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CHINA GRAND RESORTS, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) 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 September21, 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
HongchengTengyi 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
directors. 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 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 Changde 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 $2.40per 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.
As a result of the transaction with Hua Hui, the Company's new business goal is
to become a leading specialty real estate sales company in China for tourism
area developments.
Results of Operations
As a result of our transaction with Hua Hui, the results of operations discussed
below may not be meaningful in potentially assessing future operations of the
Company.
Unless otherwise indicated, all amounts are in U.S. Dollars.
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Fiscal Year ended September 30, 2012 Compared to Fiscal Year ended September 30,
2011
Consulting Revenues and Gross Margin
Commencing in 2009, we were developing our new business strategy discussed
above. As a result, we had no revenues from operations or gross margin for the
year ended September 30, 2012 and the comparable period in 2011 due to the
general slowdown in economic activity in the PRC during such period.
Loss from Operations
During the year ended September 30, 2012, we incurred general and administrative
expenses of $214,061compared with $221,182 for the year ended September 30,
2011. The decrease in general and administrative expenses is primarily due to
reduced overhead at the corporate level. Commencing in 2009, we made an effort
to reduce our ongoing overhead expenditures, which includes personnel
reductions, due to our reduced operations. We also had $9,029 in depreciation
and amortization for the year ended September 30, 2012 compared with $8,728 for
the comparable year ended September 30, 2011, the difference is due to the
change of foreign currency exchange rate. Our loss from operations for the year
ended September 30, 2012 was $223,090 compared to $229,910 for the year ended
September 30, 2011. The difference between the periods is due to higher
depreciation and amortization expenses and the reduction of general and
administrative expenses discussed above.
Other (Expense) Income
Other expense for the year ended September 30, 2012 is $42,160, of which $42,219
is the interest expense related to the loans from Hua Hui. For the corresponding
period in year 2011, other income is $28,278, of which $28,127 is the interest
expenses related to the loans from Hua Hui.
Loss Before Income Taxes
Our loss from continuing operations was $265,250 for the year ended September
30, 2012 compared to a loss of $258,188 for the year ended September 30, 2011.
The difference is due to the reasons discussed above.
Net Loss
As a result of the foregoing, our net loss was $265,250 for the year end
September 30, 2012 compared with a loss of $258,188 for the year ended September
30, 2011.
Total Comprehensive Loss
For the year ended September 30, 2012, we had a foreign currency translation
loss of $861 compared with a loss of $28,652 for the year ended September 30,
2011. 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
$266,111 for the year ended September 30, 2012 compared with a total
comprehensive loss of $286,840 for year ended September 30, 2011.
Liquidity and Capital Resources
Recently, we have financed our operations primarily through cash generated from
a mixture of short and long-term loans from affiliates.
The following table summarizes our cash flows for the fiscal years ended
September 30, 2012 and September 30, 2011:
Fiscal Year Ended
September 30, September 30,
2012 2011
USD USD
Net cash used in operating activities (217,105) (220,921)
Net cash (used in) provided by investing activities
Net cash provided by financing activities
212,589 150,101
Effect of exchange rate fluctuations on cash (940) (1,186)
Net increase (decrease) in cash and cash equivalents (5,456) (72,006)
Cash and cash equivalents (closing balance) 911 6,367
The net cash used in operating activities for year ended September 30, 2012 was
$(217,105), compared with net cash used in operating activities of $(220,921)
for year ended September 30, 2011. The $3,816 difference is due to the reduction
of general and administrative expenses discussed above during the year ended
September 30, 2011.
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The net cash used in the investing activities for the year ended September 30,
2012 was $Nil, compared with net cash provided by investing activities of $Nil,
for year ended September 30, 2011.
The net cash provided by financing activities for the year ended September 30,
2012 was $212,589 compared with net cash provided by financing activities of
$150,101 for year ended September 30, 2011. There was a difference of $62,488
which is primarily due to the increased shareholder loans during the year ended
September 30, 2012.
The effect of the exchange rate on cash was $(940) for the year ended September
30, 2012, compared with $(1,186) for the year ended September 30, 2011. The
difference is due to the fluctuation in foreign currency exchange rate.
The difference in the closing balance of cash and cash equivalent (closing
balance) for the year ended September 30, 2012 and 2011 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 at
the second quarter of calendar year 2013. However, we nonetheless have an
immediate need for capital to conduct our new business endeavors as well as our
ongoing working capital needs. 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 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, 2012,
the amount due to Redrock is $100,281, 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 $958,271 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:
$127,752 for our executive offices expenditures, which includes $61,000 in
salaries and related costs of personnel, $46,752 in professional fees, and
$20,000 in miscellaneous office expenditures.
We expect to generate revenues from the sale of the apartment units at the
second quarter of calendar year 2013. 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 initial
term of this office lease was from December 11, 2009 to December 10, 2011 with a
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 with new monthly payment of $6,253. This lease has been expired on December
12, 2012. Currently, Hua Hui, our majority shareholder, provides an office to us
for free. However, Hua Hui may charge us in the future. We have not reach an
agreement as of the date of this filing. The lease expenses for the year ended
September 30, 2012 amounted to $75,418 and, as of September 30, 2012, the total
lease commitment for the year ended September 30, 2013 $14,856.
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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
In July 2012, the Financial Accounting Standards Board ("FASB") released
Accounting Standards Update No. 2012-02 ("ASU 2011-12"), Testing
Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities
testing long-lived intangible assets for impairment now have an option of
performing a qualitative assessment to determine whether further impairment
testing is necessary. If an entity determines, on the basis of qualitative
factors, that the fair value of the indefinite-lived intangible asset is
more-likely-than-not less than the carrying amount, the existing quantitative
impairment test is required. Otherwise, no further impairment testing is
required. This ASU is effective beginning January 1, 2013, with early adoption
permitted under certain conditions. The adoption of this standard is not
expected to have a material impact on the Company's financial position, results
of operations, and cash flows.
In December 2011, the Financial Accounting Standards Board ("FASB") released
Accounting Standards Update No. 2011-12 ("ASU 2011-12"), Comprehensive Income
(Topic 220): Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes
in ASU 2011-05 that relate to the presentation of reclassification adjustments
out of accumulated other comprehensive income. The provisions of ASU 2011-12
became effective in fiscal years beginning after December 15, 2011. The adoption
of ASU 2011-12 did not materially impact on the Company's financial position,
results of operations, and cash flows.
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 2009 and 2011due to net loss occurred.
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