UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM 8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of report (Date of earliest event reported): September 15, 2010
CHINA
NATURAL GAS, INC.
(Exact
Name of Registrant as Specified in Charter)
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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19th
Floor, Building B, Van Metropolis
Tang
Yan Road, Hi-Tech Zone
Xian,710065,
Shaanxi Province
China
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(Address
of Principal Executive Offices) (Zip Code)
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(Registrant’s
telephone number, including area code)
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(Former
Name or Former Address, if Changed Since Last Report)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions (see General Instruction
A.2. below):
o Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
As
previously disclosed in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, in February 2010, the Company obtained a bank loan
in the amount of $17.7 million (the "Loan") and, in connection with the Loan,
Xi'an Xilan Natural Gas Co. Ltd., the Company's variable interest entity,
pledged its equipment and vehicles located within China to secure the Loan (the
"Pledge") and guaranteed the repayment of the Loan (the
"Guarantee").
By August
8, 2010, the Company’s former outside counsel determined that the Pledge was
prohibited by the indenture (the "Indenture") for the Company's 5% guaranteed
senior note issued to Abax Lotus Ltd. ("Abax") dated January 29, 2008 (the
"Senior Notes"). As a result, the Company believed that Abax had the right to
declare a default under the Indenture and could thereafter accelerate the Senior
Notes, which would cause a simultaneous default under the warrant agreement
governing the Company's warrants issued in connection with the Senior Notes,
thereby entitling the warrant holders to require the Company to redeem their
warrants. In view of the potential default under the Indenture and warrant
agreements, the Board, in consultation with management and the Audit Committee,
determined that the Company was required to restate its annual financial
statements for the year ended December 31, 2009 and the quarter ended March 31,
2010 to reclassify from long term liabilities to short term liabilities the
Senior Notes and the fair value of the redeemable warrants.
Therefore,
the Company filed a Current Report on Form 8-K on August 19, 2010 to disclose
that its financial statements contained in its Annual Report on Form 10-K for
the year ended December 31, 2009 (the "Annual Report") and its Quarterly Report
for the quarter ended March 31, 2010 (the "Quarterly Report") should not be
relied upon. On August 20, 2010, the Company filed Amendment No. 1 to the Annual
Report (as amended, the "Amended 10-K") and Amendment No. 1 to the Quarterly
Report (as amended, the "Amended 10-Q") to restate the financial statements
contained therein.
Subsequent
to restating its financial statements and filing the Amended 10-K and Amended
10-Q, management of the Company internally revisited the analysis of whether the
Pledge was indeed prohibited by the Indenture and determined that it was not. In
late August 2010, management approached the law firm DLA Piper, which had not
previously advised the Company or management on these matters, to review and
confirm the Company's analysis. The Company then engaged DLA Piper as its
regular outside counsel for SEC reporting and other public company matters in
early September 2010. At the request of the Company's independent auditors, a
further law firm with no prior relationship to the Company was also asked to
review and confirm the Company's analysis. The Board of Directors of the
Company, in consultation with management, the Audit Committee and DLA Piper,
determined on September 15, 2010, that neither the Loan, the Pledge or the
Guarantee, individually or together, were prohibited by the
Indenture.
Accordingly,
on September 15, 2010, the Board of Directors of the Company, in consultation
with management and its Audit Committee, determined that the previously issued
restated financial statements contained in the Amended 10-K and the Amended 10-Q
can no longer be relied upon because the restatements set forth therein were not
required, and, in addition, the previously issued financial statements contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2010 can no longer be relied upon because the Senior Notes and the fair value of
the redeemable warrants are classified as current liabilities therein. The
Company is in the process of working with their independent auditors to restate
the restated financial statements included in the Amended 10-K and Amended 10-Q
to reverse the initial restatement set forth therein, and to restate the
financial statements included in the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010 to reclassify the Senior Notes and redeemable
warrants as long term liabilities.
The Audit
Committee of the Company’s Board of Directors has discussed the forgoing matters
with the Company’s Chief Financial Officer and its independent auditor, Frazer
Frost, LLP.
Item 9.01(d). Financial
Statements and Exhibits.
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Exhibit
No.
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Description
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99.1
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Press
Release dated September 16, 2010
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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.
Dated:
September 16, 2010
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CHINA
NATURAL GAS, INC. |
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By:
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/s/Qinan
Ji |
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Name: |
Qinan
Ji |
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Title: |
Chief
Executive Officer
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