Dark Dynamite, Inc. (OTCBB:DDYI) – or should we now be calling the Company by its new moniker, China International Tourism Holdings, Inc. – seems to have all bases covered, geographically speaking. The Company is incorporated in Nevada; has its principal executive offices in Salt Lake City, Utah; is utilizing attorneys and accountants in Cornelius, North Carolina; and claims that its principal operations are located in Xi’An China. That makes for a jurisdictional jumble – not atypical for tiny over-the-counter companies these days. All that seems to be missing is a Canadian connection.
As we reported in September, Dark Dynamite is on the brink of its latest incarnation, after several notable failures. See Dark Dynamite, Inc. - Lights Dim on Black Chandelier. Since 2002, the Company has proclaimed plans to become a player in the South Florida hospitality industry, acquire a business in the medical technology field, and market a cutting-edge line of designer products. In the process, the Company has followed a pattern that is common among tiny penny stock companies, engaging in reverse-mergers, changing its name and shedding one unsuccessful business only to pursue another.
The latest reverse-merger transfers control of the Company to a group in the People’s Republic of China, operating as Shanxi Kai Da Lv You Gu Wen You Xian Gong Si, (“Kai Da”). Details of the deal suggest that the Company’s business is about to change once again – although perhaps not so quickly as originally anticipated. When the transaction first was announced it appeared that the folks at Kai Da had no ongoing interest in the Company’s current struggling lifestyle business, known as Black Chandelier. That operation was to be transferred to Diversified Holdings, X, an entity controlled by Richard Surber, the shell promoter who also controlled Dark Dynamite.
Those plans have changed. The new ownership team says it will hold on to Black Chandelier – which Dark Dynamite describes as its “operating subsidiary of the Registrant with a history of over one and one-half years of operations and valuable operating assets” - for at least 90 days in order to determine whether it fits into the Company’s business plan or should be sold. Why had the Kai Da team determined to hang on to Black Chandelier, at least for the short term?
In July 2005, the Securities and Exchange Commission adopted new rules for the use of Forms 8-K and S-8 by shell companies. The new rules imposed a greater degree of disclosure on a shell company that engaged in a reverse-merger with an operating business. For purposes of the rule, a shell company is defined as an entity with (i) no or nominal operations, and (ii) either no or nominal operations, assets consisting solely of cash or cash equivalents, or assets consisting of cash or cash equivalents and other nominal assets.
Under the new rule, if a shell company decides to engage in a reverse-merger, it must file a Form 8-K disclosing the same detailed information that would be required in a general form of registration statement – in other words, specific facts about the reverse-merger, the acquiring company, and the individuals who now will be running and controlling the business.
The new standards mark a dramatic shift designed to protect investors. In the past, reverse-mergers have offered a convenient way for companies and the people who control them to avoid extensive disclosure. They still can – but only if they can demonstrate that the public company involved in the reverse-merger was not a mere shell without appreciable assets or a viable business. Does the retention of Black Chandelier afford Dark Dynamite the ability to avoid classification as a shell?
Whether or not that is the case, the Company has provided only a modest amount of information about Kai Da. So far, however, the details that have been revealed make it difficult to see how the underperforming Black Chandelier operation could possibly fit into Kai Da’s existing business.
A Form 8-K filed by the Company on September 30, 2005 described Kai Da as a management company that operates the Ep Pang Gong theme park located in Xi’an, Peoples’ Republic of China (referred to on occasion in the Company’s public filings as the E Pang Gong theme park). According to the Company, the theme park operates on a site that has been identified as the location of the original palace of the first Chinese Emperor, Qin Shi Huang.
Dark Dynamite’s September 30 Form 8-K states that the theme park is operated by a Chinese corporation that has approximately 3,000 shareholders. Kai Da plans to convert 1.6 million shares of Dark Dynamite’s preferred stock into 40 million shares of Dark Dynamite shares and then distribute those common shares, together with an additional 100,000 shares issued under the reverse-merger agreement, to approximately 600 of the Ep Pang Gong shareholders (although the Form 8-K also suggests, somewhat confusedly, that the Dark Dynamite common shares will be distributed to all 3,000 Ep Pang Gong shareholders).
The shares will not be registered, but that does not mean that they cannot be sold once they are placed in the hands of the Chinese investors. The stock will be distributed under Regulation S, which allows the sale of unregistered stock to non-U.S. residents, but prohibits the resale of those shares within the U.S. for one year. They may, however, be resold outside of the United States – opening the possibility that the Pacific marketplace will soon be flooded with Dark Dynamite shares.
The Company claims that Kai Da derives most of its revenues from the operation of the theme park and its facilities. What are those revenues? So far, the Company has not provided any financial information about Kai Da or revenues derived from the theme park – although it has promised to file audited financial information for Kai Da and pro forma financial statements for the merged entity by mid-December 2005. What should observers expect? The Company’s Form 8-K states that the Ep Pang Gong theme park hosts approximately 200,000 visitors a year, but does not say how much each person must pay to visit the site (if anything) or how Kai Da is compensated. To place this in some perspective, over 20 million people reportedly visit Disney World in Orlando, Florida each year and another 10 to 12 million go to Disneyland in Anaheim, California. In most instances a company would shy away from being called a Mickey Mouse operation. In this case, that would be a welcome change.
Unfortunately, we were unable to find any information about Ep (or E) Pang Gong theme park on the Internet. We did discover, however, that the Er Pang Gong palace was built during the Qin dynasty, and later was burned down. Could the spelling of Ep or E be an Er-ror?
Where does this leave the Company and its investors? With new management and another new name. Jared Gold, who not long ago was extolling the prospects of the Company’s “lifestyle” products, is gone, replaced at the helm by Ming Lei, who formerly managed operations at the theme park. According to a Preliminary 14C Information Statement filed on November 2, 2005, Lei and an individual named Xiaojun Wang are now the Company’s sole directors.
And the Company is changing its name – for the third time since 2002. The entity we have known as Vector Holdings, NCI Holdings and Dark Dynamite plans to call itself China International Tourism Holdings, Inc.
As for Black Chandelier –is there any synergy between cutting edge fashion and a theme park grounded in ancient Chinese history? Not on the surface. Chances are, when those 90 days are up Black Chandelier will be long Gong.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com