Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE
OF EARLIEST REPORTED EVENT: September 24, 2007
CHINA
NATURAL GAS, INC.
(Exact
name of Registrant as specified in its charter)
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Delaware
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001-31539
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98-0231607
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer Identification
Number)
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of
incorporation)
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19th
Floor, Building B, Van Metropolis
Tang
Yan Road, Hi-Tech Zone
Xian,710065,
Shaanxi Province
China
(Address
of principal executive offices)
86-29-88323325
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities
Act
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Soliciting material pursuant to Rule
14a-12
under the Exchange Act |
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Pre-commencement communications pursuant
to
Rule 14d-2(b) under the Exchange Act |
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Pre-commencement communications pursuant
to
Rule 13e-4(c) under the Exchange Act |
Item
8.01 Other Events.
As
previously disclosed in our quarterly report on Form 10-QSB for the period
ended
June 30, 2007, the People’s Republic of China (“PRC”) currently has limits on
foreign ownership of companies in certain industries, including the industry
in
which the Company, through Xian Xilan Natural Gas Co. Ltd. (“XXNG”), a variable
interest entity (“VIE”) pursuant to FIN 46R, operates. In order to comply with
PRC law, effective as of December 6, 2005, the Company and XXNG entered into
an
arrangement pursuant to which the Company would provide consulting services
to
XXNG in the areas of general business operations, human resources and research
and development. In consideration for the Company’s obligation to provide these
services, XXNG agreed to pay the Company a consulting services fee equal to
100%
of XXNG’s revenue on a quarterly basis. Furthermore, the registered shareholders
of XXNG irrevocably agreed to pledge all their equity interests in XXNG to
the
Company effective as of December 6, 2005. As a result of these arrangements
among the Company, XXNG and the registered shareholders of XXNG, the Company
was
entitled to consolidate XXNG for financial reporting purposes pursuant to FIN
46R. These arrangements were memorialized September 24, 2007.
On
February 21, 2006, the Company established its wholly-owned subsidiary, Xilan
Natural Gas Equipment Ltd., (“XNGE”) a limited liability company organized under
the PRC law. The Company then, through XNGE, entered into exclusive arrangements
with XXNG and its registered shareholders similar in scope to the arrangement
between the Company and XXNG described above. Through these arrangements, the
Company, through its wholly-owned subsidiary XNGE, has the ability to
substantially influence XXNG’s daily operations and financial affairs, appoint
its senior executives and approve all matters requiring shareholder approval,
thereby entitling the Company to consolidate XXNG for financial reporting
purposes pursuant to FIN 46R. These arrangements were memorialized on August
17,
2007 and replaced the prior arrangements entered into in December 6, 2005
between the Company and XXNG.
Pursuant
to FIN 46R, VIEs are entities that lack sufficient equity to finance their
activities without additional financial support from other parties or whose
equity holders lack adequate decision making ability. All VIEs with which the
Company is involved must be evaluated to determine the primary beneficiary
of
the risks and rewards of the VIE. The primary beneficiary is required to
consolidate the VIE for financial reporting purposes. Therefore, pursuant to
FIN
46R, XXNG must be consolidated with the Company and disclosed as a VIE. Since
inception, the Company has been consolidating XXNG for financial reporting
purposes although it has inaccurately described XXNG as a wholly-owned
subsidiary.
The
Company and its Board of Directors (the “Board”) intend to amend the Company’s
Form 10-KSB for the years ended December 31, 2005 and December 31, 2006 and
its
Form 10-QSB for the three months ended March 31, 2007 to clarify the Company’s
structure and the principles of consolidation in the notes to the financial
statements and elsewhere in such filings. Despite these amendments, the Board
has determined that the face of financial statements contained in such filings
may continue to be relied upon. This change does not alter any financial data
contained in the Company’s annual and quarterly reports including the financial
statements.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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CHINA NATURAL GAS, INC. |
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| Date:
September 30, 2007 |
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/s/ Qinan
Ji |
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Qinan
Ji |
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Chief
Executive Officer |