UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2011
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to
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Commission File No. 033-33263
CHINA GRAND RESORTS, INC
(Name of small business
issuer in its charter)
Nevada
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62-1407521
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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RM 905, Reignwood Center
No.8 Yong’an Dongli Jianguomen Outer
Street,
Chaoyang District Beijing, 100022,
People’s Republic of China
(Address of principal executive offices)
(Zip Code)
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86-10-8528-8755
(Registrant’s telephone number, including
area code)
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class registered:
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Name of each exchange on which registered:
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None
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None
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Securities registered under Section 12(g) of the Exchange Act:
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Common Stock, par value $0.001
(Title of class)
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Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [
] No [X]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
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Accelerated filer
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[ ]
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Non-accelerated filer
(Do not check if a smaller reporting company)
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[ ]
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Smaller reporting company
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[X]
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting
stock held by non-affiliates of the registrant was $61,620.40 as of March 31, 2011, the last business day of the
registrant’s most recently completed second fiscal quarter based on the closing price per share on such date of $0.2
.
As of January 10, 2012, the
registrant had 3,272,311 shares of its common stock outstanding.
Documents Incorporated by Reference
: None.
CHINA GRAND RESORTS, INC.
TABLE OF CONTENTS
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PART I
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ITEM 1.
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Business
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ITEM 1A.
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Risk Factors
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9
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ITEM 1B.
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Unresolved Staff Comments
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ITEM 2.
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Properties
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ITEM 3.
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Legal Proceedings
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PART II
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ITEM 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
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Equity Securities
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ITEM 6.
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Selected Financial Data
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ITEM 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
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ITEM 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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ITEM 8.
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Financial Statements and Supplementary Data
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ITEM 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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ITEM 9A.
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Controls and Procedures
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ITEM 9B.
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Other Information
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PART III
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ITEM 10.
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Directors, Executive Officers and Corporate Governance
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ITEM 11.
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Executive Compensation
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ITEM 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
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Matters
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ITEM 13.
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Certain Relationships and Related Transactions, and Director Independence
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ITEM 14.
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Principal Accounting Fees and Services
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ITEM 15.
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Exhibits, Financial Statement Schedules
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31
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SIGNATURES
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31
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EX-21.1 LIST OF SUBSIDIARIES
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EX-31.1 CERTIFICATION OF CEO PURSUANT TO SEC 302
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EX-31.2 CERTIFICATION OF CFO PURSUANT TO SEC 302
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EX-32.1 CERTIFICATION OF CEO PURSUANT TO SEC 906
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EX-32.2 CERTIFICATION OF CFO PURSUANT TO SEC 906
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FORWARD-LOOKING STATEMENTS NOTICE
This Annual Report on Form 10-K contains “forward-looking
statements” within the meaning of Section 27A of the U. S. Securities Act of 1933, as amended (the “Securities
Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended(the “Exchange Act”). Such
statements relate to, among other things, our future plans of operations, business strategy, operating results and financial position
and are often, though not always, indicated by words or phrases such as “anticipate,” “estimate,” “plan,”
“project,” “outlook,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” and similar words or phrases. These forward-looking statements include statements other than historical information
or statements of current condition, but instead represent only our belief regarding future events, many of which by their nature
are inherently uncertain and outside of our control. Important factors that could cause actual results to differ materially from
forward-looking statements include, but are not limited to, those described in the section titled “Risk Factors” appearing
elsewhere in this Annual Report, as well as the following:
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our ability to implement and execute our current business plan, including the ability to sell apartment units;
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the economic conditions in the Changde market, the location of the apartment units and elsewhere in the PRC for our business;
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our reliance on our major shareholders ;
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our ability to execute key strategies;
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actions by our competitors;
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our ability to raise additional funds to execute our new business plan ;
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risks associated with assumptions we make in connection with our critical accounting estimates;
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potential adverse accounting related developments;
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other matters discussed in this Annual Report generally.
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Consequently, readers of this Annual Report
should not rely upon these forward-looking statements as predictions of future events. New risk factors emerge from time to time
and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statement in this Annual
Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Annual
Report are expressly qualified by these cautionary statements.
PART I
ITEM 1. BUSINESS
History
China Grand Resorts Inc. together with its
subsidiaries (“CGND” the “Company,” “we,” “us,” or “our”) was incorporated
in the state of Nevada on September 21, 1989 under the name Fulton Ventures, Inc.
In June 2001, we acquired American Overseas
Investment Co., Ltd. (“AOI”), a company incorporated in Macau, of the People’s Republic of China (“PRC”
or “China”). With our acquisition of AOI, we began to focus our business on acquiring and developing companies with
the goal of building a broad network of media, marketing and advertising companies in the People’s Republic of China (PRC).
On September 19, 2002, we changed our name to Asia Premium Television Group, Inc. to more accurately reflect our business
at the time.
In July 2004, we completed the acquisition
of 100% of Beijing Asia Hongzhi Advertising (“BAHA”), a company organized under the laws of the PRC, and its wholly-owned
subsidiaries. In July 2004, we also completed the acquisition of 100% of BAHA’s another subsidiary, Beijing Hongzhi
Century Advertising (“BHCA”), a company organized under the laws of the PRC. As a result of these transactions, we
became engaged in advertising production, and media consultation providing marketing, brand management, advertising, media planning,
public relations and direct marketing services to clients in the PRC. In September 2005, we sold our interest in AOI to an
unaffiliated third party.
In March 2007, we effected a 1,000 for
1 reverse stock split of our issued and outstanding common stock.
In July 2007, the Company acquired 100%
of Sun New Media Transaction Service Ltd. (“SNMTS”), a company incorporated in Hong Kong, and its wholly owned subsidiary
China Focus Channel Development Co., Ltd (“CFCD”), a company incorporated in People’s Republic of China, from
NextMart Inc. (OTB: NXMR) for limited consideration.
On December 31, 2007, the Company entered into
an agreement with Nanchang Hongcheng Mansion Limited, an unaffiliated company, to acquire a 70% equity interest in Jiangxi Hongcheng
Tengyi Telecommunication Company, Ltd (“JXHC”), a local reseller of mobile minutes in Jiangxi Province. As consideration,
we paid the seller RMB 2 million (approximately $282,486).
On January 3, 2008, we entered into an agreement
with Union Max Enterprises Ltd. (“Union Max”) to acquire a Provincial Class One Full Service Operator license for the
Jiangxi Province, PRC. On that same date, we divested our traditional advertising business by entering into a sale and purchase
agreement with Fanya Advertising Company Ltd. (“Fanya”) whereby we sold BAHA and its wholly-owned Chinese subsidiaries
BHCA (“BAHA Group”). We sold the BAHA Group to Fanya for a total consideration of $4.8 million which was completed
on January 10, 2008. Under the agreement with Union Max, we paid them the sum of $6 million, of which $4.5 million was paid in
cash and $1.5 million was paid in the form of our common stock. As a result of that transaction, we acquired a Provincial Class
One Full Service Operator license for the Jiangxi Province. Union Max was a subsidiary of China Mobile and Communications Association
(“CMCA”). CMCA is China's leading association of telecommunications and telecommunication-related company. The acquisition
was completed on March 31, 2008. In December 2008, the Board of Directors of the Company resolved to terminate the Company’s
top up services in Jiangxi Province, and, on May 11, 2009, we entered into a share transfer agreement with an unaffiliated third
party wherein we sold our ownership in JXHC for a total consideration of $100. The transaction was effective on March 31, 2009.
On March 30, 2009, we completed an acquisition
agreement with the shareholders of GlobStream Technology Inc. (“GlobStream”) to acquire 100% of GlobStream, a corporation
incorporated in the Cayman Islands for $156,000.
GlobStream was founded by Dr. Wenjun Luo, one
of our previous directors, who had developed a unique mobile Internet software called Total Mobile Media. In May 2009, we terminated
the operations related to GlobStream as the mobile phone multimedia and advertising businesses of Globstream were not performing
well. Effective on August 1, 2009, as described below, the Company used the ownership in GlobStream to acquire from Beijing Hua
Hui Hengye Investment Limited, the commercial income right as detailed below.
On July 9, 2009, we entered into an agreement
with Redrock Capital Venture Limited (“Redrock”), a BVI company. We agreed to issue a total of 92,683 shares of our
common stock to Redrock in order to cancel the loan of $223,529 from Redrock. Ms. Yang Lan is the majority shareholder of Redrock.
She is also the controlling shareholder of Her Village Limited, one of our largest shareholders as of such date.
On August 1, 2009, the Company entered into
a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Ltd. (“Hua Hui”),
an unaffiliated PRC company. Hua Hui is an affiliate of The Beijing Hua Hui Corporation, a PRC real estate construction and development
conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist
and other destinations within the PRC. Under the Agreement, we received from Hua Hui the commercial income rights (described herein
below) to 10,000 square meters to a 17 story apartment building in the Huadun Changde International Hotel’s Apartment Complex
located in the city of Changde, Hunan Province (“Project”). The Project is currently under development by Hua Hui.
In exchange, we agreed to issue to Hua Hui subject to certain conditions, a total of 2,774,392 shares of our common stock valued
at $2.40 per share (the closing price of the Company’s common stock on the transaction date, August 1, 2009 after giving
effect to the 20 for 1 reverse split) for a total stock value of $6,658,536, and transferred to Hua Hui certain other Company assets
valued at approximately $658,241. These assets consisted of all of our shares of the GlobStream, certain assets of both SNMTS and
CFCD, and other miscellaneous assets of ours. On September 8, 2009, we issued 832,318 shares of our common stock to Wise Gold Investment
Ltd., a British Virgin Island company acting on behalf of Hua Hui. On that same date, we also issued 1,942,074 shares of common
stock to Blossom Grow Holdings Limited, a British Virgin Island company, as escrow agent under an escrow agreement by and among
us, the escrow agent and Hua Hui. The escrow agent will hold the escrow shares pending completion of the Project which is expected
to occur at or near the end of calendar 2010. If the escrow agent receives written instructions from the Company that the Project
is completed in accordance with the terms of the Agreement, the escrow agent will release the escrow shares to Hua Hui. However,
if after projected completion date, the Project has not been completed, the escrow shares will continue to be held at escrow for
one year. If after one year, the project still has not been completed, the Company and Hua Hui will negotiate an agreement to deal
with the escrow shares. On December 5, 2011, the Company entered into a Supplemental Agreement with Hua Hui and Blossom Grow Holdings
Limited, The escrow agent will hold the escrow shares depending completion of the Project which is expected to occur on or about
August 31, 2012. If after August 31, 2012, the project still has not been completed, then the Company and Hua Hui will negotiate
and reach an agreement to deal with the escrow shares. During the escrow period, Hua Hui will be able to vote such shares provided
it has reached an agreement with us on such matter(s), otherwise, the escrow agent will not vote on such matter(s). As a result,
Hua Hui and Mr. Menghua Liu, Hua Hui’s Chairman and sole shareholder and the Company’s Chairman and Chief Executive
Officer, are deemed the beneficial owner of such shares. After giving effect to the transaction, Hua Hui became the Company’s
majority shareholder and beneficially owns approximately 84.8% of the Company’s outstanding shares.
Effective on November 16, 2009, we changed
our name to China Grand Resorts Inc. to more accurately reflect our new business efforts and effected a 20 for 1 reverse split
of our common stock.
In December 2009, the Company incorporated
Key Prosper Holdings Limited, a company incorporated in the British Virgin Islands on December 8, 2009, with 100% shareholdings.
Nature of Prior Businesses and Hua Hui Transaction
From 2004 through January 2008, as a result
of our acquisitions of the BAHA and BHCA, we were engaged in advertising production, and media consultation providing marketing,
brand management, advertising, media planning, public relations and direct marketing services in the People’s Republic of
China. As disclosed above, we ceased those operations when we sold our interest in the BAHA Group in January 2008.
In January 2008, our business focus was based
on the interest acquisition in JXHC and the Provincial Class One Full Service Operator license for the Jiangxi Province from Union
Max. We also subsequently acquired other mobile phone and internet based technologies to compliment our existing technology and
license rights. We attempted to provide ancillary services for cell-phone customers in Jiangxi Province whereby customers could
buy minutes on the fly using their debit card or bank account along with other mobile phone based services. However, in December
2008, due to third party issues which negatively affected our ability to launch that business, we determined to terminate that
business which resulted in a sale of our interests to an unaffiliated third party effective in March 2009 for $100.
On August 1, 2009, we entered into the agreement
with Hua Hui described above. Under the agreement, we received the commercial income rights to the Project. In the PRC, local and
central governments own all of the real property, however, land use right are granted by the governments to third parties. Hua
Hui owns the land use rights to the Project, and we received the commercial income rights to the Project from Hua Hui. Commercial
income rights means the exclusive right to own and/or receive any and all income and proceeds derived from the Project in any capacity.
Our Current Business Strategy
General
Hua Hui and its affiliates, including The Beijing
Hua Hui Corporation, are a PRC real estate construction and development group that specializes in constructing and developing travel,
resort, hotel, and apartment properties in popular tourist and other destinations within the PRC. As a result of the transaction
with Hua Hui, we intended to become a leading specialty real estate consulting and marketing company for tourism projects in the
PRC. Initially, our plan was to market the commercial rights to the Project that we received from Hua Hui. We further planned on
expanding our business by using existing resources and knowhow of our affiliates and other parties to engage in providing consulting
and marketing services for real estate developers. However, beginning in late 2009 and continuing through 2010, the PRC State Council
adopted a number of initiatives designed to cool a perceived overheated real estate market. As a result, the Company has suspended
its plans to engage in consulting and marketing services for real estate developers. Presently, apart from the Project (discussed
below), it is evaluating other markets and business opportunities, including subject to market conditions its previously proposed
real estate consulting business, however, as of the date of the report, it has not committed to any specific market or business
opportunity.
With respect to the Project, Hua Hui will be
responsible for all project marketing and actual unit sales. We expect to pay Hua Hui a sales commission of not less than 0.5%
and not more than 8% of the unit sales price and we will receive the remainder of the unit sales price. As of the date of
this report, we do not have any formal agreements or arrangements with any developer or Hua Hui for fees that we will earn, or
fees that we will pay Hua Hui.
The Project
As mentioned above, the Project consists of
10,000 square meters of apartment space in the concerning Building of the Huadun Changde International Hotel’s Apartment
Complex, a 17 story building, located in the city of Changde, Hunan Province (“Project”). The Project is currently
under construction by Hua Hui. Changde is a popular tourist destination located in China’s central Hunan province. Upon completion,
the Complex will consist of a total of 215,000 square meters located on an approximately 3.6 acre piece of land that has access
roads on the North, East, and West. The city is accessible by rail and air and is in close proximity to several tourist, scenic,
and commercial areas. The Project is in close proximity to several tourist, scenic, and commercial areas. Construction began on
June 1, 2009 and initially was expected to be completed on December 31, 2010. However, due to change of decoration and style for
improved quality and appearance, Hua Hui has informed us that the Project is expected to be completed during August 2012.
All permits concerning the Project have been
acquired from governmental authorities, and the construction of the Project is approximately 85% completed as of the date hereof.
We also have acquired the pre-sale permits for the sale of the apartments from the local real estate authority.
The Project when
completed will be comprised of a total number of 128 apartments. The units are expected to range in size from 120 square meters
to 210 square meters. Under current market conditions, we expect that the price of the apartment units to be approximately RMB4,000
($629) per square meter, subject to market conditions. The units when sold will be unfurnished. Hua Hui began pre-completion marketing
efforts in the mid-calendar 2010. In this regard, Hua Hui have initiated advertisements in the Changde airport, the Changde Evening
paper and the Hunan Morning paper, Hua Hui also initiated advertisements in the Changde TV and the Changde broadcasting station.
Hua Hui have initiated a text messaging program to potential buyers and posted advertisements on an outdoor billboard on the main
street of Changde City. Finally, Hua Hui have printed sales brochures, hosted potential buyers and commenced website design for
the Project.
A sales center and several model units with respect to the Project were completed
by Hua Hui in late November 2010. Potential buyers can tour these models to gain appreciation of the design, structure and appearance
of the units. We have actively collaborated with Hua Hui with regard to the content of information contained in the outdoor billboard
and print media, as well as the design of the sales center. In addition, we have commenced independent marketing efforts for the
Project on a limited basis. We expect to play an active role in Hua Hui’s future marketing plans. In any pre-completion sale,
the amount of the down payment that we will be able to obtain from a buyer is subject to the housing policy of governing real estate
authorities. The current policy allows for a down payment ranging from 30% to 50% of the sales price dependent on the property
size. As mentioned, Hui Hua will act as the sales agent and is expected to receive a sales commission of not less than 0.5% and
not more than 8% of the unit sales price. Hua Hui has informed us that in course of selling the units, it will act in good faith
in selling the units and will not act preferentially toward selling its units over the units of the Company. However, at the present
time, the Company does not have a formal agreement with Hua Hui regarding sales commission or the manner of sale with respect to
the units. As of the date of this filing, we have not sold any of the units.
Our working capital budget for the next 12
months is approximately $485,000 which relate principally to costs of our executive offices. This amount is comprised of $180,000
in professional fees, $130,000 in salaries and related personnel costs, $75,000 for executive office rent, and $100,000 in miscellaneous
expenses. We will not incur any costs of marketing the Project. We expect to generate revenues from the sale of the apartment units
in August 2012. Thereafter, subject to the foregoing, we believe that revenues from the Project will be sufficient to fund our
ongoing working capital needs.
Our business strategies are subject to certain
risks and uncertainties, including our ability to raise additional funds in the future. We cannot predict whether we will be successful
in any of business strategies. We do not anticipate seasonal fluctuations in our business.
Competition and Market Data
We will be subject to intense competition in
the sale of our apartment units in the Project from other real estate developers and development projects in the local Changde
real estate market. Despite the competition, we believe that our competitive advantages are as follows; it is in close proximity
to several tourist destinations and commercial areas; it features many amenities with the Huadun Changde International Hotel Complex,
including on site restaurants, café, bars, tea house, fitness club, beauty salon, swimming pool, and shopping mall; and
we believe that it is a well designed and well constructed building.
Management believe that the number of Chinese
consumers able and willing to purchase second homes for vacationing will increase with China’s continued explosive growth.
These wealthy consumers are spread throughout the country. This nationwide concentration of potential buyers requires a targeted
national media marketing, which is something we will be able to offer as part of our overall marketing and sales strategy.
Intellectual Property
We do not own any patents, trademarks or licenses.
We view our company’s name and the reputation associated with our name as an important asset, but we have not registered
our company’s name as a trademark.
Employees
As of September 30, 2011, we had five full-time
employees and two part-time officers in China.
ITEM 1A. RISK FACTORS
We are subject to a variety of possible risks
that could adversely impact our revenues, results of operations or financial condition. Some of these risks relate to the industry
in which we operate, while others are particular to us. The following factors set out potential risks we have identified that could
adversely affect us.
Risks Related to Our New Business
There is substantial doubt about our
ability to continue as a going concern.
Our independent public accounting firm has
issued an opinion on our consolidated financial statements that states that the consolidated financial statements were prepared
assuming we will continue as a going concern and further states that our recurring losses from operations, stockholders’
deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt
about our ability to continue as a going concern. Our plans concerning these matters are discussed in “Liquidity and Capital
Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7
of this Form 10-K and Note 7 to the accompanying audited consolidated financial statements. Our future is dependent on our ability
to execute our plans successfully or otherwise address these matters. If we fail to do so for any reason, we would not be able
to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. Bankruptcy Code.
We have an immediate need for capital
and likely dilution.
As reflected on our audited consolidated balance
sheet for the fiscal year ended September 30, 2011 contained herein, we have total current assets of $16,079 and total current
liabilities of $836,906. In addition, we will need additional capital of up to $0.5 million to maintain our current operations.
This amount excludes funds needed to engage in any additional business activities which amount is undetermined at this time. The
timing and amount of our capital requirements will depend on a number of factors, including the terms and conditions of agreements
that we have to enter into with Hua Hui or other real estate developers, our initial operational results, with respect to the marketing
and sale of the Project units, the need for other expenditures, and competitive pressures. If additional funds are raised through
the issuance of equity or convertible debt securities, the percentage ownership of our then-existing stockholders will likely be
reduced significantly. We cannot make assurances that any financing will be available on terms favorable to us or at all. If adequate
funds are not available on acceptable terms, our ability to fund our business strategy, ongoing operations, take advantage of unanticipated
opportunities, or otherwise respond to competitive pressures could be significantly limited. Our business, financial condition
and results of operations will be harmed by such limitations.
We cannot
predict whether our new business
endeavors will be successful.
We planned on entering into a real estate business
which is a new business endeavor for us. We changed our name to China Grand Resorts Inc. in order to reflect our new business direction.
Presently, we have suspended our plans to develop this business, and are evaluating other markets and business opportunities. Apart
from revenues received from the sale of the Project units, we may have difficulty in developing or managing any other new businesses.
There is a possibility that we have insufficient expertise to engage in these new activities profitably or without incurring significant
amounts of development expenses or risk.
We will face competition in the sale
of our apartments.
We will face competition in the sale of our
apartments located in the city of Changde, Hunan Province. The city of Changde is a developing business center and resort destination,
and is populated by numerous development projects, including apartment projects. While we believe that the demand for apartments
in the area will exist for the coming years, it is conceivable that we may not be able to sell all of our units or the sale of
such units may not occur at a sales rate or at prices that we have projected. The occurrence of any such event will adversely affect
our business.
The PRC government may adopt further
measures to curtail the overheating of the property sector.
Along with the economic growth in China, investments
in the property sector have increased significantly in the past few years. In response to concerns over the scale of the increase
in property investments, the PRC government has introduced policies to limit rapid growth in property sale price. The PRC government’s
restrictive regulations and measures to curtail the overheating of the property sector could limit our access to capital resources
or even restrict our business operations. We cannot be certain that the PRC government will not issue additional and more stringent
regulations or measures, which could further slow down property development in China and adversely affect the sale of our apartments.
Changes in overall economic conditions could
have a material impact on our business.
Our results of operations could be impacted
by changes in overall economic conditions that impact consumer spending within the PRC. Future economic conditions affecting disposable
income such as employment levels, consumer confidence, business conditions, stock market volatility, weather conditions, acts of
terrorism, threats of war, and interest and tax rates could reduce consumer spending or cause consumers to shift their spending
away from real estate driven products, which may have a material adverse impact on our business, operating results and financial
condition.
We rely on key management personnel.
Our success will depend, in part, on the efforts
of our executive officers and other key employees. The market for qualified personnel is competitive and our future success will
depend upon, among other factors, our ability to attract and retain these key personnel. The loss of the services of any of our
key management personnel or the failure to attract and retain employees could have a material adverse effect on our results of
operations and financial condition due to the resulting disruptions in the leadership and continuity of our business relationships.
Our officers and directors may
allocate their time and efforts to other businesses thereby causing conflicts of interest in their determination as to whether
or not to present business opportunities to the Company and as to how much time to devote to our affairs.
Our officers and directors, including Mr. Menghua
Liu, are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their
time between our operations and other businesses. All of our executive officers are engaged in several other business endeavors
and are not obligated to contribute any specific number of hours to our affairs. If our executive officers’ other business
affairs require them to devote more substantial amounts of time to such affairs, it could have a negative impact on our current
business and future business development. We intend to protect our interests in having these officers and directors remain part
of our company and prioritize their time and resources in such a way that will benefit our interests, although no assurances thereof
can be given.
Our officers and directors may become aware
of business opportunities which may be appropriate for presentation to us as well as the other entities to which they owe fiduciary
duties. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should
be presented.
Beijing Hua Hui Hengye Investment Ltd.
owns a large percentage of our outstanding common shares and may have the ability to influence matters requiring shareholder approval.
As of September 30, 2011, Beijing Hua Hui Hengye
Investment Ltd. owns 84.8% of our outstanding common shares, and as a result exercises significant influence over shareholder actions
and controls our company and our affairs, including:
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composition of our board of directors, and, through it, our direction and policies, including the appointment and removal of officers;
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mergers or other business combinations and opportunities involving us;
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further issuance of capital stock or other securities by us;
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our financing activities;
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payment of dividends; and
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approval of our business plans and general business development.
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There can be no assurance that our controlling
shareholders will exercise their control in our best interests.
Risks Related to Doing Business in China
China’s legal system is characterized
by uncertainty that could negatively impact our business and results of operations.
While we are incorporated in the State of Nevada,
United States, substantially all of our operations are in China. As such, we are subject to and rely on Chinese law in our daily
operations. The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system
in which decided legal cases have little value as precedent. Beginning in 1979, the PRC government promulgated a comprehensive
system of laws and regulations governing economic matters, which has had the overall effect of significantly enhancing the protections
afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively new and
are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal
protections available to foreign investors. In addition, enforcement of existing laws, or contracts based on existing law, may
be uncertain and sporadic. Furthermore, interpretation of statutes and regulations may be subject to new government policies reflecting
domestic political changes.
Our activities in China are subject to administrative
review and approval by the State Administration of Industry and Commerce of the PRC government. Because of the changes occurring
in China’s legal and regulatory structure, we may not be able to secure or renew the requisite governmental approvals for
our activities. Failure to obtain or maintain the requisite governmental approvals for any of our activities could adversely affect
our business and results of operations.
Any recurrence of severe acute respiratory
syndrome, or SARS, or another widespread public health problem, could negatively impact our business and results of operations.
A renewed outbreak of SARS or another widespread
public health problem in China, where substantially all of our revenue is derived and where our operations are located, could have
a negative effect on our operations. Our operations may be impacted by a number of health-related factors, including the following:
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quarantines or closures of some of our offices which would severely disrupt our operations;
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the sickness or death of our key officers and employees; and
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a general slowdown in the Chinese economy.
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Any of the foregoing events or other unforeseen
consequences of public health problems could adversely affect our business and results of operations.
Changes in China’s political and economic
policies could negatively impact our business.
As substantially all of our business operations
are conducted in China, our results of operations, financial condition and prospects are subject in a significant degree to the
economic, political and legal developments in China. Although we believe that the economic reform and the macroeconomic measures
adopted by the PRC government have had a positive effect on the economic development of China, we cannot predict the future direction
of these economic reforms or the effects these measures may have on our business, financial position or results of operations.
In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation
and Development, or OECD. These differences include:
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economic structure;
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level of government involvement in the economy;
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level of development;
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level of capital reinvestment;
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control of foreign exchange;
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telecommunications laws, including those related to mobile phones;
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methods of allocating resources; and
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balance of payments position.
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As a result of these differences, our business
may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD
member countries.
Rapidly developing Chinese tax laws could
negatively affect our businesses.
On March 16 2007, the Chinese government
produced a new set of revised tax laws. In these tax laws, effective from January 1, 2008, income tax for companies of our type
was reduced from 33% to 25%, resulting in a corresponding increase in net income for our company. However, given China’s
rapidly changing tax laws and the difference between national tax policy and local tax policy, we could and likely will be exposed
to other fluctuations in income associated with these taxes, including but not limited to business taxes, VAT, income taxes, and
other taxes.
Restrictions on foreign currency exchange
may limit our ability to receive and use our revenues effectively.
Any future restrictions on currency exchange
may limit our ability to use revenues generated in Renminbi to make payments in U.S. dollars or other foreign currencies. Although
the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions,
significant restrictions still remain, including primarily the restriction that foreign invested enterprises may only buy, sell
and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial
documents. In addition, remittance of foreign currencies abroad and conversion of Renminbi for capital account items, including
direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose
more stringent restrictions on the convertibility of the Renminbi, especially with respect to foreign exchange transactions.
Fluctuations in the value of the Renminbi
could negatively impact our results of operations.
Our revenues, operating expenses and substantially
all of our assets and liabilities are denominated in Renminbi. Our reporting currency is the U.S dollar. As a result, we are exposed
to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between
the U.S. dollar and Renminbi. A significant depreciation in the Renminbi against the U.S. dollar will cause a decrease in our net
profits, if any, or increases in net losses we may suffer.
The RMB is currently freely convertible under
the “current account”, which includes dividends, trade and service-related foreign exchange transactions, but not under
the “capital account”, which includes foreign direct investment. In addition, commencing on July 21, 2005, China reformed
its exchange rate regime by changing to a managed floating exchange rate regime based on market supply and demand with reference
to a basket of currencies. Under the managed floating exchange rate regime, the RMB is no longer pegged to the U.S. dollar. The
exchange rate of the RMB against the U.S. dollar was adjusted to RMB8.11 per U.S. dollar as of July 21, 2005, representing an appreciation
of about 2%. The People’s Bank of China will announce the closing prices of foreign currencies such as the U.S. dollar traded
against the RMB in the inter-bank foreign exchange market after the closing of the market on each business day, and will make such
prices the central parity for trading against the RMB on the following business day. On May 19, 2007, the People’s Bank of
China announced a policy to expand the maximum daily floating range of RMB trading prices against the U.S. dollar in the inter-bank
spot foreign exchange market from 0.3% to 0.5%. While the international reactions to the RMB revaluation and widening of the RMB’s
daily trading band have generally been positive, with the increased floating range of the RMB’s value against foreign currencies,
the RMB may appreciate or depreciate significantly in value against the U.S. dollar or other foreign currencies in the long term,
depending on the fluctuation of the basket of currencies against which it is currently valued.
On June 19, 2010, the People’s Bank of
China announced that it has decided to proceed further with the reform of the RMB exchange rate regime to enhance the flexibility
of the RMB exchange rate and that emphasis would be placed on reflecting market supply and demand with reference to a basket of
currencies. While so indicating its intention to make the RMB’s exchange rate more flexible, the People’s Bank of China
ruled out any sharp fluctuations in the currency or a one-off adjustment. In early November 2011, the center point of the currency’s
official trading band hit 6.3165, representing appreciation of more than 7.6% since June 19, 2010. As a result of the announcement,
the RMB may appreciate or depreciate more significantly in value against the U.S. dollar or other foreign currencies in the long
term, depending on the market supply and demand with reference to a basket of currencies.
As of September 30, 2011, the exchange rate
was 6.3549 RMB to 1.00 U.S. Dollar. The exchange rate of Renminbi is subject to changes in China’s government policies which
are, to a large extent, dependent on the economic and political development both internationally and locally and the demand and
supply of Renminbi in the domestic market. There can be no assurance that such exchange rate will continue to remain stable in
the future amongst the volatility of currencies, globalization and the unstable economies in recent years.
Governmental control of currency conversion
may affect the value of your investment.
The Chinese government imposes controls on
the conversion of RMB to foreign currencies and, in certain cases, the remittance of currencies out of China. As our domestic sales
operations expand, we expect to derive an increasing percentage of our revenues in RMB. Under our current structure, we expect
our income will be primarily derived from dividend payments from our Chinese subsidiaries. Shortages in the availability of foreign
currency may restrict the ability of our Chinese subsidiaries and our affiliated entities to remit sufficient foreign currency
to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing Chinese
foreign exchange regulations, payments of current account items, including profit distributions, interest and principal payments
on outstanding notes (including our recently completed convertible note financing) and expenditures from trade-related transactions,
can be made in foreign currencies without prior approval from the People's Republic of China State Administration of Foreign Exchange
by complying with certain procedural requirements. However, approval from appropriate government authorities is required when RMB
is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans
denominated in foreign currencies. The Chinese government at its discretion also may restrict access in the future to foreign currencies
for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency
to satisfy our demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our
common stock.
Risks Related to Our Common Stock
There has been only a limited public
market for our common stock to date.
To date, there has been only a limited public
market for our common stock on the Over-the-Counter Bulletin Board. Our common stock is currently not listed on any exchange. If
an active trading market for our common stock does not develop, the market price and liquidity of our common stock will be materially
and adversely affected.
The market price for our common stock
may be volatile.
The market price for our common stock may be volatile
and subject to wide fluctuations in response to factors including the following:
· actual
or anticipated fluctuations in our quarterly operating results;
· changes
in financial estimates by securities research analysts, if any;
· conditions
in the China consumer goods and online marketing markets;
· changes
in the economic performance or market valuations of other U.S. public companies with substantial operations in China;
· announcements
by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;
· addition
or departure of key personnel;
· potential
fluctuations of exchange rates between RMB and the U.S. dollar;
· intellectual
property litigation; and
· general
economic or political conditions in China.
In addition, the securities market has from time
to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect the market price of our Common stock.
We will need additional capital, and
the sale of additional common stock or other equity securities could result in additional dilution to our stockholders.
As mentioned herein, we expect to have an immediate
need for capital to fund day to day operations as well as our planned business operations. To satisfy our cash requirements, we
may receive loans from affiliates, and/or seek to sell additional equity or debt securities (in addition to our recently completed
financing or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders.
The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants
that would restrict our operations. The conversion of any debt, including outstanding loans in favor of affiliates, will also result
in significant dilution to existing shareholders. We cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
Substantial future sales or the perception
of sales of our common stock in the public market could cause the price of our common stock to decline.
Sales of our common stock in the public market
or the perception that these sales could occur, could cause the market price of our common stock to decline. As of September 30,
2011, approximately 70,281 shares, or 2.15% of our outstanding shares can be freely transferable without restriction or additional
registration under the Securities Act of 1933, as amended, or are subject to a pending registration statement. The remaining common
stock outstanding as of such date will be available for sale, subject to volume and other restrictions as applicable under Rule
144 under the Securities Act.
We will incur increased costs as a result
of being a public company.
As a public company, we will incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as
rules subsequently implemented by SEC has required changes in corporate governance practices of public companies. We expect these
new rules and regulations to increase our legal, accounting and financial compliance costs and make certain corporate activities
more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements.
We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs.
There is a limited public float of our
common stock, which can result in increased volatility in our stock price and prevent the realization of a profit on resale of
the Company’s common stock.
There is a limited public float of our common
stock. The term “public float” refers to shares freely and actively tradable on the Over-the-Counter Bulletin Board
System and not owned by officers, directors or affiliates, as defined under the Securities Act. Due to our relatively small public
float and the limited trading volume of our common stock, purchases and sales of relatively small amounts of our common stock can
have a disproportionate effect on the market price for our common stock. As a result, the market price of our common stock can
have increased volatility which may affect a stockholder’s ability to sell our shares in a timely manner.
Our common stock is subject to restrictions
on sales by broker-dealers and penny stock rules, which may be detrimental to investors.
Our common stock is subject to Rules 15g-1
through 15g-9 under the Securities Exchange Act of 1934, which imposes certain sales practice requirements on broker-dealers who
sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(c)
of the Securities Exchange Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely
affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common
stock.
Additionally, our common stock is subject to
SEC regulations applicable to “penny stock.” Penny stock includes any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell
transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered
by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both
the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require
that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.
Your ability to bring an action against
us or against our directors and officers, or to enforce a judgment against us or them, may be limited because we conduct substantially
all of our operations in China and all of our directors and officers reside outside of the United States.
We conduct substantially all of our operations
in China. All of our directors and officers reside, and substantially all of the assets of those persons are located, outside the
United States. As a result, it may be difficult for you to bring an action against us or against these individuals in the United
States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of China may render you unable to enforce a judgment against our assets
or the assets of our directors and officers.
ITEM 1B. UNRESOLVED SEC COMMENTS
Not applicable.
ITEM 2. PROPERTIES
In December 2009, we relocated our office to
a new location in Beijing consisting of 192.70 square meters. The new Beijing office lease is from December 11, 2009 to December
10, 2011 and provides for monthly lease payment of $5,333 with two months period of free rent. In August 2011, we renewed this
lease agreement from December 11, 2011 to December 12, 2012. Our new monthly lease payment is $6,253. Moreover, we have entered
into a second building lease for the office located in Beijing consisting of 10 square meters. This Beijing facilities lease is
from July 3, 2010 to July 2, 2011 and provides for monthly lease payment of $26. We believe our current facilities are adequate
for the purposes for which they are currently used and are well maintained. See Note 8 to our audited consolidated financial statements
included in this Annual Report for a further discussion of our lease commitments.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any current, and are
not aware of any pending, legal proceedings involving our company or our officers and directors which may have any material impact
on our results of operations or financial position.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Effective on November 16, 2009, we executed
a 20 for 1 basis reverse stock split. As of September 30, 2011, our common stock was quoted on the Over the Counter Bulletin Board
under the symbol “CGND” and we had approximately 123 shareholders holding 3,272,311 shares of common stock.
The following
quotations, as provided by the National Quotation Bureau, represent prices between dealers and do not include retail mark up, markdown
or commission. In addition, these quotations do not represent actual transactions. The following table sets forth the high and
low closing sales price of our common stock as reported on OTC Bulletin Board for the periods indicated
:
DATE
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HIGH
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LOW
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(in USD)
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Fiscal year ended September 30, 2010
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First Quarter
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0.51
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0.154
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Second Quarter
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0.30
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0.25
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Third Quarter
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0.31
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0.30
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Fourth Quarter
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0.31
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0.30
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Fiscal year ended September 30, 2011
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First Quarter
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0.30
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0.20
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Second Quarter
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0.20
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0.20
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Third Quarter
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0.20
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0.20
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Fourth Quarter
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0.20
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0.20
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The above prices have been adjusted for the
20 for 1 reverse stock split which occurred on November 16, 2009.
Dividends
We have not paid, nor declared, any dividends
since our inception and do not intend to declare any such dividends in the foreseeable future. Our ability to pay dividends is
subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a corporation’s
assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.
Securities Authorized for Issuance under
Equity Compensation Plans.
In 2001, we adopted a stock plan (the “2001
Stock Plan”). Under the terms and conditions of the 2001 Stock Plan, our board of directors is empowered to grant stock options
to our employees, consultants, officers and directors of the Company. Additionally, our board of directors has the power to determine,
at the time of granting any such options, the vesting provisions and whether the options will be qualified as Incentive Stock Options
under Section 422 of the Internal Revenue Code (Section 422 provides certain tax advantages to the employee recipients). The 2001
Stock Plan was approved by our shareholders on September 15, 2001. The total number of shares of common stock available under the
2001 Stock Plan may not exceed 100. As of September 30, 2011, no options had been granted under the 2001 Stock Plan.
Sales of Unregistered Securities
None
Repurchase of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7 MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information, the
following discussion contains forward-looking statements that are subject to risks and uncertainties, and which speak only as of
the date of this annual report. No one should place strong or undue reliance on any forward looking statements. Our actual results
or actions may differ materially from these forward-looking statements for many reasons, including the risks described in Item
1A and elsewhere in this annual report. This Item should be read in conjunction with the financial statements and related
notes and with the understanding that our actual future results may be materially different from what is currently expected or
projected by us.
Overview
We were organized under the laws of the State
of Nevada on September 21, 1989. We went engaged in a variety of business, described in part below, and effected various name changes
prior to November 2009 when the name was changed to China Grand Resorts, Inc. Our subsidiary is Sun New Media Transaction Service
Ltd. (“SNMTS”), a company incorporated in Hong Kong, which has a wholly owned subsidiary China Focus Channel Development
Co., Ltd (“CFCD”), a company incorporated in People’s Republic of China.
During the three year period prior to December
2007, our principal business was providing marketing, brand management, advertising, media planning, public relations and direct
marketing services to clients in the PRC. During December 2007 and January 2008, we re-directed our business towards providing
mobile phone based services. In January 2008, we divested ourselves of our advertising and marketing business.
On December 31, 2007, we acquired a 70% equity
interest in Jiangxi Hongcheng Tengyi Telecommunication Company, Ltd (“JXHC”), a local reseller of top-up mobile minutes
in Jiangxi Province. Effective March 31, 2009, we acquired a Provincial Class One Full Service Operator license for the Jiangxi
Province, PRC. The Class One license enabled us to sell mobile phone based products within the Jiangxi province. During this period,
we also acquired other mobile phone based technologies to compliment our existing technology. We sought to market these technologies
in the Jiangxi Province of China through JXHC utilizing our recently acquired Class One license. However, due to a lack of operating
funds and other factors beyond our control, JXHC was unable to effectively develop its business. Consequently, effective on March
31, 2009, we sold our ownership in JXHC to an unaffiliated third party for $100.
On March 30, 2009, we acquired additional mobile
internet software technology through our acquisition of GlobStream Technology Inc. (“Globstream”) from its shareholders
for $156,000. GlobStream was founded by Dr. Wenjun Luo, our former director. In May of that same year, we terminated the operations
related to GlobStream. Effective on August 1, 2009, we sold our ownership in GlobStream to Hua Hui.
On August 1, 2009, as mentioned throughout
this Form 10-K, we entered into a subscription agreement with Beijing Hua Hui Investment Ltd., an unaffiliated company organized
under the laws of the PRC (“Hua Hui”). Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction
and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in
popular tourist and other destinations within the PRC. Under the Agreement, we received from Hua Hui the commercial income rights
(described herein) to 10,000 square meters of apartment space in the concerning Building of the Huadun Changde International Hotel’s
Apartment Complex located in the city of Changde in China’s Hunan Province (“Project”). The Project is currently
under development by Hua Hui. The parties have valued the commercial income rights at $8,777,000. As consideration, we agreed to
pay a total of $7,317,000, to be satisfied by issuing Hua Hui subject to certain conditions, a total of 2,774,392 shares of our
common stock which is valued at $2.40 per share (the closing price of our common stock on the transaction date, August 1, 2009,
after giving effect of 20 for 1 reverse split) for a total stock value of $6,658,536. As additional consideration, Hua Hui received
from us all of the shares of the GlobStream Technology Inc., our wholly owned subsidiary, certain assets of Sun New Media Transaction
Services Limited and China Focus Channel Development Co., Ltd, and certain other miscellaneous assets of us which were valued at
$658,241.
Results of Operations
During fiscal years ended September 30, 2010
and 2011, we had no revenue from operations. We expect to receive revenues upon completion of the Project related to sales of the
apartment units. The completion of the Project is expected to occur on or about August 31, 2012.
Unless otherwise indicated, all amounts
are in U.S. Dollars.
Fiscal Year ended September 30, 2011
Compared to Fiscal Year ended September 30, 2010
Consulting Revenues and Gross Margin
For the year ended September 30, 2011, we were
developing our new business strategy discussed above. As a result, we had no revenues from operations or gross margin. During the
comparable period in 2010, we had no revenues and related expenses from our former consulting business due to the general slowdown
in economic activity in the PRC during such period.
Loss from Operations
During the year ended September 30, 2011, we
incurred general and administrative expenses of $221,182 compared with $287,751 for the year ended September 30, 2010. The reduction
in general and administrative expenses is primarily due to reduced overhead at the corporate level, principally due to reduced
consulting and professional fees. Commencing in 2009 and continuing to the present, we made an effort to reduce our ongoing overhead
expenditures, which includes personnel reductions and office expense, due to our reduced operations. We also had $8,728 in depreciation
and amortization for the year ended September 30, 2011 compared with $6,604 for the comparable year ended September 30, 2010, the
difference is due to the increase of fixed assets during the current period. Our loss from operations for the year ended September
30, 2011 was $229,910 compared to $294,355 for the year ended September 30, 2010. The difference between the periods is due to
the reduction of general and administrative expenses discussed above.
Other (Expense) Income
Other expense for the year ended September
30, 2011 and the corresponding 2010 period was $28,278 and $13,647, which is mainly comprised of interest expense. Interest expense
relates to the loans from Hua Hui. The increase in interest expense for the current annual period is a result of higher principal
loan amounts from Hua Hui for such period.
Loss from Continuing Operations Before Income
Taxes
Our loss from continuing operations was $258,188
for the year ended September 30, 2011 compared to a loss of $308,002 for the year ended September 30, 2010. The difference is due
to the reasons discussed above.
Loss from Discontinued Operations
None.
Net Loss
As a result of the foregoing, our net loss
was $258,188 for the year end September 30, 2011 compared with a loss of $308,002 for the year ended September 30, 2010.
Total Comprehensive Loss
For the year ended September 30, 2011, we had
a foreign currency translation loss of $28,652 compared with a gain of $4,218 for the year ended September 30, 2010. The difference
is due to the fluctuations of value of the US dollar in comparison to the RMB. As a result, we had a total comprehensive loss of
$286,840 for the year ended September 30, 2011 compared with a total comprehensive loss of $312,220 for year ended September 30,
2010.
Liquidity and Capital Resources
Recently, we have financed our operations primarily
through cash generated from a mixture of short and long-term loans including loans from affiliates, and issuance of common stock.
The following table summarizes our cash flows
for the fiscal years ended September 30, 2011 and September 30, 2010:
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
USD
|
|
USD
|
|
Net cash used in operating activities
|
|
|
(249,048)
|
|
|
|
(377,963)
|
|
|
Net cash (used in) provided by investing activities
|
|
|
-
|
|
|
|
(47,554)
|
|
|
Net cash provided by financing activities
|
|
|
178,228
|
|
|
|
482,212
|
|
|
Effect of exchange rate fluctuations on cash
|
|
|
(1,186)
|
|
|
|
(4,746)
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(72,006)
|
|
|
|
51,949
|
|
|
Net decrease in cash from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents (closing balance)
|
|
|
6,367
|
|
|
|
78,373
|
|
|
The net cash used in operating activities for
year ended September 30, 2011 was $249,048, compared with net cash used in operating activities of $377,963 for year ended September
30, 2010. The $128,915 difference is due to the reduction of general and administrative expenses discussed above during the year
ended September 30, 2011.
The net cash used in the investing activities
for the year ended September 30, 2011 was $Nil, compared with net cash provided by investing activities of $47,554 for the year
ended September 30, 2010. The difference of $47,554 is due to no investing activities during the year ended September 30, 2011.
The net cash provided by financing activities
for the year ended September 30, 2011 was $178,228, compared with net cash provided by financing activities of $482,212 for year
ended September 30, 2010. There was a difference of $303,984 which is primarily due to the reduction of the shareholder loans during
the year ended September 30, 2011.
The effect of the exchange rate on cash was
a loss of $1,186 for the year ended September 30, 2011, compared with loss of $4,746 for the year ended September 30, 2010. The
difference is due to reduction in foreign currency transactions.
The difference in the closing balance of cash
and cash equivalent (closing balance) for the year ended September 30, 2011 and 2010 is due to the reasons mentioned above.
Capital Requirements For The Next 12 Months
We continue to experience significant losses
from operations. As discussed below, we anticipate that we will generate sales from the Project commencing in August 2012. However,
nonetheless we have an immediate need for capital to funds our ongoing working capital needs, along with any new business endeavors
that we may undertake. We anticipate raising capital through additional private placements of our equity securities, and, if available
on satisfactory terms, debt financing.
It is conceivable that funding of all or part
of the budget required above may come from either or both Hua Hui, our largest shareholder, or Redrock Capital Venture Limited,
a shareholder. Commencing in June 2009, we began receiving loans from Redrock Capital Venture Limited. As of September 30, 2011,
the amount due to Redrock is $100,280, in which the amount is due on demand and bears no interest. In addition, commencing in October
2009, we received loans from Hua Hui, our majority shareholder, in various increments totaling approximately $660,000 as the date
of this report. These loans are due on demand and bear interest at the prevailing rate charged by the PRC Central Bank on the payment
date.
However, we do not have any agreements, arrangements
or commitments with or guarantees from any party, including our largest shareholder or Redrock, to provide funding to us. We cannot
guarantee that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet
our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations.
Our inability to raise additional funds as described above may force us to restructure, file for bankruptcy, sell assets or cease
operations, any of which could adversely impact our business and business strategy, and the value of our capital stock. Due to
the current price of our common stock, any common stock based financing, including transactions with affiliates which may include
equity conversions of outstanding loans, will likely create significant dilution to the then existing shareholders. In addition,
in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue
stock for services in the future which also may create significant dilution to existing shareholders.
Our capital budget for the next 12 months is
as follows:
$485,000 for our executive offices expenditures,
which includes $130,000 in salaries and related costs of personnel, $180,000 in professional fees, $75,000 in executive office
rent, and $100,000 in miscellaneous office expenditures.
We expect to generate revenues from the sale
of the apartment units in August 2012. Thereafter, the Company believes that revenues from the Project will be sufficient to support
our ongoing capital working needs for the ensuing six to twelve month period. However, our projections are subject to certain risks
and uncertainties, including our ability to raise additional funds in the near future. We cannot predict whether we will successful
with any of business strategies.
Contractual Obligations
In December 2009, we relocated our office to
a new space in Beijing. The term of the old lease was from September 1, 2009 to July 31, 2011; however, we terminated the old lease
on December 11, 2009 as mutually agreed with the landlord and with no penalty to us. The new office lease is from December 11,
2009 to December 10, 2011 and provides for monthly lease payment of $5,333 with two months period of free rent. In August 2011,
we renewed this lease agreement from December 11, 2011 to December 12, 2012. Our new monthly lease payment is $6,253. Moreover,
we have entered into another building lease for the office located in Beijing. The Beijing facilities lease is from July 3, 2010
to July 2, 2011 and provides for monthly lease payment of $26. The lease expenses for the year ended September 30, 2011 amounted
to $63,984 and the total lease commitment for the year ended September 30, 2011 and 2012 is $17,193 and $76,414 respectively.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described
in Note 2 to our consolidated financial statements included in this Annual Report. We prepare our financial statements in conformity
with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of
revenues and expenses during the financial reporting period.
Since the use of estimates is an integral component
of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding
of our financial statements as their application places the most significant demands on our management’s judgment.
NEW ACCOUNTING PRONOUNCEMENTS
FASB Establishes Accounting Standards Codification
In February 2010, the FASB issued Accounting
Standards Update (ASU) 2010-09 to amend ASC 855, Subsequent Events, whose effective date is for interim or annual reporting periods
ending after June 15, 2010. As a result, ASU No. 2010-09 excludes SEC reporting entities from the requirement to disclose the date
on which subsequent events have been evaluated. In addition, it modifies the requirement to disclose the date on which subsequent
events have been evaluated in reissued financial statements to apply only to such statements that have been restated to correct
an error or to apply U.S. GAAP retrospectively.
In June 2009, the FASB issued Accounting Standards
Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB Accounting
Standards Codification (“the Codification” or “ASC”) as the official single source of authoritative U.S.
GAAP. All existing accounting standards are superseded. All other accounting guidance not included in the Codification will be
considered non-authoritative. The Codification also includes all relevant Securities and Exchange Commission (“SEC”)
guidance organized using the same topical structure in separate sections within the Codification.
Following the Codification, the Board will
not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASU”) which will serve to update the Codification, provide background information
about the guidance and provide the basis for conclusions on the changes to the Codification.
The Codification is not intended to change
GAAP, but it will change the way GAAP is organized and presented. The Codification is effective for the companies’ 2009 financial
statements and the principal impact on our financial statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification.
In January 2010, the FASB issued the following
ASC Updates:
ASU No. 2010-06—Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This Update amends ASC 820 subtopic 10 that requires
new disclosures about transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. This Update also
amends ASC 820 subtopic 10 to clarify certain existing disclosures. The new disclosures and clarifications of existing disclosures
are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010.
The Companies expects that the adoption of
the above updates issued in the year 2010 will not have any significant impact on its financial position and results of operations.
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
We have not entered into any financial guarantees
or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative
contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated
financial statements.
Furthermore, we do not have any retained or
contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and development services with us.
Revenue Recognition
We rely on SEC Staff Accounting Bulletin: No.
104 “Revenue Recognition in Financial Statements” (“SAB 104”) (ASC No.605) to recognize our revenue. SAB
104 in establishing our accounting policy states that revenue generally is realized or realizable and earned when all of the following
criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3)
the seller's price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.
INCOME TAXES
We account for income taxes under ASC No 740,
“Income Taxes,” as described in Note 11 to our audited consolidated financial statements included in this Annual Report.
We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized.
In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded
amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise,
if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to
our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on
our taxable income using the balance sheet liability method at the effective rate applicable in China in our consolidated statements
of operations and comprehensive loss. There is no income tax expenses in 2010 and 2011 due to net loss occurred.
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
Foreign exchange rates
Substantially all our revenues and expenses
are denominated in Renminbi and HKD, which are translated to U.S. dollars as our reporting currency for our financial statements.
As such, our primary foreign exchange risk is to changes in the value of the Renminbi relative to the U.S. dollar. See “Item 1A.
Risk Factors - Fluctuations in the value of the Renminbi could negatively impact our results of operations.” We do not engage
in any hedging activities, and as such, we may in the future experience economic loss or gain as a result of any foreign currency
exchange rate fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Reference is made to the Index to the audited
consolidated financial statements on Page F-1 for our audited consolidated financial statements and notes thereto and supplementary
schedules which follow PART V, Item 15 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our Chief Executive Officer and our Chief Financial Officer, we undertook an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934, Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this report. The evaluation of our disclosure controls and procedures included
a review of our processes and implementation and the effect on the information generated for use in this Annual Report on Form
10-K. As a result of such evaluation, Chief Executive Officer and the Chief Financial Officer have concluded that, as of the evaluation
date, our such disclosure, controls and procedures are effective, providing them with material to provide reasonable assurance
that the information relating to our company as required to be disclosed in the reports we file the Company files or submits under
the Securities Exchange Act on a timely basis.
There were no changes in our internal controls
over of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and (ii) accumulated and communicated to management, including the Company’s
principal executive and principal financial reporting, known to our Chief Executive Officer or Chief Financial Officer, persons
performing such functions, as appropriate, to allow timely decisions regarding disclosure. The Company believes that a control
system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
a company have been detected.
Management's Annual Report on Internal Control
Over Financial Reporting.
The management of the Company is responsible
for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control
system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation
and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management assessed the effectiveness of
the Company’s internal control over financial reporting as of September 30, 2011. The framework used by management
in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined
that as of September 30, 2011, the Company’s internal control over financial reporting was effective for the purposes for
which it is intended.
This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial
Reporting
There is no change in our internal control
over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended September 30,
2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
The following table sets forth the name, age,
position and term of office for each our executive officers and directors.
NAME
|
|
AGE
|
|
POSITION
|
|
DATE POSITION FIRST HELD
|
|
Menghua Liu
|
|
|
43
|
|
|
Chairman, Chief Executive Officer, Acting Chief Financial Officer and Director
|
|
August 7, 2009
|
Xiangyang Liu
|
|
|
42
|
|
|
Director
|
|
September 25, 2009
|
Yanhong Deng
|
|
|
32
|
|
|
Director
|
|
September 25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Set forth below is certain biographical information
regarding each of our executive officers and directors:
Menghua Liu, Chairman, Chief Executive Officer,
Acting Chief Financial Officer and Director
From 2004 to the present, Mr. Liu has served
as the Chairman and Chief Executive Officer of The Beijing Hua Hui Corporation, a PRC company involved in real estate development
and investment and the parent entity of Beijing Hua Hui Investment Ltd (“Hua Hui”), our largest shareholder. From 2007
to the present, he has been the Chairman of Beijing Yang Hong Ji Tourism Investment Limited, a PRC company involved in tourism
and real estate development. Currently, Mr. Liu is also Chairman of the Supervisory Board of Da Yang Group. Prior to Hua Hui, Mr.
Liu was director of New World of Hangzhou in Zhejiang Province and Vice Manager of Xin Ao Group. Mr. Liu has a master degree in
International Project Management Professional (“IPMP”) from the Civil Engineering and Water Resources Institute of
Tsinghua University. He also holds an MBA degree from Tsinghua University.
Xiangyang Liu, Director
Mr. Liu has extensive experience in tourism
industry. From 2004 to the present, he has been the general manager of Beijing Hua Yang Hong Ji Tourism Investment Limited, a PRC
company located in Beijing and an affiliate of Hua Hui. From 2000 to 2004, Mr. Liu served as the manager of Beijing Hui Zu Exhibition
Limited. From 2007 to 2009, Mr. Liu served as the general manager of Beijing Custom Tourism Investment Limited.
Yanhong Deng, Director
From 2008 to the present, Ms. Deng has been
the vice general manager of Hua Hui and is also the director of the corporate culture center of Hua Hui. From 2007 to 2008, Ms.
Deng served as the manager of the Guest Room Department of the Headquarter of Beijing Urban Construction Group. From 2003 to 2007,
Ms. Deng served as the manager of the Lobby Department of Bei Yuan Hotel of Beijing Urban Construction Group.
We believe that Messrs. Liu, Liu and Deng each
provide valuable knowledge and expertise related to the Project and the Company’s core business. Thus, we believe that each
such person possesses the necessary qualifications to be a director of the Company.
Term of Office, Arrangements and Related
Matters
.
Our executive officers serve at the discretion
of our Board of Directors. Our officers are not full time employees and certain conflicts may exist in allocating their time between
our operations and other businesses. There are no arrangements or understandings between any of our directors or executive officers
pursuant to which such person was or is to be selected as a director (or nominee) or an officer, as applicable. To the best of
our knowledge, during the past five years, none of our existing directors, executive officers, or control persons were involved
in any of the following: (1) any bankruptcy petition filed by or against any property or business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2) any conviction in a criminal proceeding
or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business, securities or banking
activities; or (4) being found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading
Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended,
or vacated.
Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director nominees or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.
Our directors and executive officers are not
related by blood, marriage or adoption.
Compliance with Section 16(a) of
the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange
Act of 1934 requires our officers and directors and persons who beneficially own more than 10% of the Company’s common stock
(collectively, “Reporting Persons”) to file reports of beneficial ownership and changes in beneficial ownership with
the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
The Company believes that for the year ended
September 30, 2011, all Section 16(a) filing requirements applicable to our reporting persons were met. The Company believes that
its current officers and largest shareholder will seek to comply timely with all future reporting under Section 16(a) of the
Exchange Act.
Code of Ethics
We have adopted a code of ethics that applies
to all of our executive officers and employees, including our Chief Executive Officer and our Chief Financial Officer. The code
of ethics was filed as Exhibit 99.1 to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004 and is incorporated
by reference in this Annual Report. There has been no change to the code of ethics from 2004. We also undertake to provide any
person with a copy of our code of ethics.
Nominees to the Board of Directors
There have been no material changes to the
procedures by which security holders may recommend nominees to the small business issuer's board of directors.
Audit Committee Financial Expert
Due to our limited capital resources, we did
not maintain an audit committee financial expert.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following summary compensation table sets
forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended
September 30, 2011 and 2010 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO). No other executive officer received total annual salary and bonus compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and
Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
|
|
Option
|
|
Non-Equity Incentive Plan Compensation
|
|
Non-Qualified Deferred Compensation Earnings
|
|
All Other Compensation
|
|
Totals
|
Awards
|
|
Awards
|
|
|
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Menghua Liu, Chairman, Chief Executive Officer, Chief Financial Officer, and director (1)
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2010
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carla Zhou, Former Chief Financial Officer (2)
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xiaojun He, Former Chief Financial Officer (3)
|
|
|
2010
|
|
|
|
18,789
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Menghua Liu has served as our Chairman,
Chief Executive Officer and director since August 7, 2009. He became our acting Chief Financial Officer on December 14, 2010. The
Company and Mr. Liu initially reached an oral agreement pursuant to which Mr. Liu will receive an annual salary of $50,000 per
annum for fiscal years 2010, pro rated, and 2011, however, for fiscal year 2010 and 2011, Mr. Liu has agreed to waive his salary
for such period.
(2) Carla Zhou has served as our Chief Financial
Officer from April 1, 2009 to February 5, 2010. The officer agreed to waive her salary for such period.
(3) Xiaojun He was our Chief Financial Officer
from February 5, 2010 to September 25, 2010.
Except as stated
above, for the fiscal period ending September 30, 2011, we had no employment agreements, arrangements, or obligations with our
officers, and we do not have any other form of compensation payable to our officers or directors, including any stock option plans,
stock appreciation rights,
retirement plans,
or long term incentive plans. Our executive officers
are not entitled to severance payments upon the termination of their employment agreements, if any, or following a change in control.
Compensation of Directors
We have no arrangements for the remuneration
of our directors, except that they will be entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including
travel expenses, if any, made on our behalf in the investigation of business opportunities.
Compensation Committee Interlocks and
Insider Participation
During the fiscal year 2011 we did not have
a standing compensation committee. Our Board of Directors was responsible for the functions that would otherwise be handled by
the compensation committee. All directors participated in deliberations concerning executive officer compensation, including directors
who were also executive officers. However, none of our executive officers received any compensation during the last fiscal year.
None of our executive officers has served on the Board of Directors or compensation committee (or other committee serving an equivalent
function) of any other entities, any of whose executive officers served on our Board or Compensation Committee.
Conflicts of Interest
Certain potential conflicts of interest are
inherent in the relationships between our officers and directors and us, including the fact that our officers are not full time
employees.
From time to time, one or more of our affiliates
may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that
we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage other businesses which
may compete with ours with respect to operations, including financing, marketing, management time, services and potential customers.
These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates
are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither we nor our shareholders have
any right to require participation in such other activities.
Furthermore, because we intend to do business
with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates
have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities.
We believe that such transactions will be made on terms at least as favorable to us as those available from unrelated third parties.
With respect to transactions involving real
or apparent conflicts of interest, we will adopt policies and procedures which require that: (i) the fact of the relationship or
interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction
prior to such authorization or approval, (ii) the transaction be approved by a majority of our directors, and (iii) the transaction
be fair and reasonable to us at the time it is authorized or approved by our directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth as of September
30, 2011, the number and percentage of the 3,272,311 outstanding shares of common stock which, according to the information supplied
to us, were beneficially owned by (i) each director, (ii) each executive officer, (iii) all directors and executive officers
as a group and (iv) each person who, to our knowledge, is the beneficial owner of more than 5% of our outstanding common stock.
Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares
beneficially owned, subject to community property laws where applicable.
|
|
|
AMOUNT AND
|
|
|
|
|
NATURE OF
|
|
TITLE OF
CLASS
|
|
NAME AND ADDRESS
OF
BENEFICIAL OWNER
|
BENEFICIAL
OWNERSHIP(1)
|
PERCENT OF
CLASS(1)
|
|
|
|
|
|
Common Stock
|
|
Beijing Hua Hui Hengye Investment Ltd (2)
|
2,774,392
|
84.8%
|
|
|
Pine Valley Center 11 Fl., 8 Jiangguo Men Outer Street, Chaoyang District, Beijing, China
|
|
|
|
|
|
|
|
Common Stock
|
|
Menghua Liu (3)
|
2,774,392
|
84.8%
|
|
|
Pine Valley Center 11 Fl., 8 Jiangguo Men Outer Street, Chaoyang District, Beijing, China
|
|
|
|
|
|
|
|
Common Stock
|
|
Xingyang Liu (4)
|
-0-
|
-0-
|
|
|
Pine Valley Center 11 Fl., 8 Jiangguo Men Outer Street, Chaoyang District, Beijing, China
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Yanhong Deng (5)
|
-0-
|
-0-
|
|
|
Pine Valley Center 11 Fl., 8 Jiangguo Men Outer Street, Chaoyang District, Beijing, China
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Yang Lan (6)
|
189,817
|
5.8%
|
|
|
Oriental Plaza Bldg. W3, Twelfth Floor, 1 East Chang’an Avenue, Dongcheng District, Beijing, 100738 PRC
|
|
|
|
|
|
|
|
Common Stock
|
|
Officer and Directors as a Group: 3 persons
|
2,774,392
|
84.8%
|
|
|
|
|
|
(1) Except as otherwise indicated, we believe
that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment
and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of
common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for
purposes of computing the percentage ownership of the person holding such option or warrants.
(2) The shareholder is currently the holder
of 832,318 shares of common stock of the Company. An additional 1,942,074 shares of our common stock have been issued and held
in escrow in the name of a third party. The escrowed shares were issued in connection with a transaction between the shareholder
and the Company on August 1, 2009 (Please refer to the Company’s Form 8-K filed on August 5, 2009, as amended on August 23,
2009 for a more complete description of the transaction with Hua Hui). The escrowed shares may be voted by the shareholder if an
agreement is reached with the Company regarding on the matter at issue. Thus, the shareholder is deemed the beneficial owner of
such shares. Mr. Menghua Liu is the Chairman and sole shareholder of Beijing Hua Hui Hengye Investment Ltd. and has voting and
investment power over such shares.
(3) Mr. Menghua Liu is the Chairman and sole
shareholder of Beijing Hua Hui Hengye Investment Ltd. and is also our Chairman and Chief Executive Officer.
(4) Xiangyang Liu is our Director.
(5) Yanhong Deng is our Director.
(6) Represents 92,683 shares of common stock
held by Redrock Capital Venture Limited, 85,222 shares held by Her Village Limited, 11,776 shares held by Yang Lan Studio Limited,
and 136 shares held directly by Ms. Yang Lan. Ms. Yang is the majority shareholder of Redrock, Her Village Limited, and Yang Lan
Studio Limited and has voting and investment power over such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as stated herein, since the beginning
of our last fiscal year, there have been no transactions or proposed transactions, involving us and any of our officers, directors,
promoters, or control persons, or any related persons thereof, the amount of which exceeds $120,000. When referencing our common
stock, the following transactions have not been split adjusted.
On May 16, 2008, we acquired from Her Village
Limited certain mobile phone and internet based technology for the sum of $1.2 million satisfied through the issuance of 150,000
(split adjusted) shares of our common stock. On July 4, 2008, we sold to Her Village Limited 50,000 (split adjusted) shares of
our common stock for a total purchase price of $1,000,000. Her Village is owed or controlled by Yang Lan, one of our current shareholders
and formerly a controlling shareholder.
On March 23, 2009, we entered into an acquisition
agreement with Globstream Technology Inc. (“Globstream”) and its shareholders whereby we acquire 100% of Globstream,
a mobile technology internet software developer. We issued to the Globstream shareholders 44,219 shares of our common
stock, valued at $3 per share and 7,782 warrants, with an exercise price of $3 per share. The value of the transaction was $156,000.
Wenjun Luo, our former director and chief technical officer, was a majority shareholder of Globstream.
Commencing
in April 2009, we began receiving loans from Redrock Capital Venture Limited (“Redrock”), a BVI company. As of July
9, 2009, we had received $223,529 in loans from Redrock. These loans were due on demand and bore no interest. On July 9, 2009,
we entered into an agreement to satisfy and cancel the outstanding loans in exchange for the issuance of 92,683
shares
of our common stock. The shares were valued at $2.4 per share. Ms. Yang Lan is the majority shareholder of Redrock. She also is
the controlling shareholder of Her Village Limited, one of our largest shareholders. After giving effect to the transaction, Redrock
became the beneficial owner of 18.6% of our common stock and Ms. Yang Lan was deemed the beneficial owner of 38.1% of our common
stock, on such date
.
Ms. Yang Lan is deemed the beneficial owner of 5.8% of our common stock as of January 13, 2011.
On August 1, 2009, we entered into a subscription
and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), an unaffiliated
PRC company. The terms and provisions of the Agreement are described elsewhere in this Report. As result of the transaction, Hua
Hui is deemed the beneficial owner of 84.8% of our outstanding shares.
Commencing in June 2009, we began receiving
additional loans from Redrock (other than as discussed above). As of September 30, 2010, the amount due to Redrock is $100,280,
in which the amount is due on demand and bears no interest.
Commencing in October 2009, we received loans
from Hua Hui, our majority shareholder, in various increments totaling approximately $ 660,000 as the date of this report. These
loans are due on demand and bear interest at the prevailing rate charged by the PRC Central Bank on the payment date.
Our Board of Directors consists of Mr. Menghua
Liu, Mr. Xiangyang Liu, and Ms Yanhong Deng, and none of the members have been determined by us to be independent directors within
the meaning of the independent director guidelines of the New York Stock Exchange Rules. We do not have a nominating, compensation
or audit committee or committees performing similar functions nor a written nominating, compensation or audit committee charter
due to the limited size of our Board of Directors. As a result, the entire Board of Directors reviews executive compensation, audit,
and nominating decisions.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional
services rendered by Parker Randall CF (H.K.) CPA Limited, our current auditor, for the audit of our annual financial statements
and services normally provided by the auditor in connection with statutory and regulatory filings or engagements was $20,000 for
the fiscal year ended September 30, 2011. The aggregate fees billed for professional services rendered by UHY VOCATION HK CPA Limited,
our former auditor, for the audit of our annual financial statements, review of our financial statements included in our quarterly
reports and services normally provided by the auditor in connection with statutory and regulatory filings or engagements were $20,000
for the fiscal year ended September 30, 2010.
Audit-Related Fees
There were no audit-related fees billed by
our principal auditor during the fiscal year ended September 30, 2011 and 2010.
Tax Fees
The aggregate fees billed fiscal years ended
September 30, 2011 and September 30, 2010 for professional services rendered by the principal auditor for tax compliance, tax advice,
and tax planning were all $ Nil.
All Other Fees
There were no other aggregate fees billed in
either of the last two fiscal years for products and services provided by the principal auditor, other than the services reported
above.
We do not have an audit committee currently
serving and as a result our board of directors performs the duties of an audit committee. Our board of directors will evaluate
and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
We do not rely on pre-approval policies and procedures.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a). Documents filed as part of this Annual
Report:
1. Consolidated Financial Statements
The audited consolidated financial statements
filed in this Annual Report are listed on page F-4 to F-5 hereof.
2. Financial Statement Schedules
The Supplemental Schedule of Non-Cash Investing
and Financing Activities appears on page F-7 hereof.
3. Exhibits
Exhibit No.
|
|
Description
|
|
|
|
|
|
3.1
|
|
Certificate of Incorporation
(1)
|
|
|
|
|
|
3.2
|
|
Articles of Amendment to Charter
(1)
|
|
|
|
|
|
3.3
|
|
Certificate of Amendment to Certificate of Incorporation
(2)
|
|
|
|
|
|
3.4
|
|
Bylaws
(3)
|
|
|
|
|
|
4.1
|
|
2001 Stock Plan
(4)
|
|
|
|
|
|
10.1
|
|
Convertible Promissory Note
(5)
|
|
|
|
|
|
10.2
|
|
Convertible Promissory Note
(5)
|
|
|
|
|
|
10.3
|
|
Registration Rights Agreement
(5)
|
|
|
|
|
|
14.1
|
|
Code of Ethics
(6)
|
|
|
|
|
|
21.1
|
|
List of Subsidiaries
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
(1)
|
|
Incorporated by reference to our Annual Report on Form 10-KSB for the year ended December 31, 1999, filed on April 17, 2000.
|
|
|
|
(2)
|
|
Incorporated by reference to our report on Form 8-K filed on October 9, 2002.
|
|
|
|
(3)
|
|
Incorporated by reference to our Annual Report on Form 10-KSB for the year ended December 31, 2006, filed on June 28, 2006.
|
|
|
|
(4)
|
|
Incorporated by reference to our Registration Statement on Form S-8 filed on September 21, 2001.
|
|
|
|
(5)
|
|
Incorporated by reference to our Annual Report on Form 10-KSB for the year ended December 31, 2002, filed on May 20, 2003.
|
|
|
|
(6)
|
|
Incorporated by reference to our Annual Report on Form 10-KSB for the year ended March 31, 2004, filed on August 11, 2004.
|
|
|
|
|
|
|
CHINA
GRAND RESORTS, INC.
Index
to Consolidated Financial Statements
|
Page
|
Reports of Independent Registered Public Accounting Firms
|
34 to 35
|
Consolidated Balance Sheets as of September 30, 2011 and 2010
|
36
|
Consolidated Statements of income and comprehensive
income
|
37
|
Consolidated Statements of Changes in Stockholders’
Deficiency and Comprehensive
Loss for the Years Ended September 30, 2011
and 2010
|
38
|
Consolidated Statements of Cash Flows for the Years Ended September 30, 2011 and 2010
|
39
|
Notes to the Consolidated Financial Statements
|
40 to 53
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
CHINA GRAND RESORTS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated
balance sheets of China Grand Resorts, Inc. and Subsidiaries. (the “Company”) as of September 30, 2011, and the related
consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for the year ended September
30, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30
2011, and the results of its operations and its cash flows for each of the year ended September 30, 2011 in conformity with accounting
principles generally accepted in the United States of America.
Parker Randall CF (H.K.) CPA Limited
Certified Public Accountants
Hong Kong, the People’s Republic of China,
December 23, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF
CHINA GRAND RESORTS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated
balance sheet of China Grand Resorts, Inc. and Subsidiaries (collectively the “Company”) as of September 30, 2010,
and the related consolidated statement of operations, changes in stockholders’ deficiency and comprehensive loss, and cash
flows for the year ended September 30, 2010. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of September 30, 2010 and the results
of its operations and its cash flows for the year ended September 30, 2010 in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(b), the Company has
incurred significant losses from operations for the year ended September 30, 2010 and has a working capital deficiency as of September
30, 2010. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 2(b). The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
UHY VOCATION HK CPA LIMITED
Certified Public Accountants
Hong Kong, the People’s Republic of China,
January 13, 2011
CHINA GRAND RESORTS, INC.
|
CONSOLIDATED BALANCE SHEETS
|
(IN U.S. DOLLARS)
|
|
As of September 30,
|
|
2011
|
|
2010
|
|
$
|
|
$
|
ASSETS
|
|
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
6,367
|
|
78,373
|
Other receivables
|
9,712
|
|
10,379
|
Total current assets
|
16,079
|
|
88,752
|
|
|
|
|
Property and equipment, net
|
24,714
|
|
31,957
|
Security deposit
|
17,193
|
|
16,330
|
|
41,907
|
|
48,287
|
Total Assets
|
57,986
|
|
137,039
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
Other payables
|
33,162
|
|
32,554
|
Loan from related parties
|
803,744
|
|
596,565
|
Total Current liabilities
|
836,906
|
|
629,119
|
Total Liabilities
|
836,906
|
|
629,119
|
|
|
|
|
Commitment and contingencies
|
|
|
|
|
|
|
|
Stockholders' Deficiency
|
|
|
|
Common stock, $0.001 par value, authorized 1,750,000,000 shares, 3,272,311 and 3,272,311 shares issued and outstanding as of September 30, 2011 and 2010 respectively
|
3,272
|
|
3,272
|
Treasury stock, 500 shares, at cost
|
-
|
|
-
|
Additional paid-in capital
|
10,099,040
|
|
10,099,040
|
Accumulated deficit
|
(10,913,514)
|
|
(10,655,326)
|
Accumulated other comprehensive income
|
32,282
|
|
60,934
|
Total Stockholders' Deficiency
|
(778,920)
|
|
(492,080)
|
Total Liabilities and Stockholders’ deficiency
|
57,986
|
|
137,039
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements
CHINA GRAND RESORTS, INC.
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
(STATED IN U.S. DOLLARS)
|
|
For the Years Ended
|
|
September 30,
|
|
2011
|
|
2010
|
|
$
|
|
$
|
|
|
|
|
Consulting revenue
|
-
|
|
-
|
Cost of consulting revenue
|
-
|
|
-
|
Gross Margin
|
-
|
|
-
|
|
|
|
|
Operating expenses
|
|
|
|
General and administrative expenses
|
221,182
|
|
287,751
|
Depreciation and amortization
|
8,728
|
|
6,604
|
|
229,910
|
|
294,355
|
Operating loss
|
(229,910)
|
|
(294,355)
|
|
|
|
|
Other (expenses) income
|
|
|
|
Interest income
|
131
|
|
211
|
Interest expenses
|
(28,127)
|
|
(13,468)
|
Other (expenses) income
|
(282)
|
|
(390)
|
Total other (expenses) income, net
|
(28,278)
|
|
(13,647)
|
Loss from continuing operations before income taxes
|
(258,188)
|
|
(308,002)
|
Income tax expense
|
-
|
|
-
|
Net loss
|
(258,188)
|
|
(308,002)
|
Effects of foreign currency conversion
|
(28,652)
|
|
(4,218)
|
comprehensive income/
(
loss
)
|
(286,840)
|
|
(312,220)
|
Loss per share from continuing operations -
basic and diluted
|
(0.08)
|
|
(0.09)
|
|
|
|
|
Weighted average
number of common shares outstanding
- basic and
diluted
|
3,272,311
|
|
3,272,371
|
See accompanying notes to the consolidated financial
statements.
CHINA GRAND RESORTS, INC.
CONSOLIDATED
STATEMENTS OF changes in STOCKHOLDERS’ DEFICIENCY aND comprehensive LOSS
FOR
THE YEARS ENDED SEPTEMBER 30,
2011 and 2010
(In
u.s. dollars)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
Common stock
|
|
Treasury
|
|
Additional
|
|
Subscription
|
|
Accumulated
|
|
Comprehensive
|
|
stockholders’
|
|
|
Number
|
|
Amount
|
|
Stock
|
|
Paid In Capital
|
|
Receivable
|
|
Deficit
|
|
Income (Loss)
|
|
deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
3,272,811
|
|
3,272
|
|
(10)
|
|
10,099,050
|
|
-
|
|
(10,347,324)
|
|
65,152
|
|
(179,860)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,218)
|
|
(4,218)
|
|
Shares returned and retired
|
(500)
|
|
-
|
|
10
|
|
(10)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(308,002)
|
|
-
|
|
(308,002)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2010
|
3,272,311
|
|
$ 3,272
|
|
-
|
|
$10,099,040
|
|
$ -
|
|
$ (10,655,326)
|
|
$ 60,934
|
|
$ (492,080)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
(28,652)
|
|
(28,652)
|
|
Shares returned and retired
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(258,188)
|
|
-
|
|
(258,188)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2011
|
3,272,311
|
|
$3,272
|
|
-
|
|
$10,099,040
|
|
$ -
|
|
$ (10,913,514)
|
|
$ 32,282
|
|
$(778,920)
|
|
See accompanying notes to consolidated financial
statements.
CHINA GRAND RESORTS. INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(IN U.S. DOLLARS)
|
|
For the Years ended
|
|
September 30,
|
|
2011
|
|
2010
|
|
$
|
|
$
|
Cash flows from operating activities
|
|
|
|
Net loss from continuing operations
|
(258,188)
|
|
(308,002)
|
Net loss
|
(258,188)
|
|
(308,002)
|
Adjustments to reconcile net loss to net cash used in
|
|
|
|
operating activities :
|
Depreciation and amortization
|
8,728
|
|
6,604
|
Change in operating assets and liabilities:
|
|
|
|
Other receivables
|
(196)
|
|
(2,628)
|
Other payables
|
608
|
|
(73,937)
|
Net cash used in operating activities
|
(249,048)
|
|
(377,963)
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Purchase of plant and equipment
|
-
|
|
(31,224)
|
Security deposit
|
-
|
|
(16,330)
|
Net cash (used in) provided by investing activities
|
-
|
|
(47,554)
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Repayment to related parties for loans
|
-
|
|
(49,072)
|
Proceeds from related parties’ loans
|
178,228
|
|
531,284
|
Net cash provided by financing activities
|
178,228
|
|
482,212
|
|
|
|
|
Effect of exchange rate fluctuations on cash
|
(1,186)
|
|
(4,746)
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
(72,006)
|
|
51,949
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
78,373
|
|
26,424
|
Cash and cash equivalents at end of year
|
6,367
|
|
78,373
|
See accompanying notes to the consolidated financial
statements
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US dollars)
(1)
DESCRIPTION OF BUSINESS AND ORGANIZATION
China Grand Resorts, Inc. (“CGND”)
and its wholly owned subsidiaries Sun New Media Transaction Service Ltd. (“SNMTS”), China Focus Channel Development
Co., Ltd (“CFCD”) and Key Proper Holdings Limited (“KPH”), financial statements defined herein below, collectively
referred to as the “Company” or “we” have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”).
On November 16, 2009, the Company
effected a 20 for 1 reverse split of our issued and outstanding common stock. The par value and our total number of authorized
shares were unaffected by the reverse stock split. All shares and per share amounts in these consolidated financial statements
and note thereto have been retrospectively adjusted to all periods presented to give effect to the reverse stock split.
(a)
Organization
The Company was incorporated in the
state of Nevada on September 21, 1989 under the name Fulton Ventures, Inc.
On
March 30, 2009, we completed an acquisition pursuant to an Acquisition Agreement (the “Acquisition Agreement”) with
the shareholders of GlobStream Technology Inc. (“GlobStream”) to acquire 100% of GlobStream, a Cayman Islands corporation
for $156,000. GlobStream was
founded by Dr. Wenjun Luo, one of
our previous directors. In May 2009, we terminated the operations related to GlobStream because the mobile phone multi-media and
advertising businesses of GlobStream were not performing well. Effective on August 1, 2009, the Company used the ownership in GlobStream
to acquire from Beijing Hua Hui Hengye Investment Limited, the commercial income rights as detailed below – acquisition of
commercial income rights.
On July 1, 2007, the Company acquired
100% interest of SNMTS, a company incorporated in Hong Kong, and its wholly owned subsidiary CFCD, a company incorporated
in the People’s Republic of China, from a third party for nominal consideration. In December 2009, the Company incorporated
KPH, a company incorporated in the British Virgin Islands.
Below is the organization chart
in existence as of September 30, 2011:
Acquisition of commercial income
rights
On August 1, 2009, the Company entered
into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Ltd. (“Hua
Hui”), an unaffiliated PRC company. Hua Hui is an affiliate of The Beijing Hua Hui Corporation, a PRC real estate construction
and development conglomerate that specializes in constructing and developing travel, resorts, hotels, and apartment properties
in popular tourist and other destinations within the PRC. Under the Agreement, we received from Hua Hui the commercial income rights
to 10,000 square meters of a 17 story apartment building in the Huadun Changde International Hotel’s Apartment Complex located
in the city of Changde, Hunan Province (“Project”). The Project is currently under development by Hua Hui.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(1) DESCRIPTION
OF BUSINESS AND ORGANISATION – CONTINUED
(a)
Organization
- Continued
Acquisition of commercial income
rights - continued
The Apartment Complex consists of
a total of 215,000 square meters located on an approximately 3.6 acre piece of land. The Project when completed, which is expected
to occur in August_2012, will be comprised of a total 128 apartments, of which we will have the commercial rights to approximately
64 apartments. The commercial income rights means the exclusive right to own and/or receive any and all income and proceeds derived
from these apartments pursuant to this Project in any capacity which were valued at approximately $8,777,000 by an independent
valuation firm and we agreed to pay a total of $7,317,000 as consideration. In exchange, we agreed to issue to Hua Hui, 2,774,392
shares of our common stock valued at $2.4 per share (the closing price of the Company’s common stock on the transaction date,
August 1, 2009 after giving effect of 20 for 1 reverse split) for a total stock value of $6,658,536 and transferred to Hua Hui
certain other Company assets valued at $658,241. These assets consisted of all of our shares of the GlobStream, certain assets
of both SNMTS and CFCD, and other miscellaneous assets of ours.
On September 8, 2009, we satisfied
the issuance of the 2,774,392 shares by issuing 832,318 shares to Wise Gold Investment Ltd., a British Virgin Island company acting
on behalf of Hua Hui. On that same date, we also issued 1,942,074 shares of common stock to Blossom Grow Holdings Limited, a British
Virgin Island company, as escrow agent under an escrow agreement by and among us the escrow agent, and Hua Hui. The escrow agent
will hold the escrow
shares pending completion of the Project which is expected to occur at or near the end of calendar
2010. If the escrow agent receives written instructions from the Company that the Project is completed in accordance with the terms
of the Agreement, the escrow agent will release the escrow shares to Hua Hui. However, if after the projected completion date,
the Project has not been completed, the escrow shares will continue to be held at escrow for one year. If after one year, the project
still has not been completed, then the Company and Hua Hui will negotiate an agreement to deal with the escrow shares. On December
5, 2011, the Company entered into a Supplemental Agreement with Hua Hui and Blossom Grow Holdings Limited. The escrow agent will
hold the escrow shares depending completion of the Project which is expected to occur on or near August 31 2012. If after August
31, 2012, the project still has not been completed, then the Company and Hua Hui will negotiate an agreement and reach to deal
with the escrow shares. Due to certain architectural change implemented by Hua Hui to improve quality, style and appearance of
the Project, Hua Hui has informed us that the Project is expected to be completed near August 31,2012. All permits concerning the
Project have been acquired from governmental authorities, and the construction of the Project is approximately 85% completed as
of November 30, 2011.During the escrow period, Hua Hui will be able to vote such shares provided it has reached an agreement with
us on such matter(s), otherwise, the escrow agent will not vote on such matter(s). As a result, Hua Hui and Mr. Menghua Liu, Hua
Hui’s Chairman and sole shareholder and the Company’s Chairman and Chief Executive Office, are deemed the beneficial
owner of such shares. After giving effect to the transaction, Hua Hui became the Company’s majority shareholder and
beneficially owns approximately 84.8% Company’s outstanding shares.
With respect to the Project, we
will not be responsible for project marketing and Hua Hui will perform the actual unit sales. We expect to pay Hua Hui a sales
commission of not less than 0.5% and not more than 8% of the unit sales price and we will receive the remainder of the unit sales
price. As of the date of this report, we do not have any formal agreements or arrangements with any developer or Hua Hui
for fees that we will earn, or fees that we will pay Hua Hui.
(b)
Nature of prior businesses
In January 2008, our business focus
was based on the interest acquisition in Jiangxi Hongcheng Tengyi Telecommunication Company, Ltd (“JXHC”) and the Provincial
Class One Full Service Operator license for the Jiangxi Province from Union Max Enterprises Ltd. We attempted to provide ancillary
services for cell-phone customers in Jiangxi Province whereby customers could buy minutes on the fly using their debit card or
bank account. However, in December 2008, due to third party issues which negatively affected our ability to launch that business,
we determined to terminate that business which resulted in a sale of our interests to an unaffiliated third party effective in
March 2009 for $100.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(2) SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES
(a)
Basis of Presentation and Consolidation - Continued
The Company’s consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) and applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in
the normal course of business.
The consolidated financial statements
include the accounts of the Company and its subsidiaries, SNMTS, CFCD and KPH. All inter-company balances and transactions between
the entities have been eliminated in consolidation.
In June 2009, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles”
(ASC Topic 105) which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”)
as the official single source of authoritative “US GAAP”. All existing accounting standards are superseded. All other
accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same topical structure in separate sections
within the Codification. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”) which
will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions
on the changes to the Codification.
The Codification is not intended
to change GAAP, but it will change the way GAAP is organized and presented. The adoption of ASC 105 does not have an impact on
the Company's consolidated financial statements.
(b) Going Concern and Management
Plan
As of September 30, 2011, the Company
had an accumulated deficit totaling $10,913,514 and negative working capital $820,827. The Company suffered a loss of $258,188
for the year ended September 30, 2011 and $308,002 for the year ended September 30, 2010. In view of the matters described above,
the appropriateness of the going concern basis is dependent upon continuing operations of the Company, which in turn is dependent
upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
As a result of the transaction with
Hua Hui as discussed in Note 1(a), we expect to receive the commercial income rights of the Project.
The Company is actively pursuing
additional capital in an effort to fund its ongoing capital requirements, as well as seeking agreements with potential strategic
partners to develop its new business strategy.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(2) SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
(c) Use of estimates
The preparation of the financial
statements in conformity with US GAAP requires management of the Company to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the years presented. Actual results could differ from those
estimates. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Significant accounting estimates reflected in the Company's consolidated financial
statements include allowance for doubtful accounts, estimated useful lives and contingent liabilities.
(d) Foreign currency translation
The Company
uses United States dollars (“U.S. Dollar” or “USD” or “$”) for financial reporting purposes.
The subsidiaries within the Company maintain their books and records in their respective functional currency, Chinese Renminbi
(“RMB”) and Hong Kong dollars (“HK$”), being the lawful currency in the PRC and Hong Kong, respectively.
Assets and liabilities of the subsidiaries are translated from RMB or HK$ into U.S. Dollars using the applicable exchange rates
prevailing at the balance sheet date. Items on the statements of operations and cash flows are translated at average exchange rates
during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of
the Company’s financial statements are recorded as accumulated other comprehensive income.
The exchange
rates used to translate amounts in RMB and HK$ into U.S. Dollars for the purposes of preparing the consolidated financial statements
are as follows:
|
2011
|
2010
|
Year end exchange rate
|
RMB6.3549 = $1
HK$7.7936=
$1
|
RMB6.7011
= $1
HK$7.7605
= $1
|
Average yearly exchange rate
|
RMB6.5410 = $1
HK$7.7803 = $1
|
RMB6.8123 = $1
HK$7.7664 = $1
|
There is no
assurance that the RMB and HK$ amounts could have been, or could be, converted into U.S.
dollars at
the above rates.
(e) Cash
Cash consists
of cash on hand and at banks which are unrestricted as to withdrawal or use. Management believes that the banks which hold the
Company’s cash are of high credit quality.
(f) Property and
equipment
Property and equipment are recorded
at cost less accumulated depreciation and amortization. Expenditures for major additions and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged
to general and administrative expense as incurred.
Depreciation of property and equipment is computed by the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the estimated
useful life.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(2) SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
(f) Property and
equipment - Continued
Upon sale or retirement of property,
plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflect
in operation.
The estimated useful lives
of the assets are as follows:
Computer software
|
|
|
3 years
|
|
Office equipment
|
|
|
2-5 years
|
|
Leasehold improvement
|
|
|
5 years
|
|
(g) Impairment of long-lived
assets
Long-lived assets, including intangible
assets with definite lives and property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of the asset.
Based on the Company’s assessment,
there have been no events or changes in circumstances that would indicate any impairment of long-lived assets as of September 30,
2011 and 2010.
(h) Fair value measurements
ASC Topic 820, Fair Value Measurement
and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and
unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active
markets for identical assets or liabilities.
Level 2 - Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Determining which category an asset
or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The carrying values of cash and
cash equivalents, other receivables, other payables, shareholders payables and related party payable approximate fair values due
to their short maturities.
There was no asset or liability
measured at fair value on a non-recurring basis as of September 30, 2011 and 2010.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(2) SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
(i) Income taxes
The Company follows the liability
method of accounting for income taxes in accordance with ASC 740 “Income Taxes”. Under this method, future tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using
enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are
expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried
forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the
respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company
will not realize the future benefit, or if the future deductibility is uncertain. It is uncertain for the Company that the operating
result in PRC will have profit and it is more likely than not that the Company will not realize the future benefit. Therefore,
there was no deferred tax asset as of September 30, 2011 and 2010. The income tax rate is 25% for year 2011 and 2010 and there
is no income tax expenses in 2011 and 2010 due to the net loss occurred.
(j) Revenue recognition
Revenue is recognized when the
following four criteria are met as prescribed by U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin
No. 104 (“SAB 104”): (i) persuasive evidence of an arrangement exists, (ii) product delivery has occurred
or the services have been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.
(k) Loss per share
Basic earnings (loss) per share
is computed on the basis of the weighted-average number of shares of the Company’s common stock outstanding during the fiscal
years. Diluted earnings (loss) per share is computed on the basis of the weighted-average number of shares of the common stock
plus any (loss) effect of dilutive potential common shares outstanding during the year using the if-converted method. As the Company
has a loss, presenting diluted net loss per share is considered anti-dilutive and not included in the consolidated statements of
operations.
(l) Nonmonetary
transactions
The Company accounts for nonmonetary
transactions based on the fair value of the assets (or services) involved in accordance with the requirements of FASB ASC Topic
845, “Nonmonetary Transactions”.
(m) Comprehensive
income
Comprehensive income is defined
as the change in equity of a company during the period from transactions and other events and circumstances excluding transactions
resulting from investments from owners and distributions to owners. Accumulated other comprehensive income (loss), as presented
on the accompanying consolidated statements of changes in equity and comprehensive income, consisted of cumulative foreign currency
translation adjustment in each of the two years ended September 30, 2011 and 2010.
(
n) Commitments
and contingencies
The Company is subject to lawsuits,
investigations and other claims related to operations, product, taxing authorities, environmental and other matters out of the
normal course of business, and is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well
as potential ranges of probable losses and fees. A determination of the amount of reserves and disclosures required, if any, for
these contingencies are made after considerable analysis of each individual issue. The Company accrues for contingent liabilities
when an assessment of the risk of loss is probable and can be reasonably estimated. The Company discloses contingent liabilities
when the risk of loss is reasonably possible or probable.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(2) SUMMARIES OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
(o) Pension and
employee benefits
Full time employees of the Company’s
PRC subsidiary participate in a government mandated multi- employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The
PRC labor regulations require the Company to accrue for these benefits based on certain percentages of the employees’ salaries.
Cost for the pension and employee benefits for the year ended September 30, 2011 and 2010 were $41,983 and $31,952 respectively.
(p) Recently issued
accounting standards
Effective January 1, 2010, the
Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures
about Fair Value Measurements, which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in
level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation
techniques. The adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s consolidated financial
statements.
In February 2010, the Financial
Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to
subsequent events. This guidance includes the definition of a Securities and Exchange Commission filer, removes the definition
of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the
date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim
and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations
or financial position, but did require changes to the Company’s disclosures in its financial statements.
In April 2010, the FASB issued
ASU No. 2010-13 – Compensation – Stock Compensation (Topic 718), which addresses the classification of an employee
share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security
trades. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not
be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify
such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company expects that the adoption of
the amendments in this Update will not have any significant impact on its financial position and results of operations.
In April 2010, the EITF issued
“Revenue Recognition – Milestone Method.” This issue provides guidance on defining a milestone and determining
when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This
issue is effective on a prospective basis for milestones achieved in fiscal years beginning after June 15, 2010. Early adoption
is permitted. The Company is currently evaluating the potential impact of this issue.
Other accounting standards that
have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(3)
CONCENTRATION OF CREDIT RISK
As at September 30, 2011 and 2010,
approximately 99% of the Company’s cash represented cash balances deposited with banks located in the PRC. According to existing
PRC laws and regulations, remittance of these cash balances out of the PRC is subject to various restrictions imposed by the PRC
government.
The Company
does not have any off-balance-sheet credit exposure as a result of its customers.
(4)
PROPERTY AND EQUIPMENT, NET
The following
is a summary of property and equipment, at cost, less accumulated depreciation:
|
|
As of September 30,
|
|
|
2011
|
|
2010
|
|
|
|
$
|
|
|
|
$
|
|
Computer software
|
|
|
1,685
|
|
|
|
1,598
|
|
Office equipment
|
|
|
21,280
|
|
|
|
20,181
|
|
Leasehold improvement
|
|
|
20,032
|
|
|
|
18,996
|
|
|
|
|
42,997
|
|
|
|
40,775
|
|
Less: accumulated depreciation and amortization
|
|
|
(18,283
|
)
|
|
|
(8,818
|
)
|
|
|
|
24,714
|
|
|
|
31,957
|
|
Depreciation and amortization expenses
for the year ended September 30, 2011 and 2010 were $8,728 and $6,604 respectively.
(5) OTHER PAYABLES
Other payables consist of the following:
As of September 30,
|
|
|
2011
|
|
2010
|
|
|
|
$
|
|
|
|
$
|
|
Other Payables (a)
|
|
|
33,162
|
|
|
|
32,554
|
|
Salaries Payable
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
33,162
|
|
|
|
32,554
|
|
(a)
As of September 30, 2011 and 2010, the balances of other payables mainly included audit fees and other office
expenses payables.
CHINA GRAND RESORTS, INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(6) RELATED PARTY TRANSACTIONS
Loan from
related parties
|
|
As of September 30,
|
|
|
2011
|
|
2010
|
|
|
|
$
|
|
|
|
$
|
|
Redrock Capital Venture Limited (a)
|
|
|
100,280
|
|
|
|
100,280
|
|
Beijing Hua Hui Hengye Investment Limited (b)
|
|
|
703,464
|
|
|
|
496,285
|
|
Total
|
|
|
803,744
|
|
|
|
596,565
|
|
|
|
|
|
|
|
|
|
|
(a)
Commencing in June 2009, we began receiving funds from Redrock Capital Venture Limited, a shareholder, for working capital purpose.
As of September 30, 2011, the amount due to Redrock is $100,280, which is due on demand and bears no interest. Redrock is a shareholder
which owns approximately 2.8% of our outstanding common stock.
(b
)
Commencing in October 2009, we began receiving funds amounting to approximately $660,000 from Hua Hui, an 84.8% shareholder, for
the working capital purpose. The amount is due on demand and bears interest at the prevailing rate charged by the PRC Central Bank.
The interest accrued for the year amounted to approximately $28,127 and the effective interest rate of the loans was 4.38%.
(7) CAPITAL STOCK
(a) Common stock
On January 4, 2009, the Company
received a notice of claims (the “Default Notice”) from certain investors (the “Investors”) with respect
to a private placement transaction dated June 4, 2007 (the “Financing Transaction”), pursuant to which the Company
issued 50,000 shares of common stock and 50,000 common stock warrants to the Investors. The Default Notice was made by the Investors
due to the Company’s failure to fulfill its registration statement obligation under the Financing Transaction. The Default
Notice demanded the issuance of 50,000 shares of the Company’s common stock as liquidated damages under the agreement. After
due consideration and reasonable deliberation, the Company agreed to issue to each of the Investors 5,000 shares of the Company’s
common stock, which represented a total of 50,000 shares. The shares of common stock were issued to the Investors in March and
April 2009. In connection with its audited financial statements for the fiscal year ended September 30, 2009, the Company decided
to restate its financial statements for the 2008 fiscal year end period and each quarter in 2009 fiscal year to reflect the issuance
of these shares as liquidated damages.
On February
1, 2009, the Company cancelled 1,000 shares returned from Her Village Limited pursuant to an Asset Transfer Agreement.
In March and April 2009, the Company issued a total
of 50,000 shares to certain investors as liquidated damages for its failure to meet its registration obligation under a financing
transaction occurring in 2007.
CHINA GRAND RESORTS, INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
(stated
in US DOLLARS)
(7) CAPITAL STOCK -CONTINUED
(a) Common stock - Continued
In May 2009, the Company issued
44,219 common shares of common stock and 7,782 warrants as consideration of the acquisition of GlobStream. At the same time, the
Company cancelled the 12,000 common stock then held by GlobStream on acquisition.
On July 9, 2009, the Company entered
into an agreement with Redrock Capital Venture Limited which cancelled outstanding loans in the amount of $223,529 in favor of
Redrock for the issuance of 92,683 shares of its common stock.
On September 8, 2009, pursuant to
the transaction with Beijing Hua Hui on August 1, 2009, the Company issued 832,318 shares of its common stock to Wise Gold Investment
Ltd., a British Virgin Island company acting on behalf of Hua Hui. In addition, on that same date, it issued 1,942,074 shares of
common stock to Blossom Grow Holdings Limited, a British Virgin Island company, as escrow agent under an escrow agreement by and
among the Company, the escrow agent, and Hua Hui.
On November 14, 2009, the Board
of Directors resolved to return and retired the 500 treasury stock held by the Company.
Effective on November 16, 2009,
we effected a 20 for 1 reverse split of our issued and outstanding common stock. This reverse stock split already gave retroactive
effect in the computation of basis and diluted EPS for all period presented accordingly.
As of September 30, 2011 and
2010, the Company had 3,272,311 and 3,272,311 shares issued and outstanding respectively.
(b) Warrants/options
On July 22,
2007, 60,000 common stock warrants were issued to Investors. Under the Warrant, the investors have the right, for a period of three
years from the date of such warrant, to purchase a total of 60,000 shares of the Company’s common stock. The per share exercise
price of the Warrant is $33. The warrants were expired on July 21, 2010.
On July 4, 2008, pursuant to the
Stock Purchase Agreement made and entered into by the Company and Her Village Limited, we issued warrants to the investor for the
option to purchase 50,000 shares of Common Stock with an exercise price of $20 per share and an expiration date of 18 months from
the date of issuance. Such warrants were expired on January 3, 2010.
On June 28, 2009, pursuant to the
Acquisition Agreement made and entered into by the Company and GlobStream, the Company issued warrants to Mr. Luo Wenjun for the
option to purchase 7,782 shares of common stock with an exercise price of $3 per share and an expiration after March 23, 2019.
These Warrants may be exercised,
in whole or in part, by the Holder during the Exercise Period by (i) the presentation and surrender of this Warrant to the Company
along with a duly executed Notice of Exercise specifying the number of Warrant Shares to be purchased, and (ii) delivery of payment
to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise.
As of September 30,
2011, the Company had 7,782 common stock warrants outstanding.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(7) CAPITAL STOCK - CONTINUED
(c) 2001 stock plan
In 2001, the Board of Directors adopted
a Stock Plan (“Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock
options to employees, consultants, officers and directors of the Company. Additionally, the Board will determine at the time of
granting the vesting provision and whether the options will be qualified as Incentive Stock Options under Section 422 of the Internal
Revenue Code (Section 422 provides certain tax advantages to the employee recipients). The Plan was approved by the shareholders
of the Company on September 15, 2001. The total number of shares of common stock available under the Plan may not exceed 100.
As of September 30, 2011, no options were granted under the Plan.
(d) Development
fund
In 2004, certain shareholders, directors,
and officers entered into an agreement to establish a fund wherein 32,500 shares of common stock would be returned by the shareholders
to the Company for cancellation and reissuance as incentives to compensate new officers, directors and other management team members
based on the management effort and performance decided by the three shareholders.
On July 28,
2005, one of the shareholders returned 500 shares to the Company, which is treated as treasury stock at the face value and the
premium as additional paid-in capital. The shares have been valued at a predecessor cost value of $0.02 per share and were held
by the Company. On November 14, 2009, the Board of Directors resolved to return and retire these 500 shares.
(8) COMMITMENTS AND CONTINGENCIES
Operating lease obligations
In December 2009, we relocated
our office to a new space in Beijing. The term of the old lease was from September 1, 2009 to July 31, 2011; however, we terminated
the old lease on December 11, 2009 as mutually agreed with the landlord and with no penalty to us. The new office lease is from
December 11, 2009 to December 10, 2011 and provides for monthly lease payment of $5,333 with two months period of free rent. In
August 2011, we renewed this lease agreement from December 11, 2011 to December 12, 2012. Our new monthly lease payment is $6,253.
Moreover, we have entered into another building lease for the office located in Beijing. The Beijing facilities lease is from July
3, 2010 to July 2, 2011 and provides for monthly lease payment of $26. As of September 30, 2011, our total future commitments for
minimum lease payments are as follows:
Years Ended September 30,
|
|
|
|
|
|
|
|
2011
|
|
$
|
17,193
|
|
2012
|
|
|
76,414
|
|
Total
|
|
$
|
93,607
|
|
Rental expenses for the year ended
September 30, 2011 and 2010 was $63,984 and $58,861 respectively.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(9) LOSS PER SHARE
The following data show the amounts
used in computing loss per share and the weighted average number of shares for the year ended September 30, 2011 and September
30, 2010. As the Company has a loss, presenting diluted net earnings (loss) per share is considered anti-dilutive and not
included in the consolidated statement of operations.
|
|
For the Years Ended
|
|
|
September 30,
|
|
|
2011
|
|
2010
|
Numerator
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
258,188
|
|
|
$
|
308,002
|
|
Loss from discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in loss per share during the years
|
|
|
3,272,311
|
|
|
|
3,272,371
|
|
Loss per share from continuing operations
- basic and diluted
|
|
|
(0.08
|
)
|
|
|
(0.09
|
)
|
Loss per share from discontinued operation
- basic and diluted
|
|
|
—
|
|
|
|
—
|
|
(10)
INCOME TAXES
The entities within the Company file
separate tax returns in the respective tax jurisdictions that they operate.
British Virgin Islands
Key Prosper Holdings Limited incorporated
in the British Virgin Islands as exempted company is not subject to any income tax in the British Virgin Islands.
Hong Kong
SNMTS is generally subject to Hong
Kong income tax on its taxable income derived from trade or businesses carried out in Hong Kong at 16.5% for the two years ended
September 30, 2011 and 2010. However, as SNMTS has not generated any revenue or income, no provision for Hong Kong income tax has
been made. As SNMTS has yet commenced operations, the expenses incurred are not deductible and no loss carry forward was thus resulted.
PRC
CFCD established in the PRC was subject
to the PRC Enterprise Income Tax (“EIT”) at 33% prior to January 1, 2008.
The PRC Enterprise Income Tax Law,
among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises registered in the
PRC. The New EIT Law provides a grandfathering on tax holidays which were granted under the then effective tax laws and regulations.
The NEW EIT Law also imposes a
withholding tax of 10% unless reduced by a tax treaty, for dividends distributed by a PRC-resident enterprise to its immediate
holding company outside the PRC for earnings accumulated beginning on January 1, 2008 and undistributed earnings generated prior
to January 1, 2008 are exempt from such withholding tax. As the PRC subsidiary is loss status, the Company has not provided for
withholding taxes of its PRC subsidiary as of September 30, 2011 and 2010.
CHINA GRAND RESORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(stated
in US DOLLARS)
(10)
INCOME TAXES – CONTINUED
According to the PRC Tax Administration
and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational or other errors
made by the taxpayer or the withholding agent. The statute of limitations extends five years under special circumstances. In the
case of transfer pricing issues, the statute of limitations is 10 years.
There is no state of limitations
in the case of tax evasions. Accordingly, the income tax returns of China Grand Resorts, Inc. for the years ended September 30,
2011 through 2010 are open to examination by the PRC state and local tax authorities.
As of September 30, 2011 and 2010,
the Company did not have any significant temporary differences and carry forwards that may result in deferred tax. The Company
has analyzed the tax positions taken or expected to be taken in its tax filing and has concluded it has no material liability related
to uncertain tax positions or unrecognized tax benefits. The Company does not anticipate any significant increases or decreases
to its liability for unrecognized tax benefits within the next 12 months.
(11) NON-MONETARY TRANSACTION
On August 1, 2009, we entered into
a subscription and asset sale agreement with Hua Hui. Under the terms of the Agreement, we received from Hua Hui the commercial
income rights to 10,000 square meters to a 17 story apartment building in the Huadun Changde International Hotel’s Apartment
Complex located in the city of Changde, Hunan Province (“Project”). The Project is currently under development by Hua
Hui. In exchange, we agreed to issue to Hua Hui 2,774,392 shares of our common stock. As additional consideration, we transferred
to Hua Hui all of our shares of the GlobStream Technology Inc., certain assets of both SNMTS and CFCD and certain assets of the
Company.
According to ASC 845-10-S99, transfers
of non-monetary assets to a company by its promoters or shareholders in exchange for stock prior to or at the time of the entity’s
initial public offering normally should be recorded at the transferors' historical cost basis determined under GAAP. In this
transaction, Hua Hui became the controlling shareholder of the Company after it transferred the commercial income rights to the
Company. Therefore, the accounting principles in ASC 845-10-S99 were followed and the Company recorded the rights at its
historical cost basis, which was internally developed and had zero basis.
According to ASC 845-10-30, the accounting
for non-monetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis
as that used in monetary transactions. Thus, the cost of a non-monetary asset acquired in exchange for another non-monetary asset
is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange. The fair value
of the asset received shall be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered.
Similarly, a non-monetary asset received in a nonreciprocal transfer shall be recorded at the fair value of the asset received.
A transfer of a non-monetary asset to a stockholder or to another entity in a nonreciprocal transfer shall be recorded at the fair
value of the asset transferred and a gain or loss shall be recognized on the disposition of the asset. We recorded the disposal
of the subsidiaries and assets at fair value. As the result of the transaction with Hua Hui, we experienced a loss on disposal
of the above mentioned assets of $1,345,688 in fiscal year 2009.
SIGNATURES
In accordance with Section 13 or 15(d) of
the Exchange Act, the registrant caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA GRAND
RESORTS, INC.
Date: December 23, 2011
|
By :/s/ Menghua Liu
|
|
Menghua Liu, Chief Executive Officer and Acting Chief Financial Officer
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: December 23, 2011
|
By : /s/ Menghua Liu
|
|
Menghua Liu, Chairman and Director
|
Date: December 23, 2011
|
By : /s/ Xiangyang Liu
|
|
Xiangyang Liu, Director
|
Date: December 23, 2011
|
By : /s/ Yanhong Deng
|
|
Yanhong Deng, Director
|
53
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