of any shares, that person is generally deemed to be a beneficial owner of those shares; (b) if two or more persons have decision making power over either the voting or the disposition of any shares, they will be deemed to share beneficial ownership of those shares, in which case the same shares will be included in share ownership totals for each of those persons; and (c) if a person held options to purchase shares that were exercisable on, or became exercisable within 60 days of November 12, 2010, that person will be deemed to be the beneficial owner of those shares and those shares (but not shares that are subject to options held by any other stockholder) will be deemed to be outstanding for purposes of computing the percentage of the outstanding shares that are beneficially owned by that person.
 
 
39

 

INFORMATION ABOUT DING NENG HOLDINGS

Ding Neng Holdings, a British Virgin Islands business company, acts as a holding company and indirectly controls Ding Neng Bio-tech, a Chinese variable interest entity.  Ding Neng Holdings’ sole source of income and operations is through its indirect, contractual relationship with Ding Neng Bio-tech.

Based in the city of Zhangzhou, Fujian Province, China, Ding Neng Bio-tech is principally engaged in the production, refinement and distribution of biodiesel fuel.  Ding Neng Bio-tech has approximately 72 full-time employees.  It operates a biodiesel manufacturing facility in Zhangzhou city, the annual aggregate capacity of which has increased from approximately 20,000 tons in 2009 to approximately 40,000 tons in 2010.  Ding Neng Bio-tech believes its rapid growth in recent years has been supported by the continuing expansion of the market for biodiesel in the PRC.  According to China Commodities Daily, this market is forecasted to reach 1 million tons in 2010, which is 20% more than the expected domestic biodiesel production volume in the PRC.

Currently the raw materials used in Ding Neng Bio-tech’s production of biodiesel are refined animal fats and crude and refined vegetable oils.  The multi-feedstock technology employed in its biodiesel production process enables it to utilize different feedstocks based on availability and price. Ding Neng Bio-tech is in the process of acquiring a 1000mu (approximately 165 acres) Sapindus plantation located in Zhejiang Province.  Ding Neng Bio-tech expects to use it to develop 165 acres of Sapindus forest in the next 5-8 years, which is expected to provide one-third of the total feedstock required for its biodiesel production through 2013.

Ding Neng Bio-tech currently markets its products to various oil companies located in Fujian province.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Ding Neng Holdings prepared the following discussion and analysis to help you better understand its financial condition, changes in its financial condition, and results of operations for the fiscal years ended December 31, 2009 and 2008,  and the six month periods ended June 30, 2010 and 2009.  This discussion should be read in conjunction with the financial statements and related notes for Ding Neng Holdings for the fiscal years ended December 31, 2009 and 2008 and the unaudited financial statements and related notes for the six month periods ended June 30, 2010 and 2009.

Cautionary Statements Regarding Forward Looking Statements

Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:

● discuss future expectations;
● contain projections of future results of operations or of financial condition; and
● state other "forward-looking" information.

Ding Neng Holdings believes it is important to communicate its expectations. However, it undertakes no duty to update any forward-looking statements contained herein, even though its situation may materially change in the future. There may be events in the future that Ding Neng Holdings is not able to accurately predict or over which it has no control.  Ding Neng Holdings’ actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of numerous factors, many of which are beyond its control.
 
 
40

 
 
Business Overview

Ding Neng Bio-tech, the sole operating entity of Ding Neng Holdings, is in the business of the production, refinement and distribution of bio-diesel fuel from animal oil, plant oil and other various sources and receives revenues from the sales of biodiesel and crude biodiesel products.  Ding Neng Bio-tech’s production capacity doubled in 2009 comparable to 2008, which resulted in an increase in revenues and profits.  Ding Neng Bio-tech seeks to expand its production capabilities in 2011 in an attempt to further increase its revenues and profits.

Ding Neng Bio-tech’s operating results are largely driven by the price at which it can sell its biodiesel, the cost of feedstock and its operating costs.  Revenues are generally impacted by such factors as the available supply and demand for biodiesel, the price of diesel fuel (with which biodiesel prices often correlate), general economic conditions, weather, the competitive nature of the industry, the extensive environmental laws that regulate the industry, new legislation at the national, province or local level and changes in national biodiesel tax incentives.

The primary components of cost of goods sold from the production of biodiesel are feedstock (primarily animal fats and plant oil) and other raw materials (methanol and other chemicals), freight, energy (coal, water and electricity), labor and depreciation on process equipment. The cost of feedstock is the largest single component of the cost of biodiesel production, typically accounting for approximately 88% of the overall cost of producing biodiesel. Changes in the price or supply of feedstock are subject to and determined by market forces and other factors over which Ding Neng Bio-tech has no control, including government policies and economic trends. Although Ding Neng Bio-tech has taken some action to pass price fluctuations on to suppliers, it still experienced a large variation in the cost of feedstock.

Ding Neng Holdings expects to fund the operations of Ding Neng Bio-tech during the next twelve months using cash flows from continuing operations and financing from the capital markets.  Management is directing its efforts toward increasing production and operating efficiencies while maintaining or decreasing operating costs. For the fiscal year 2009, Ding Neng Bio-tech increased its production output rate from approximately 85% in 2008 to approximately 90%.  Ding Neng Bio-tech seeks to reduce feedstock costs by continuing to produce biodiesel from less-costly feedstocks, such as animal fat and cooked oil.

Since inception, Ding Neng Bio-tech has produced biodiesel on an as-ordered basis.  This helps to insure that production does not significantly exceed orders on hand and keeps inventory and warehousing costs down.

Although Ding Neng Bio-tech has historically experienced lower demand before and during the Chinese Spring Festival month (normally in January or February), there is no other seasonal demand fluctuation throughout the year.

Organization and Basis of Presentation

The consolidated financial statements consist of the financial statements of Ding Neng Holdings, DBT, Fuhua and Ding Neng Bio-tech.  Ding Neng Holdings’ sole source of income and operations is through their indirect, contractual (variable interest entity) relationship with Ding Neng Bio-tech.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared by Ding Neng Holdings in accordance with accounting principles generally accepted in the United States of America.  The consolidated financial statements include the accounts of Ding Neng Holdings and its subsidiaries and variable interest entity.  All significant inter-company balances and transactions have been eliminated in consolidation including those of its variable interest entity.

It is expected that the Acquisition will be accounted for as a common control transaction and a recapitalization of the subsidiaries with retroactive effect in the accompanying financial statements. The financial statements have been prepared as if the existing corporate structure had been in existence throughout all periods and the reorganization had occurred as of the beginning of the earliest period presented in the accompanying financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Future results could be materially affected if actual results were to differ from these estimates and assumptions.
 
 
41

 
 
Revenue Recognition Policies

Ding Neng Holdings recognizes revenue net of value added tax (VAT) when persuasive evidence of an arrangement exists, delivery of the goods has occurred, customer acceptance has been obtained (which means the significant risks and ownership have been transferred to the customer), the price is fixed or determinable and collectability is reasonably assured. No return allowance is made as products returns are insignificant based on historical experience. Costs of distributing products to Ding Neng Bio-tech’s customers are included in selling expenses.

Results of Operations

TWELVE MONTHS ENDED DECEMBER 31, 2009 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31, 2008

Revenue

Ding Neng Holdings’ total revenue increased by $6,251,066 or approximately 69%, from $9,038,313 in the twelve months ended December 31, 2008 to $15,289,379 in the twelve months ended December 31, 2009. This increase was primarily attributable to significant increased sales volume of biodiesel.  Revenue in 2008 was entirely attributable to the biodiesel, while in 2009 biodiesel revenue increased by $4,949,646 to $13,987,959.  Another production, called crude (or unrectified) biodiesel, produced revenue of $1,301,420, representing approximately 9% of total revenue for the twelve months ended December 31, 2009.

Cost of Revenue

Overall cost of revenue increased by $4,909,507 or approximately 66%, from $7,389,447 in the twelve months ending December 31, 2008, to $12,298,954 for the twelve months ending December 31, 2009. This increase was primarily caused by the significant increase in production volume and increased transportation costs due to the increase in revenue.  Total biodiesel production cost increased by $3,904,611 or approximately 53% from $7,389,447 in 2008 to $11,294,058 in 2009. The freight-in cost increased to $410,699 in 2009, comparable to $62,077 in 2008. This is due to the significant increase revenue.

The difference between revenue increase percentage and overall cost increase percentage is approximately 3%. This is attributable to improving production techniques and a stable purchase price for Ding Neng Bio-tech’s products.  Techniques and systems improvements contributed to the increased production efficiency.

Selling Expenses

Selling expenses increased by $146,182 or approximately 140% to $250,426 for the twelve months ended December 31, 2009 compared to $104,244 for the same period in 2008.  Below is a description of Ding Neng Holdings’ selling expenses.
 
Description
 
2009
   
2008
 
Business taxes
  $ 5,905     $ 3,103  
Freight – Outbound
  $ 197,347     $ 87,074  
Salaries - sales
  $ 20,254     $ 11,120  
Port storage fee
  $ 26,920     $ 2,947  
Subtotal
  $ 250,426     $ 104,244  
 
In parallel with the increase in sales revenue, both outbound freight and port storage costs increased significantly as well.  Ding Neng Bio-tech has only 3 employees in sales, consistent with its strategy to seek large, long-term customers rather than trying to develop a large number of small customers.  Much of its time and resources is spent on research and development to improve production quality.
 
 
42

 
 
Research and Development Expenses

Ding Neng Holdings’ research and development expenses increased by $333,014 or approximately 149% to $556,071 for the twelve months ended December 31, 2009 from $223,057 for the twelve months ended December 31, 2008. Production capacity was 10,000 tons in 2008 and increased to 20,000 tons in 2009 without doubling production facilities or equipment purchases. The major contribution to increased production came from system redesign and technology improvements, which required additional equipment, raw materials and technical support personnel. Certain technical personnel come from outside institutions or consulting companies, others are employees from Ding Neng Bio-tech’s research and investigation department.  Ding Neng Holdings expects expenditures on research and development to increase year by year in the future.

General and Administrative Expenses

General and administrative expenses increased by $83,044 or approximately 81% to $185,394 for the twelve months ended December 31, 2009, from $102,350 for the twelve months ended December 31, 2008.  This represented only 1% of total revenues in both 2008 and 2009.  A majority of the general and administrative expenses were employee wages and benefits.

Wage and benefits expenses increased by $52,042 or approximately 70% to $126,019 in the twelve months ended December 31, 2009 from $73,977 in the twelve months ended December 31, 2008.

Interest Expense

Interest income increased $1,621 or approximately 148% to $2,721 for the twelve months ended December 31, 2009 from $1,100 for the twelve months ended December 31, 2008. This was due to increased cash on hand and increased interest rates.

Net Income

Net income increased by $836,618 or approximately 69% to $2,056,593 for the twelve months ended December 31, 2009 from $1,219,975 for the twelve months ended December 31, 2008. The increase is primarily due to the increased sales in 2009, as discussed above.

Liquidity and Capital Resources

Net cash provided by operating activities was $1,385,966 for the twelve months ended December 31, 2009 compared to net cash outflow of $1,054,563 for the twelve months ended December 31, 2008.

Net cash used in investing activities was $1,248,921 for the twelve month period ended December 31, 2009, representing a prepayment of $1,220,690 for a long-term capital investment and a small purchase of $28,231 of property and equipment, compared to $0 for the twelve months ended December 31, 2008.  In 2009, Ding Neng Bio-tech entered into a purchase contract with TianTai County Manyuanchun Agricultural Development Co., Ltd (“TianTai”), which is located in Zhejiang province.  Tiantai is owned, in part, by Mr. Sanfu Huang, Ding Neng Holdings’ CEO and a director.  See “Certain Relationships and Related Party Transactions”.  Ding Neng Holdings expects to spend $2,932,200 acquiring 165 acres of forest land use rights and Sapindus forest where there are more than 50,000 6-8 year old “mother trees”.  They are called “Sapindus”. It is a natural raw material for producing detergent, and the core of Sapindus is good raw material for producing biodiesel.  In parallel with Ding Neng Bio-tech’s anticipated production capacity increase, it will need to purchase more raw oil to support the increase in output.  Ding Neng Bio-tech believes the trees owned by TianTai provide the best seeds of Sapindus, and they are expected to be used to develop the 165 acre Sapindus forest, which Ding Neng Bio-tech expects will provide approximately one-third of its total raw materials demand through 2013.  As of June 30, 2010 and December 31, 2009, Ding Neng Bio-tech made prepayments of $2,256,783 and $1,220,690, respectively, towards the total purchase price to TianTai.
 
 
43

 
 
Net cash used in financing activities was $130,702 for the twelve months ended December 31, 2009. Net cash provided by financing activities was $1,033,983 for the twelve months ended December 31, 2008. Shareholders increased capital contributions by $590,069 in 2008. By the end of 2009, Ding Neng Holdings did not have any loans due to or borrowings from, third parties, but did incur related party debt for working capital purposes.  Net borrowings from related parties were $443,914 for fiscal year 2008 and net repayment to related parties was $130,702 for fiscal year 2009.

Working Capital

As of December 31, 2009, Ding Neng Holdings had $85,248 of cash and cash equivalents, which was $77,487 as of December 31, 2008.  As of December 31, 2009, Ding Neng Holdings had $1,626,414 of accounts receivables from five customers, which was $1,181,654 from four customers as of December 31, 2008.

As of December 31, 2009, Ding Neng Holdings had $721,042 of inventory on hand, which was $398,040 as of December 31, 2008.  Because Ding Neng Bio-tech’s production is based on orders on hand, its inventory liquidity was in good condition, and no value reduction was estimated for the short-term inventory reserve.

As of December 31, 2009, Ding Neng Holdings had $203,842 prepayments for various research and development expenses.  Ding Neng Holdings had $131,186 of prepaid expenses outstanding as of December 31, 2008.

As of December 31, 2009, Ding Neng Holdings had current assets of $2,636,546 and current liabilities of $2,909,065, which resulted in negative working capital of ($272,519) compared to negative working capital of ($1,359,970) as of December 31, 2008.

SIX MONTHS ENDED JUNE 30, 2010 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2009

Revenue

Ding Neng Holdings’ total revenue increased by $8,229,332 or approximately 125%, from $6,597,423 in the six months ended June 30, 2009 to $14,826,755 in the six months ended June 30, 2010. This increase was primarily attributable to significant increased sales of biodiesel.  Revenue from biodiesel in the six months ended June 30, 2010 increased by $6,724,108 to $12,789,188, compared to $6,065,080 in the six months ended June 30, 2009.  Biodiesel production contributed 86% of total revenue in the six months ended June 30, 2010, and 92% for the six months ended June 30, 2009.  Crude biodiesel revenue was $1,287,916, or approximately 9% of total revenue in the six months ended June 30, 2010.  The revenue from crude biodiesel in the six months ended June 30, 2009 was $532,343, approximately 8% of total revenue. Ding Neng Bio-tech introduced a new product called acidified oil in 2010. In the six months ended June 30, 2010, revenue from acidified oil was $749,651, or approximately 5% of total revenue.

Cost of Revenue

Ding Neng Holdings’ overall cost of revenue increased by $4,790,197 or approximately 91% from $5,249,051 in the six months ending June 30, 2009 to $10,039,248 in the six months ending June 30, 2010. This increase was primarily due to increased costs from the significant increase in revenue.  Total biodiesel production cost increased by $3,627,757, or approximately 78%, from $4,660,959 in the six months ending June 30, 2009 to $8,288,716 in the six months ending June 30, 2010. The freight-in cost increased to $182,239 in the six months ending June 30, 2010, compared to $174,774 for the six months ending June 30, 2009. Although a significant increase in purchases occurred, Ding Neng Holdings was able to benefit from economies of scale in transportation.  The cost of crude biodiesel revenue was $942,518 in the six months ending June 30, 2010, compared to $381,101 in the six months ending June 30, 2009. The cost of acidified oil revenue was $591,372 for the six months ending June 31, 2010.

The difference between revenue increase percentage and overall cost increase percentage is approximately 34%. This significant improvement was due to following:
 
 
44

 
 
(1) For the six months ended June 30, 2009, sales volume was 8,336 tons and the average sales price was $791.44/ton. In six months ended June 30, 2010, sales volume was 17,256 tons, and the average sales price was $859.22/ton.  The increase in sales volume was 107% and the increase in average sales price is 9%. The total effect was an increase in sales of 125%.

(2) For cost of revenue, the average cost for the six months ended June 30, 2009 was $629.68/ton. The average cost for same period of 2010 was $581.78/ton.  The increase in sales volume was 107% and the decrease in average cost of revenue is -8%.  The total effect was an increase in cost of revenue of 91%.

Ding Neng concluded that cost efficiency was the main factor attributable to its improved production output. Other factors include new techniques and updated processing systems.

Selling Expenses

Ding Neng Holdings’ selling expenses increased by $194,750, or approximately 198%, to $292,591 for the six months ended June 30, 2010, compared to $98,021 for the six months ended June 30, 2009.

Below is the description for detailed selling expenses:

Description
 
06/30/2010
   
06/30/2009
 
Business taxes
  $ 9,449     $ 2,621  
Freight – Outbound
  $ 269,368     $ 82,304  
Salaries - sales
  $ 13,657     $ 8,593  
Port storage fee
  $ 117     $ 4,503  
Subtotal
  $ 292,591     $ 98,021  
 
In parallel with the increase in sales revenue, both outbound freight and port storage costs increased significantly as well.  Ding Neng Bio-tech has only 3 employees in sales, consistent with its strategy to seek large, long-term customers rather than trying to develop a large number of small customers.  Much of its time and resources is spent on research and development to improve production quality.

Research and Development Expenses

Ding Neng Holdings’ research and development expenses increased by $446,724, or approximately 280%, to $606,387 for the six months ended June 30, 2010, from $159,663 for the six months ended June 30, 2009. Ding Neng Bio-tech’s production capacity limit was 10,000 tons in 2008 and 20,000 tons in 2009.  Ding Neng Bio-tech has doubled capacity in recent years without a commensurate increase in production facilities and equipment expenditures. The major contribution to increased production came from system redesign and technology improvements, which required some additional equipment, raw materials and technical support personnel. Certain technical personnel come from outside institutions or consulting companies, while others are employees from Ding Neng Bio-tech’s research and investigation department.  Ding Neng Holdings expects expenditures on research and development to increase year by year in the future.

General and Administrative Expenses

Ding Neng Holdings’ general and administrative expenses increased by $119,346, or approximately 165%, to $191,621 in the six months ended June 30, 2010 from $72,275 in the six months ended June 30, 2009.  This represented only 1% of total revenues in both periods. Majority of the general and administrative expenses are employee wages and benefits.

Ding Neng Holdings saw wages and benefits expenses increased by $52,410, or approximately 87%, to $112,477 in the six months ended June 30, 2010 from $60,067 in the six months ended June 30, 2009.
 
 
45

 

Net Income

Net income increased by $2,202,160, or approximately 213%, to $3,237,278 for the six months ended June 30, 2010, from net income of $1,035,118 for the six months ended June 30, 2009. The increase is primarily due to the increase in sales discussed above.

Ding Neng Holdings has incurred income tax since January 1, 2010, despite having a waiver of income tax obligations in 2008 and 2009 (due to net income losses in 2006 and 2007), and has received a 50% reduction of its income tax obligations in 2010, 2011 and 2012.  For the six months ended June 30, 2010 Ding Neng Holdings incurred $462,468 in income tax.

Liquidity and Capital Resources

Net cash provided from operating activities was $3,837,604 for the six months ended June 30, 2010, compared to net cash provided from operating activities of $1,706,830 for the six months ended June 30, 2009.  Net cash used in investing activities was $1,264,217 for the six month period ended June 30, 2010, representing a prepayment of $1,031,100 for a long-term capital investment, $144,443 for construction in progress, and $88,674 of property and equipment purchases, compared with $0 for the six months ended June 30, 2009.

As of June 30, 2010 and December 31, 2009, Ding Neng Holdings has made $2,256,783 and $1,220,690 respectively, in prepayments towards the total purchase price pursuant to the agreement with TianTai disclosed above.

Net cash used in financing activities was $1,390,659 for the six months ended June 30, 2010. Net cash used by financing activities was $326,999 for the six months ended June 30, 2009.  As of June 30, 2010, neither Ding Neng Holdings nor Ding Neng Bio-tech had any loans due to or borrowings from, third parties, but Ding Neng Bio-tech did incur related party debt for working capital purposes.  Net cash used in financing activities for these two periods represented net cash repayments to the related parties.

Working Capital

As of June 30, 2010 Ding Neng Holdings had $1,282,381 cash and cash equivalents, compared to $85,248 at December 31, 2009.  As of June 30, 2010, Ding Neng Holdings had $1,770,084 in accounts receivables, compared to $1,626,414 as of December 31, 2009.

As of June 30, 2010 Ding Neng Holdings had $924,891 of inventory on hand, compared to $721,042 as of December 31, 2009.  Because Ding Neng Bio-tech’s production is based on orders on hand, its inventory liquidity was in good condition and no value reduction was estimated for the short-term inventory reserve.

As of June 30, 2010, Ding Neng Holdings had $415,376 of prepaid expenses, compared to $203,842 of prepaid expenses as of December 31, 2009.  As of June 30, 2010, Ding Neng Holdings had current assets of $4,392,732 and current liabilities of $2,585,639, which resulted in working capital of $1,807,093, compared to a working capital deficit of $(272,519) as of December 31, 2009.
 
 
46

 

MARKET FOR DING NENG HOLDINGS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS

Ding Neng Holdings’ common stock is not trading and has not traded on any public trading market or stock exchange.

Holders of Common Equity

As of November 12, 2010, Ding Neng Holdings had an aggregate of 50,000 ordinary shares issued and outstanding and 14 shareholders.

Dividends

Neither Ding Neng Holdings nor Ding Neng Bio-tech has paid any cash dividends on its equity securities.    Any future decisions regarding dividends will be made by their respective board of directors. They currently intend to retain and use any future earnings for the development and expansion of their business and do not anticipate paying any cash dividends in the foreseeable future.  Each board of directors has complete discretion on whether to pay dividends. Even if a decision is made to pay dividends, the form, frequency and amount will depend upon their future operations and earnings, capital requirements, surplus, general financial condition, contractual restrictions and other factors such board of directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

Neither Ding Neng Holdings nor Ding Neng Bio-tech currently has in effect any compensation plans under which its respective equity securities are authorized for issuance.

Options and Warrants

As of June 30 and October 31, 2010, neither Ding Neng Holdings nor Ding Neng Bio-tech had any outstanding options or warrants.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

DIRECTORS AND EXECUTIVE OFFICERS

Upon consummation of the Acquisition, the Board and executive officers of the Company shall be as follows:

Directors and Executive
Officers
 
   Age   
 
Position / Title
Xinfeng Nie
 
39
 
Chairman of the Board
Sanfu Huang
 
53
 
Chief Executive Officer and Director
Jingmei Weng
 
34
 
Chief Financial Officer and Director
Zhibin Jin
 
29
 
Secretary
Jianjun Xu
 
36
 
Director
He Huang
 
38
 
Director
Fulun Su
 
62
 
Director
Bin Zhao
 
45
 
Director
 
 
47

 

Mr. Xinfeng Nie is the co-founder of Ding Neng Bio-tech and has served as its Chairman since its inception in 2006.  Mr. Nie served as a manager of Foiujian Baijia Hongyi Oil Refinery Factory from 2003 to 2005. Mr. Nie obtained his bachelor degree in Oil Engineering from the Zhengzhou Institute of Technology in Henan province in 1996. Mr. Nie was chosen to be a member of the post-acquisition board based on his substantial experience in the oil and biodiesel industry.  Mr. Nie still leads Ding Neng Bio-tech’s technology research and development team to improve its production and volume capacity.

Mr. Sanfu Huang joined Ding Neng Bio-tech in November 2009 and serves as the Chief Executive Officer and Director.  Mr. Huang has been the Chairman of Jiangsu Yancheng Sanfu Daily Makeup Production Ltd since 2002 and the Chairman of Jianhu Qinglong Forest Development Co., Ltd since 2009.  Mr. Huang obtained his bachelors degree in Chemistry from TaiWan Culture University in 1976. He has been the General Secretary of the China-Taiwan Agriculture Exchange Committee since 1998.  Mr. Huang was chosen to be a member of the post-acquisition board based on his experience researching and developing the economic and medical value of Sapindus for more than 10 years and is considered an expert in Sapindus’ growth and utilization.

Ms. Jingmei Weng joined Dingneng Holdings in January 2010 as the Chief Financial Officer and a Director of Ding Neng Bio-tech.  Ms. Weng was the chief financial officer and executive director of Tsingda Century Education Investment Consulting Ltd from August 2007 to June 2009.  From April 2006 to August 2007, she was the senior associate in Systems and Processes Audit Department of PricewaterhouseCoopers Consulting Ltd in Beijing.  Ms. Weng obtained her bachelor degree in Foreign Accounting from the Central University of Finance and Economics in 1998.  She received a masters degree in International Banking from Loughborough University in United Kingdom in 2004. Ms. Weng was chosen to be a member of the post-acquisition board based on her deep understanding and cross-industry practice with both PRC and U.S. GAAP.  She is also experienced with Sarbanes-Oxley compliance and audit and internal risk management.

Mr. Zhibin Jin joined Ding Neng Bio-tech in October 2010 serving as its Corporate Secretary.  From July 2009 through September 2010, Mr. Jin helped manage his family’s real estate investments in China and the U.S.  From October 2007 to June 2009, he was a financial manager at Wan Xiang De Nong Seed Ltd., where he was responsible for compiling consolidated financial statements and monitoring financial reporting systems.  From October 2004 through October 2007, Mr. Jin was an audit project manager at Jonten Certified Public Accountants.  Mr. Jin graduated from the Institute of Disaster Prevention with a degree in Accounting in 2001.

Mr. Bin Zhao was appointed as director of Ding Neng Holdings in November, 2010. Mr. Zhao has been a partner and the deputy chief accountant and deputy general manager of Daxin Certified Public Accountants LLP in China since 2002.  He has served as an independent director for Anhui Tianda Oil Pipe Company Limited (HKEX: 00839) since July 2006.  Mr. Zhao obtained his Ph.D from the University of Mining & Technology of China in 2006. As a Chinese Certified Public Accountant and a Chinese Certified Public Evaluator, he has extensive experience with financial audits, financial management, risk management and internal control processes.  Mr. Zhao has substantial experience and understanding of PRC GAAP and IAS practices. Being a partner of an accounting firm and a non-executive director of a Hong Kong listed company for more than 4 years, Mr. Zhao was chosen to be a member of the post-acquisition board due to his understanding of PRC GAAP and IAS practice.

Mr. Fulun Su was appointed as director of Ding Neng Holdings in November, 2010. Mr. Su has served as President of Fujian Quanzhou Business Association, Chairman of Shanxi HongYuan Real Esate Development Ltd and Chairman of ZHR Capital Ltd. since 1992.  Mr. Su was chosen to be a member of the post-acquisition board based on his wealth of experience in business management and corporate governance.  As a well-known president of various business associations, Mr. Su has devoted much time and effort to supporting local economic development and to investing in and creating new companies and technologies.

Mr. He Huang was appointed as a director of Ding Neng Holdings in November, 2010. Mr. Huang has been a Senior Project Manager in Roland Berger Strategy Consultants in Shanghai since September 2007.  From February 2006 to September 2007, he was a manager at Accenture in its Shanghai operations.  Mr. Huang obtained his master degree in International Affairs at Columbia University in 2000.  He obtained a Bachelor degree in International Accounting from Xiamen University, China, in 1994. He became a CFA Chartered Holder in 2005.  He has focused his professional career on proposal development, project planning, staffing, budgeting, global resource coordination, quality control, issue resolution, client relationship building, coaching, mentoring and evaluation.  It is these experiences and qualifications upon which Mr. Huang was chosen to be a member of the post-acquisition board.
 
 
48

 
 
Mr. Jianjun Xu was appointed as a director of Ding Neng Holdings in November, 2010. Mr. Xu has been a Researcher in the China National Institute of Standardization since April 2004.  Mr. Xu obtained his Ph.D in Technical Science from Jiangnan University in Chian in 2004.  Mr. Xu is a member of Standardization Administration Committee of the National Food Quality Supervision Committee. As a project research leader, he was in charge or joined more than 30 projects related to food safety and quality standardization in recent years. Mr. Xu has taken part in the establishment of 7 national standards, and published 5 professional articles.  Based on such professional experience, Mr. Xu was chosen to be a member of the post-acquisition board.  This experience will inure to its benefit as it seeks to streamline its production processes and maintain high product quality.

Independence of Directors

Upon the closing of the Acquisition, the board of directors of the Company will consist of Mr. Xinfeng Nie, Mr. Sanfu Huang, Ms. Jingmei Weng, Mr. Jianjun Xu, Mr. He Huang, Mr. Fulun Su, and Mr. Bin Zhao.  Mr. Jianjun Xu, Mr. He Huang, Mr. Fulun Su, and Mr. Bin Zhao are “independent directors” as defined by NASDAQ Marketplace Rules and will meet the independence standards set forth in Rule 10A-3 of the Exchange Act.

Board Committees

Upon the completion of the Acquisition, the Company expects its audit, compensation and nominating committees to consist solely of independent directors as such term is defined in the NASDAQ Marketplace Rules, and with respect to its audit committee members, to meet the independence standards set forth in Rule 10A-3 of the Exchange Act.

The Company’s audit committee will consist of Mr. Bin Zhao, Mr. Fulun Su and Mr. He Huang, with Mr. Bin Zhao serving as the chairman and “financial expert” of such committee.  The nominating committee will consist of Mr. Fulun Su, Mr. He Huang and Mr. Bin Zhao, with Mr. Fulun Su serving as the chairman.  The Company’s compensation committee will consist of Mr. He Huang, Mr. Bin Zhao and Mr. Jianjun Xu, with Mr. He Huang serving as its chairman.

EXECUTIVE COMPENSATION

The following table sets forth compensation information for services rendered by Ding Neng Bio-tech’s chief executive officer during the last two (2) completed fiscal years (ended December 31, 2009 and 2008). No other officer received more than $100,000 in total compensation during those years.
 
SUMMARY COMPENSATION TABLE
 
Name and
Principal
Position
Fiscal
Year
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($)
   
Option
Awards
($)
   
Non-Equity
Incentive Plan
Compensation
($)
   
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
   
All Other
Compens-ation
($)
   
Total
($)
 
Xinfeng Nie, CEO (1)
2009
    35,750                                            35,750   
 
2008
    16,800                                                       16,800  
Sanfu Huang
CEO (2)
2009
    3,595                                           3,595  
 
(1)
Resigned as CEO on October 31, 2009
 
(2)
Began employment on November 1, 2009
 
 
49

 
 
Each of Mr. Xinfeng Nie (Chairman of the Board of Ding Neng Holdings), Mr. Sanfu Huang (CEO), Ms. Jingmei Weng (CFO) and Mr. Zhibin Jin (Secretary) have written employment agreements each for a term of two years.  Each of Mr. Nie and Mr. Huang receives an annual salary of $180,000.  Ms. Weng receives $160,000 annually and Mr. Jin receives a salary of $100,000.  None receives any other compensation or reimbursement from Ding Neng Holdings or Ding Neng Bio-tech.
 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

On November 23, 2009, Ding Neng Bio-tech entered into an agreement with TianTai, a company controlled by Mr. Sanfu Huang, Ding Neng Holdings’ CEO and a director, to purchase 1000 mu (approximately 165 acres) of Sapindus forest and the forest land use rights for RMB 20,000,000 (approximately $2.9 million).  The forest ownership and land use right certificate is subject to the Zhejiang Provenience Forestry Administration’s approval after the completion of certain administrative processes.  As of June 30, 2010, $2,256,783 of this amount has been paid to the seller.  Ding Neng Bio-Tech also paid TianTai approximately $50,000 in fiscal year 2009 for land and forest maintenance fees.

On January 3, 2010, Ding Neng Bio-tech entered into a technical cooperation research and development agreement with TianTai to mutually develop techniques to produce biodiesel and other daily-used chemicals from Sapindus for a consideration of approximately $661,000.  The agreement is expected to terminate on November 30, 2010.  As of June 30, 2010, Ding Neng Bio-tech had paid approximately $435,000 towards the total consideration.
 
On July 9, 2010, China Minsheng Banking Corp., Ltd., Xiamen Branch (the “Bank”) and Jianhu Qinglong Forest Development Co., Ltd. (“Jianhu”), a company controlled by Mr. Sanfu Huang, entered into a Guaranty Agreement, under which Jianhu signed as a guarantor for a RMB 20,000,000 (approximately U.S. $2,937,000) credit line granted by the Bank to Ding Neng Bio-tech.
 
On November 5, 2010, Ding Neng Bio-tech, its shareholders and the Fuhua signed a series of contractual agreements in which Fuhua effectively assumed management of the business activities of Ding Neng Bio-tech and has the right to appoint all executives and senior management and the members of the board of directors of Ding Neng Bio-tech.  The shareholders of Ding Neng Bio-tech pledged 100% of their equity interest of Ding Neng Bio-tech to Fuhua as a security for the obligations of payment of management and service fees, and irrevocably granted to Fuhua, or a designee, an option to purchase at any time all or a portion of the equity interest of Ding Neng Bio-tech in accordance with procedures as determined by Fuhua. The shareholders of Ding Neng Bio-tech agreed to irrevocably grant and entrust to Fuhua, for the maximum period of time permitted by law, all of their voting rights as shareholders of Ding Neng Bio-tech. Such series of agreements include a Consulting Services Agreement, an Equity Pledge Agreement, an Option Agreement and a Voting Rights Proxy Agreement.

On September 28, 2010, Mr. Nie Xinfeng and Ding Neng Bio-tech entered into a Vehicle Rent Agreement, in which Mr. Nie Xinfeng rented four vehicles owned by him to Ding Neng Bio-tech, for a period from October 1, 2010 through September 30, 2015.  The rental is RMB 350,000 (approximately U.S. $51,400) per annum.  Ding Neng Holdings believes this arrangement is on terms similar to those it could have negotiated in an arms length transaction with an unrelated third party.
 
 
50

 

BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information with respect to the beneficial ownership of Common Stock immediately after the consummation of the Acquisition by each person who is expected to beneficially own more than 5% of the Common Stock and each post-acquisition officer, each post-acquisition director and all post-acquisition officers and directors as a group.

Common Stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative securities are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
 
   
Common stock if the Company acquires
Ding Neng Holdings(2)
 
Name and Address of Beneficial Owner (1)
 
Number
   
Percent
 
Xinfeng Nie
    3,898,828       26.7 %
Sanfu Huang
    2,754,377       18.9 %
Jingmei Weng
    -       -  
Zhibin Jin
    -       -  
Jianjun Xu
    -       -  
He Huang
    -       -  
Fulun Su
    -       -  
Bin Zhao
    -       -  
All directors and officers as a group (8 persons)
    6,653,208       45.6 %
                 
5% Shareholders
               
Zewen Holding Co., Ltd.
    1,352,984       9.3 %
Wealth Index Capital Group LLC (3)
    744,762       5.1 %
 

*
Less than 1% of Ding Neng Holdings’ outstanding shares of common stock.

(1)
Unless otherwise indicated, the address for each stockholder listed in the above table is c/o Ding Neng Holdings Ltd., P.O. Box 957, Offshore, Incorporations Center, Road Town, Tortola, British Virgin Islands.

(2)
Assumes the Reverse Stock Split is conducted on a 1:30 basis.

(3)
Principal business address is Naaman’s Building, Suite 206, 3501 Silverside Road, Wilmington, Delaware.
 
 
51

 

AMENDMENT TO CERTIFICATE OF INCORPORATION
FOR
REVERSE STOCK SPLIT

In anticipation of and prior to the consummation of the Acquisition, the Company will file with the Secretary of State of Delaware an amendment to our certificate of incorporation to effect a reverse stock split at a ratio of not less than one-for-twenty and not more than one-for-forty, as set forth in the form attached as Annex B, to this information statement.

Purpose of the Reverse Stock Split Amendment

The NASDAQ Stock Market has indicated that because the Company does not have any business operations, it is categorized as a “public shell.”  Based on this status, the post-acquisition entity must meet the initial listing requirements of the NASDAQ Capital Market which requires a minimum bid price of $4.00 per share.  To ensure that the post-acquisition entity meets this minimum bid requirement, the Company will effect a reverse stock split at a ratio of not less than one-for-twenty and not more than one-for-forty, to be determined within the discretion of the Board, immediately prior to the consummation of the Acquisition.  The Board has the authority, but not the obligation, to effect the Reverse Stock Split.  We cannot provide any assurances that the post-Reverse Stock Split market price of our Common Stock will increase proportionately to reflect the ratio for the Reverse Stock Split or that the market price of our Common Stock will not decrease to its pre-Reverse Stock Split level.

Impact of the Reverse Stock Split

The immediate effect of a Reverse Stock Split would be to reduce the number of shares of Common Stock outstanding, and to increase the trading price of the Common Stock. However, the effect of any Reverse Stock Split upon the market price of the Common Stock cannot be predicted, and the history of reverse stock splits for companies in similar circumstances is varied. The Company cannot assure you that the trading price of the Common Stock after the Reverse Stock Split will rise in exact proportion to the reduction in the number of shares of the Common Stock outstanding as a result of the Reverse Stock Split. The trading price of the Common Stock may change due to a variety of other factors, including factors related to the Company’s business, and general market conditions.

Upon effectiveness of the Reverse Stock Split, the number of shares of Common Stock held by each stockholder will be reduced by dividing the number of shares held immediately before the Reverse Stock Split by not less than twenty and not more than forty.

The Reverse Stock Split will be realized simultaneously and in the same ratio for all of the Common Stock. The Reverse Stock Split will affect all holders of Common Stock uniformly and will not affect any stockholder’s percentage ownership interest in the Company. As described below, holders of Common Stock otherwise entitled to a fractional share of more than 0.5 shares as a result of the Reverse Stock Split will receive an additional share in lieu of such fractional share. These additional shares will increase the number of post-Reverse Stock Split holders of our Common Stock to the extent there are concurrently stockholders who would otherwise have received less than one share of Common Stock after the Reverse Stock Split. In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares).

The Reverse Stock Split will not change the number of authorized shares of Common Stock as designated by the Company’s Amended and Restated Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of Common Stock will decrease, the number of shares of Common Stock remaining available for issuance will increase.
 
The table below illustrates the effect, as of November 12, 2008, of a Reverse Stock Split at certain ratios on the shares of Common Stock outstanding and the resulting number of shares of Common Stock available for issuance:

 
52

 

Reverse
Stock Split
Ratio
 
Shares of
Common Stock
Outstanding
Before the
Reverse Stock
Split
   
Shares of
Common Stock
Outstanding
After the Reverse
Stock Split
   
Shares of Common
Stock Available for
Issuance After the
Reverse Stock Split
 
1:20
 
46,000,000
   
2,300,000
   
97,700,000
 
1:25
 
46,000,000
   
1,840,000
   
98,160,000
 
1:30
 
46,000,000
   
1,533,333
   
98,466,667
 
1:35
 
46,000,000
   
1,314,286
   
98,685,714
 
1:40
 
46,000,000
   
1,150,000
   
98,850,000
 
 
Procedure for Effecting the Reverse Stock Split and Exchange of Stock Certificates

On the effective date of the Reverse Stock Split, each certificate representing shares of the Common Stock before the Reverse Stock Split will be deemed, for all corporate purposes, to evidence ownership of the reduced number of shares of Common Stock resulting from the Reverse Stock Split. All options, warrants, convertible debt instruments and other securities will also be automatically adjusted on the effective date.

The Company anticipates that its transfer agent will act as the exchange agent for purposes of implementing the exchange of stock certificates. As soon as practicable after the effective date, stockholders and holders of securities convertible into the Common Stock will be notified of the effectiveness of the Reverse Stock Split.  Stockholders of record will receive a letter of transmittal requesting them to surrender their stock certificates for stock certificates reflecting the adjusted number of shares as a result of the Reverse Stock Split.  Persons who hold their shares in brokerage accounts or “street name” will not be required to take any further actions to effect the exchange of their certificates. Instead, the holder of the certificate will be contacted.

No new certificates will be issued to a stockholder until the stockholder has surrendered the stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Until surrender, each certificate representing shares before the Reverse Stock Split will continue to be valid and will represent the adjusted number of shares based on the exchange ratio of the Reverse Stock Split. Stockholders should not destroy any stock certificate and should not submit any certificates until they receive a letter of transmittal.

Fractional Shares

The Company will not issue fractional shares in connection with the Reverse Stock Split. Instead, any fractional share of more than 0.5 shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share of Common Stock.

Federal Income Tax Consequences

The following is a summary of material federal income tax consequences of the Reverse Stock Split and does not purport to be complete. It does not discuss any state, local, foreign or minimum income or other tax consequences. Also, it does not address the tax consequences to holders that are subject to special tax rules, including banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. The discussion is based on the provisions of the United States federal income tax law as of the date hereof, which is subject to change retroactively as well prospectively. This summary also assumes that the shares are held as a “capital asset,” as defined in the Internal Revenue Code of 1986, as amended (generally, property held for investment). The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of the stockholder. Each stockholder is urged to consult with the stockholder’s own tax advisor with respect to the consequences of the Reverse Stock Split.
 
 
53

 
 
No gain or loss should be recognized by a stockholder upon the stockholder’s receipt of shares pursuant to the Reverse Stock Split. The aggregate tax basis of the shares received in the Reverse Stock Split would be the same as the stockholder’s aggregate tax basis in the shares exchanged. The stockholder’s holding period for the shares would include the period during which the stockholder held the pre-split shares surrendered in the Reverse Stock Split.

A stockholder that receives cash in lieu of fractional shares will be treated as if he first exchanged all of his shares solely for new shares including fractional shares, and then had the fractional shares redeemed for the cash he actually receives. Any cash received in the deemed redemption generally will be treated as a dividend to the extent of the stockholder’s ratable share of the undistributed earnings and profits of the Company unless the deemed redemption results in a complete termination of the stockholder’s interest in the Company or a “meaningful reduction” in the stockholder’s deemed stock ownership of the Company. In making the determination of whether there is a “meaningful reduction” in the stockholder’s deemed ownership of the Company, the stockholder will, under the constructive ownership rules, be deemed to own not only the shares that he actually owns, but also shares that are owned by certain related persons and entities. The IRS has ruled that a stockholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control with respect to corporate affairs is generally considered to have a “meaningful reduction” if that stockholder has any reduction in his percentage stock ownership. If the deemed redemption results in a complete termination of the stockholder’s interest in the Company or a “meaningful reduction” in the stockholder’s deemed stock ownership of the Company, the stockholder will recognize capital gain or loss in an amount equal to the excess of the amount of cash received over the tax basis allocated to the redeemed fractional shares. The resulting capital gain or loss will be long-term capital gain or loss if the stockholder has held the stock for more than one year. These rules are complex and dependent upon the specific factual circumstances particular to each stockholder. Each stockholder should consult his tax advisor as to the application of these rules to his particular situation.

The Company’s beliefs regarding the tax consequence of the Reverse Stock Split are not binding upon the Internal Revenue Service or the courts, and there can be no assurance that the Internal Revenue Service or the courts will accept the positions expressed above. The state and local tax consequences of the Reverse Stock Split may vary significantly as to each stockholder, depending upon the state in which he or she resides.
 
 
54

 

AMENDMENT TO CERTIFICATE OF INCORPORATION
FOR
NAME CHANGE

Upon consummation of the Acquisition, the Company will file a Certificate of Amendment of Certificate of Incorporation to change its name from and after the closing of the Acquisition to China Bio-Energy Corp.  This new name will better more accurately the Company’s business operations as a manufacturer, refiner and distributor of bio-diesel fuel.

The Certificate of Amendment of Certificate of Incorporation is attached hereto as Annex B.

 
55

 

DISSENTERS’ RIGHTS OF APPRAISAL

Under the DGCL, stockholders are not entitled to dissenters’ rights of appraisal in connection with the Acquisition pursuant to the Share Exchange Agreement, the Reverse Stock Split or the Name Change and the corresponding amendments to the Company’s Certificate of Incorporation.

STOCKHOLDERS SHARING AN ADDRESS

In accordance with notices to many stockholders who hold their shares through a bank, broker or other holder of record (a “street-name stockholder”) and share a single address, only one information statement is being delivered to that address unless contrary instructions from any stockholder at that address were received. This practice, known as “householding,” is intended to reduce our printing and postage costs. However, any such street-name stockholder residing at the same address who wishes to receive a separate copy of this information statement, or any future notices and documents, may make such request by contacting the bank, broker or other holder of record, or our offices by telephone at 86 10 5870 0673, or by mail to: Room 508, Shangdu International Center, No. 8, Dong Da Xiao Road, Chao Yang District, Beijing, Attention: Wingfei Yang. In addition, any such street-name stockholders residing at the same address who have received multiple copies of this information statement and wish to receive a single copy of our annual reports, information statements and proxy materials in the future may contact the bank, broker or other holder of record, or our offices at the contact information above.

WHERE YOU CAN FIND MORE INFORMATION

The Company files reports, information statements and other information with the SEC as required by the Exchange Act. You may read and copy reports, information statements and other information filed by the Company with the SEC at its public reference room located at 100 F Street, N.E., Washington, D.C. 20549-1004. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of the materials described above at prescribed rates by writing to the SEC, Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-1004. The Company files reports, information statements and other information electronically with the SEC. You may access information on the Company at the SEC web site containing reports, information statements and other information at http://www.sec.gov. This information statement describes the material elements of relevant contracts, exhibits and other information attached as annexes or exhibits to this information statement. Information and statements contained in this information statement are qualified in all respects by reference to the copy of the relevant contract or other document included as an annex or exhibit to this document.

All information contained in this information statement relating to the Company has been supplied by the Company, and all such information relating to Ding Neng Holdings or Ding Neng Bio-tech has been supplied by Ding Neng Holdings or Ding Neng Bio-tech, respectively.

 
56

 

INDEX TO FINANCIAL INFORMATION
 
DESCRIPTION
 
PAGE
     
China INSOnline Corp.
   
     
For the Fiscal Year Ended June 30, 2010
   
     
Reports of Registered Independent Public Accounting Firms
 
F-3
     
Consolidated Balance Sheets as of June 30, 2010 and 2009
 
F-5
     
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended June 30, 2010 and 2009
 
F-6
     
Consolidated Statements of Stockholders’ Equity (Deficiency) for the Years Ended June 30, 2010 and 2009
 
F-7
     
Consolidated Statements of Cash Flows for the Years Ended June 30, 2010 and 2009
 
F-8
     
Notes to Consolidated Financial Statements
 
F-9
     
Ding Neng Holdings Limited
   
     
For the Six Months Ended June 30, 2010 and 2009 and the Fiscal Years Ended December 31, 2010 and 2009
   
     
Reports of Registered Independent Public Accounting Firms 
  F-20
     
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 and 2008
 
F-21
     
Consolidated Statements of Operations and Other Comprehensive Income for the Six Months Ended June 30, 2010 and 2009 and the Fiscal Years Ended December 31, 2009 and 2008
 
F-22
     
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2010 and the Fiscal Years Ended December 31, 2009 and 2008
 
F-23
     
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 and the Fiscal Years Ended December 31, 2009 and 2008
 
F-24
     
Notes to Consolidated Financial Statements
  F-25
     
Pro Forma Financial Statements
 
 
     
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2010
  F-35 
     
Unaudited Pro Forma Consolidated Statement of Operations for the Six Months Ended June 30, 2010
  F-36
     
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2009
  F-37
     
Notes to the Unaudited Consolidated Pro Forma Financial Statements
  
F-38
 
 
F-1

 
 
CHINA INSONLINE CORP.
 
AND
 
SUBSIDIARIES
 
Consolidated Financial Statements
For The Years Ended June 30, 2010 and 2009
 
 
F-2

 
 
 
F-3

 
 
F-4

 
CHINA INSONLINE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
June 30,
2010
   
June 30,
2009
 
ASSETS
           
Cash and cash equivalents
  $ 92,094     $ 1,217,085  
Current assets of discontinued operations
    103,822       13,662,598  
Total Current Assets
    195,916       14,879,683  
                 
Non-current assets of discontinued operations
    29,529       14,775,006  
                 
TOTAL ASSETS
  $ 225,445     $ 29,654,689  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
               
Current liabilities of discontinued operations
  $ 809,861     $ 9,490,359  
                 
TOTAL CURRENT LIABILITIES
    809,861       9,490,359  
                 
COMMITMENTS AND CONTINGENCY
               
                 
STOCKHOLDERS’ EQUITY (DEFICIENCY)
               
Common stock, $.001 par value; 100,000,000 shares authorized;
40,000,000 shares issued and outstanding as of June 30, 2010 and 2009
    40,000       40,000  
Additional paid-in capital
    86,360       86,360  
(Accumulated deficit) retained earnings
    (1,451,677 )     19,291,210  
Accumulated other comprehensive income
    740,901       746,760  
Total Stockholders’ (deficiency) equity
    (584,416 )     20,164,330  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
  $ 225,445     $ 29,654,689  

F-5

 
CHINA INSONLINE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 
   
Year Ended
June 30, 2010
   
Year Ended
June 30, 2009
 
             
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
    (20,742,887 )     9,177,601  
                 
OTHER COMPREHENSIVE LOSS
               
Foreign currency translation loss
    (5,859 )     (13,398 )
                 
COMPREHENSIVE INCOME
  $ (20,748,746 )   $ 9,164,203  
                 
NET (LOSS) INCOME PER SHARE FROM DISCONTINUED OPERATIONS, NET OF TAX
               
                 
- BASIC AND DILUTED
  $ (0.52 )   $ 0.23  
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
               
                 
- BASIC AND DILUTED
    40,000,000       40,000,000  
 
F-6

 
CHINA INSONLINE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 2010 AND 2009
 
   
Common Stock
   
Additional
Paid-in
   
(Accumulated
Deficit)
Retained
   
Accumulated
Other
Comprehensive
       
   
Shares
   
Par Value
   
Capital
   
Earnings
   
Income
   
Total
 
BALANCE, JUNE 30, 2008
    40,000,000     $ 40,000     $ 86,360     $ 10,113,609     $ 760,158     $ 11,000,127  
                                                 
Foreign currency translation loss
    -       -       -       -       (13,398 )     (13,398 )
                                                 
Net income
    -       -       -       9,177,601       -       9,177,601  
                                                 
BALANCE, JUNE 30, 2009
    40,000,000     $ 40,000     $ 86,360     $ 19,291,210     $ 746,760     $ 20,164,330  
                                                 
Foreign currency translation loss
    -       -       -       -       (5,859 )     (5,859 )
                                                 
Net loss
    -       -       -       (20,742,887 )     -       (20,742,887 )
                                                 
BALANCE, JUNE 30, 2010
    40,000,000     $ 40,000     $ 86,360     $ (1,451,677 )   $ 740,901     $ (584,416 )