Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-32574
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GOLDEN GATE HOMES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0745202
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
14 Wall Street, 20th Floor, New York, New York 10005
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 385-0955
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock,par value $.0001 per share
----------------------------------------
(Title of Class)
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 Exchange 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 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 in 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 [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act) Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently computed second
fiscal quarter: $203,833.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,837,136 shares of common
stock, par value $0.0001 per share, as of April 8, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I.
ITEM 1. BUSINESS
OVERVIEW.
EARLY COMPANY HISTORY
The Company has historically been a blank check company. It was formed in
2005 under the name "JK Acquisition Company" (which was subsequently changed to
"JK Acquisition Corp."), to serve as a vehicle for the acquisition, through a
merger, capital stock exchange, asset acquisition or other similar business
combination with a then unidentified operating business. On April 11, 2006, the
Company completed its initial public offering (the "IPO") of equity securities,
raising net proceeds of $76,632,404. On September 6, 2006, the Company,
Multi-Shot, LLC ("Multi-Shot") and various other parties entered into the
Agreement and Plan of Merger ("Merger Agreement") and related agreements. Over
the course of this transaction, the parties twice amended the terms of the
Merger Agreement and twice extended the transaction. On January 31, 2008, the
Company announced that the special meeting of its stockholders to vote on the
proposed merger with Multi-Shot had been cancelled. The Company determined and
informed Multi-Shot that the proposed merger would not receive the votes of its
stockholders required for approval. The Merger Agreement expired on January 31,
2008, and the proposed merger with Multi-Shot was abandoned. As a result, the
Company's Board of Directors determined it would be in the best interests of the
stockholders to distribute to stockholders holding shares of Common Stock issued
in the IPO all amounts held in a trust fund (net of applicable taxes)
established by the Company at the consummation of the IPO into which a certain
amount of the net proceeds from the IPO had been deposited.
Because the Company did not consummate a qualifying business combination,
the Company's Board of Directors contemplated alternatives for preserving value
for stockholders. Ultimately, the Board of Director proposed to amend the
Company's certificate of incorporation to permit the continuance of the Company
as a corporation beyond the time currently specified in the Company's
certificate of incorporation. The Company's stockholders approved this
amendment to the Company's certificate of incorporation. After such approval,
the Board of Director began seeking a company or companies that the Company
could acquire or with which it could merge.
CHANGE IN CONTROL
Before any acquisition or merger of the type described in the preceding
paragraph occurred, a change in control of the Company occurred on December 31,
2009 when GGH, Inc. (formerly Golden Gate Homes, Inc.), a privately held
Delaware corporation ("GGH"), acquired from James P. Wilson and Keith D.
Spickelmier 1,935,382 and 1,584,923 shares of the Company's common stock,
respectively, theretofore owned by them separately, for an aggregate of
3,520,305 shares of common stock, representing approximately 96.5% of the
outstanding shares of the Company's common stock and the controlling interest in
the Company. The purchase prices paid for these shares were $171,875 to Mr.
Wilson and $140,625 to Mr. Spickelmier. Steven Gidumal and Brandon Birtcher
each own one-third of GGH, and two trusts of which Tim Wilkens is the trustee,
The Wilkens 2000 Trust and The Wilkens 2003 Trust (the "Wilkens Trusts"), own
the remaining one-third of GGH. Biographical information about Messrs. Gidumal
and Wilkens is set forth in "ITEM 10. DIRECTORS, OFFICERS AND CORPORATE
GOVERNANCE" below. GGH purchased the shares to pursue a business plan through
the Company. For more information about this business plan, see "The Company's
Business" below.
In connection with the transaction described in the preceding paragraph,
James P. Wilson resigned from the Company's Board of Directors on December 31,
2009, and Steven Gidumal was elected to the Board to fill the newly created
vacancy, to serve along with Keith D. Spickelmier, who subsequently resigned as
a director on March 17, 2010, and was replaced by Tim Wilkens. In addition, all
of the Company's then serving officers resigned, and the Company elected a new
slate of officers. For information about these directors and officers, see
"ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE" below.
Furthermore, the Company changed its corporate name to "Golden Gate Homes, Inc."
and effected a 1-for 35 reverse split of the Company's common stock to improve
the Company's capital structure. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CHANGES IN FINANCIAL
CONDITION-Liquidity and Capital Resources".
THE COMPANY'S BUSINESS
GENERAL
As a result of the change in control of the Company, the Company adopted a
significant change in its corporate direction. The Company's focus is on
marketing high-quality, distressed residential properties in exclusive US
markets (with an initial focus on California) to international buyers (primarily
from China and other parts of Asia) through exclusive selling agreements or
consignment arrangements. In the event that the Company is successful in
completing a major capital raising transaction, it will also consider purchasing
similar assets for resale to the same target market.
INDUSTRY BACKGROUND
The Company's management believes that the recession in the United States
economy that began in December 2007 and ended in June 2009 created opportunities
in the current real estate market. CNNMoney.com has reported that this
recession, which is frequently referred to as "the Great Recession," is
generally regarded as "the worst economic downturn since the Great Depression."
Due to the current housing market and the more restrictive lending
conditions in the country, the demand for real estate is, and therefore the
prices real estate command are, currently low relative to recent levels. This is
reflective in the higher capitalization rates (indicating lower prices) that
real estate buyers are asking and real estate sellers are willing to accept for
the sale of their properties. The lower prices, in conjunction with the
continuing low interest rates available in the market, makes this an attractive
period to market U.S. real estate to foreign buyers, either through exclusive
sales agreements or consignment transactions, or if financing can also be
obtained, through acquisition and resale of properties.
With the gradual resurgence of the United States economy and easing of
capital restraints, the Company believes that properties acquired during this
period should experience a natural appreciation in value as demand improves.
The Company feels that the forward looking U.S. stock market and upward price
movements in some areas of the country indicate the real estate market may have
bottomed and a gradual climb into a stronger market cycle may be expected,
although there can be no assurance of this.
The Company's management believes that real estate developers, as well as
banks and lending institutions, are now reluctant owners and forced sellers of
properties. Banks are facing situations where state and local approvals have
expired, documentation for projects are lost or non-existent, and permits have
expired or need to be secured. According to a March 9, 2011 report by Freddie
Mac's HomeSteps real estate sales unit, the inventory of foreclosed REO ("real
estate owned" by banks) town homes and condominiums in California (the Company's
primary target areas) numbers approximately 72,090 properties, a significant
increase from 29,346 properties in 2008.
STRATEGY
The Company's strategy is to distinguish itself and create a unique value
proposition. Key components of the Company's strategy include:
* Use the background of the Company's management in real estate and
distressed situations to grow the Company's business rapidly.
* Take advantage of the significant downturn in the residential
property markets in selected areas of the United States to capture
large discounts on properties to provide a strong value
proposition to its overseas buyers. In situations where the Company
seeks to control or acquire properties for resale, it strives to do
so at significant discounts to appraised value. Where projects or
specific properties have stalled or become unsellable for various
reasons related to the lack or expiration of governmental approvals,
lack of adequate documentation, the bankruptcy of the developer
or cross-collateralization problems, or other similar issues, the
Company's management has ample background to resolve such complex
situations and add value for the benefit of all parties involved.
* Use a rigid selection and, where applicable, acquisition
criteria regarding properties to be marketed.
* Leverage a proprietary property database to facilitate finding
properties to market, which includes many properties that are
not up for public sale.
* Establish a growing list of sellers who want to access the
Company's overseas distribution network, to facilitate their
domestic sales process.
* Use a sales and marketing distribution network within China for
properties marketed and sold through the Company's marketing partner,
Premier Capital, Ltd. ("Premier Capital"), a real estate brokerage
firm based in Hong Kong that is one of the largest sellers of
international properties in China. This approach attracts new buyers
(particularly land-ownership desirous Chinese citizens) for United
States properties to compensate in part for the lack of buyers
currently in the market for these properties.
* Provide property management expertise to support an expanding number
of units sold or owned over time.
* Provide one-stop acquisition and management services to Chinese and
other international buyers, including facilitating their access to US
-Chinese lenders.
Property Selection
------------------
The Company's management makes all decisions in identifying and selecting
prospective target properties. The Company uses a rigorous selection process to
bring value to its buyer-clients. In searching for and evaluating prospective
target properties, the Company uses the following practices:
* A focus on residential properties, which in many instances may be
suitable to being rented by their overseas owners to third-
parties;
* Identification of foreclosed and REO properties by working directly
with banks and leading brokers;
* A focus on well-built, new or redeveloped construction near or in
major cities;
* Monitoring of market forecasts to determine which real estate
markets will recover/appreciate sooner while still appealing to
the Company's overseas clients;
* Evaluation of macro factors such as comparable sales, rental
demand, interest rates, location, occupancy, county and regional
population and job growth factors;
* Pre-approval of properties (where possible) by property
lenders so approvals of financing for buyers move more
quickly;
* Confirmation of projects' marketability with Premier Capital;
and
* Use of the Company's ability to close quickly, when appropriate, to
secure the lowest consignment or acquisition price, as the
case may be.
The Company has established general attributes and criteria for prospective
target properties. In evaluating a prospective target property, the Company's
management considers, among other factors, the following:
* The location, quality and perceived desirability and price/value
of the project;
* Management's understanding of re-sale and other conditions of
the particular location and market;
* Management's assessment of the attractiveness of the timing of the
consignment or acquisition;
* Management's assessment of the financial attractiveness of a
particular target relative to other available targets, and its
potential for upside appreciation and return on investment;
* For potential acquisition targets, capital requirements and
management's assessment of the ability to finance a particular
target;
* Macro-economic trends;
* Environmental risks;
* Physical condition of the target;
* Management's assessment of the ability to manage a particular target
and, for potential acquisitions, its ability to redevelop and
improve the target; and
* The overall profit expectation and the return on capital
expectation of the project or target.
When considering commercial properties in the future, the Company's management
will also consider the following:
* Occupancy in the target vs. surrounding market;
* Building design obsolescence;
* Job growth forecasts;
* Tenant profile; and
* Lease rollover and potential for rent appreciation.
These criteria are not intended to be exhaustive. Any evaluation relating
to the merits of a particular property will be based, to the extent relevant, on
the above factors as well as other considerations believed relevant by the
Company's management in effecting a consignment transaction or acquisition
consistent with the Company's business objective. In evaluating a prospective
target, the Company conducts an extensive due diligence review that encompasses,
among other things, physical inspection of the property or assets, a review of
environmental, zoning, permitted use and title issues, and a review of all
relevant financial and other information that is made available to the Company.
This due diligence review is conducted either by the Company's management or by
unaffiliated third parties the Company may engage.
To the extent the Company acquires financially poor assets or properties,
the Company may be affected by numerous risks inherent in the business and
operations of such properties or assets. Although the Company's management will
endeavor to evaluate the risks inherent in a particular property acquisition,
the Company can make no assurances that it will properly ascertain or assess all
significant risk factors.
MARKETING
As a communist (i.e., "communal") country, all land in China is property of
the State. Home residents lease their homes under land leases, but no Chinese
citizen ''owns'' the land under his or her home. Among the expanding
upper-middle and wealthy classes in China, overseas home ownership had been
unattainable under prior Chinese law, but that has changed in recent years. The
government is now allowing its citizens to invest overseas, including purchasing
overseas residential properties. Executives of more than 100,000 state-owned
enterprises are being encouraged to travel internationally to invest their
capital. Previously, travel visas were unattainable. Despite the changes in
Chinese law to encourage overseas investment, to the best of management's
knowledge, no other supplier of U.S. residential properties has stepped in to
fill this need. The Company introduces Chinese buyers to U.S. residential
properties where they currently have no access. The Company provides "one-stop"
shopping to the "retail" buyer that wants to own one or more California
properties. The Company, as an assistance to its overseas buyers: (i) performs
the property due diligence, (ii) assists in arranging the bank financing, (iii)
manages, through independent third parties, the buyer's property (finds tenants,
collects rents, pays bills from owner account, etc.), and (iv) sends quarterly
statements to the property buyer/owner.
The Company markets properties to residents of five leading Asian cities:
Hong Kong, Shanghai, Beijing, Guangzhou and Shenzhen, which have a total
population of almost 60 million people. The table below sets forth the
respective populations of these five cities.
POPULATIONS OF THE FIVE LEADING CITIES OF CHINA
City Population
---- ----------
Shanghai 18,900,000
Beijing 17,400,000
Shenzhen 8,600,000
Guangzhou 7,700,000
Hong Kong 7,000,000
The table set forth after this paragraph reflects the comparable
affordability of a California home to a Chinese citizen. The column "Yuan Index
to Buy Home" compares the purchase price that a Chinese national would have been
required to pay in 2005, the base year, for the average California home (based
on the then average price of such home and the then dollar/yuan exchange rate)
compared to what the Chinese citizen would have been required to pay in each of
the years listed in the table on a 100-point scale. The table reveals that by
2010, Chinese citizens would have been required to pay only 39.3% of the price
they would have been required to spend in order to buy the average California
home in 2005. Management believes that this development greatly increases the
attractiveness of California properties to Chinese citizens.
Affordability of California Home in Chinese Yuan
Year Avg. CA Yuan / Avg. CA Yuan Index to
Home Price($)(3) 1US$(2) Home Price(Yuan) Buy Home
---- ------------- ---- ---------------- --------
2010* $252,000 6.75 1,701,000 39.3
2009 $248,000 6.83 1,693,840 39.1
2008 $346,400 6.85 2,372,840 54.8
2007 $560,300 7.62 4,269,486 98.6
2006 $556,400 7.99 4,445,636 102.7
2005 $522,700 8.28 4,327,956 100.0
2004 $450,800 8.28 3,732,624 86.2
* Forecast from the California Realtors website
Index uses 2005 as the base year = 100. Note 2005 was the last year before
the Yuan began to float.
Exchange rate as of June of each year, per Bloomberg.
Avg. CA Home Price from "California Realtors"' website
STRATEGIC PARTNER AND EXCLUSIVE MARKETING AGREEMENT
The Company has entered into an exclusive marketing agreement with Premier
Capital, which management believes is critical to the Company's success.
Premier Capital was founded in Hong Kong in 1988 and expanded into China in
1997. It has Chinese offices in Hong Kong, Beijing, Shanghai, Guangzhou and
Shenzhen, the five Asian cities in which the Company markets properties.
Premier Capital also has offices in Australia, Singapore and New Zealand.
Under the exclusive marketing agreement, the Company appointed Premier
Capital as the Company's exclusive agent for purposes of marketing properties
optioned or purchased by the Company and approved by Premier Capital ("Approved
Properties") in Hong Kong and mainland China. Premier Capital has agreed not to
list, market or sell any properties in California, Nevada, Arizona or Washington
without the Company's approval. The Company pays the bulk of the expenses
arising in connection with the marketing of Approved Properties in Hong Kong and
China, although Premier Capital bears some of these expenses as well. For its
services, Premier Capital is paid a customary brokerage fee for Approved
Properties sold in Hong Kong and China. The agreement is for a four-year term
ending in the middle of October 2014 and will renew for additional one-year
terms so long as the Company provides at least 100 Approved Properties per year
pursuant to the agreement. The agreement is the result of a 20-year personal
relationship between Tim Wilkens, the Company's Chief Executive Officer, and
Philip Leung, the owner of Premier Capital. Management believes that, so long
as the Company performs satisfactorily under the agreement, the agreement will
be renewed. However, if the agreement were to terminate for any reason, the
Company would be forced to find an alternative third party to market the
Company's properties in China and other parts of Asia. The Company has no
assurance that it would be able to find such an alternative third party, in
which case the Company's business, prospects, financial condition and results of
operations would most likely be materially and adversely affected.
OPERATIONS
GENERAL
-------
The Company primarily markets high-quality, distressed residential
properties in exclusive US markets (with an initial focus on California) to
international buyers (primarily from China and other parts of Asia) through
exclusive selling agreements or consignment arrangements. In the event that the
Company is successful in completing a capital raising transaction, it will also
consider purchasing similar assets for resale to the same target market.
INITIAL ACTIVITIES
-------------------
The Company commenced its initial plan of operation in the spring of 2010.
In April 2010, the Company entered into two option agreements with a real estate
developer of two housing developments in Northern California, which provided the
Company the exclusive rights to sell an aggregate of 20 homes. In June 2010,
the Company entered into an option agreement with a real estate developer of a
condominium project in downtown Los Angeles, California, which provided the
Company the exclusive rights to sell 25 condominium units. The Company
continues to retain under contract the exclusive right to sell a total of 21
units in the three projects, adjusted for closings and cancellations. The
Company marketed these properties to Chinese buyers in the five cities listed in
the table above in two separate trips to China, during which executives of the
Company issued press releases, were interviewed by leading Chinese news
agencies, and held exhibitions with Premier Capital to present detailed
information regarding the consigned properties directly to prospective
purchasers. To date, the Company has entered into 25 sales contracts with
purchasers and has received a like number of deposits, but had only closed 3
sales by the end of the first quarter of fiscal 2011. The delays in closing
these contracts are due to the delays in arranging financing. See "ITEM 7.
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CHANGES IN FINANCIAL CONDITION-Liquidity and Capital Resources".
The Company's business objectives are to establish a meaningful number of
sales of residential properties to international buyers (primarily from China
and other parts of Asia) by obtaining exclusive rights to sell specific U.S.
properties (with an initial focus on California). These selling rights may come
in the form of exclusive selling agreements or consignment agreements. The use
of each of these various selling strategies will depend on the willingness of
sellers to engage with the Company on the exclusive sale of properties, the
Company's ability to complete such sales to its international buyer client base,
and the access and availability of capital to the Company. Management believes
that an adequate number of properties are available to be marketed overseas,
such that this will not be a limiting factor. However, at the present time, the
Company does not have any new properties under contract to market, as the
Company's focus in the last several months has been to assist buyers in
obtaining financing to allow them to close the sales of the properties that are
currently under sales contracts. See "ITEM 1A. RISK FACTORS -- WE MAY NOT BE
ABLE TO ARRANGE FINANCING FOR OUR OVERSEAS BUYERS."
EMPLOYEES.
The Company currently has three part-time employees.
ITEM 1A. RISK FACTORS.
Statements in this Annual Report under the captions "BUSINESS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", as well as oral statements that may be made by us or by our
officers, directors or employees acting on our behalf, that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause our actual results to be materially different from the historical results
or from any results expressed or implied by such forward-looking statements.
Such factors include, but are not limited to, the risk factors set forth below.
We do not intend to update any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
OUR EXTREMELY LIMITED HISTORY MAKES AN EVALUATION OF US AND OUR FUTURE EXTREMELY
DIFFICULT, AND PROFITS ARE NOT ASSURED.
The Company has historically been a blank check company. It was formed in
2005 to serve as a vehicle for the acquisition, through a merger, capital stock
exchange, asset acquisition or other similar business combination with a then
unidentified operating business. As described in "ITEM 1. BUSINESS--OVERVIEW--
Early Company History", on September 6, 2006, the Company, Multi-Shot and
various other parties entered into the Merger Agreement and related agreements.
Over the course of this transaction, the parties twice amended the terms of the
Merger Agreement and twice extended the transaction. On January 31, 2008, the
Company announced that the special meeting of its stockholders to vote on the
proposed merger with Multi-Shot had been cancelled because the Company
determined that the proposed merger would not receive the votes of its
stockholders required for approval. The Merger Agreement expired on January 31,
2008, and the proposed merger with Multi-Shot was abandoned.
Because the Company did not consummate a qualifying business combination,
the Company's Board of Directors contemplated alternatives for preserving value
for stockholders. Before any such action was taken, a change of control of the
Company occurred on December 31, 2009 when GGH acquired from the Company's two
largest stockholders shares of the Company's common stock representing
approximately 96.5% of the outstanding shares of the common stock. GGH
purchased the shares to pursue the Company's business plan to sell residential
real estate in the United States (initially primarily in California) to
international home buyers (residing initially in China). See "ITEM 1.
BUSINESS--OVERVIEW-- Change in Control". This past year, we entered into three
option agreements to acquire residential properties for sale through our
distribution partner in China, and closed the sale of two residential
properties. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- RESULTS OF OPERATIONS." Additionally, we
have closed the sale of another one residential property during the first
quarter of fiscal 2011, and there are an additional 8 sales that are expected to
close in the next 45 days. However, to date, we have established a very limited
track record of selling United States properties internationally. In view of
our extremely limited operating history, you may have difficulty in evaluating
us and our business and prospects. You must consider our business and prospects
in light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development.
WE HAVE CERTAIN CAPITAL NEEDS, AND THE PROCUREMENT OF FINANCING TO MEET THESE
NEEDS IS UNCERTAIN.
We currently have not generated much revenue. Moreover, the Company's cash
position as of December 31, 2010 is $1,913. The Company has outstanding
payables and other current liabilities of $161,811 as of December 31, 2010.
Because of the Company's current cash position versus its outstanding payables
and accruals, there is substantial doubt about the Company's ability to continue
as a going concern. During the first quarter of fiscal 2011, the Company has
closed an additional one sale, and has increased its available cash to
approximately $6,000, and decreased its outstanding payables by approximately
$60,000, of which approximately $31,000 was through issuances of the Company's
common stock. The future of the Company is dependent upon the Company's ability
to consummate sales of properties, the development of new business opportunities
and our ability to raise new capital. We have reduced our monthly expenses by
shrinking our work force, ending our payment for office rent and eliminating
duplicative expenses. We plan to finance our operations for the next 12 months
through cash flow from property sales, private placements of debt and equity,
possible bank borrowings and possible joint venture arrangements. In addition,
we are currently looking for a source of bank financing to provide financing for
our international clients to allow them to complete their residential property
acquisitions. However, there can be no assurance that we will find such a
mortgage lending source. See "RISK FACTORS -- WE MAY NOT BE ABLE TO ARRANGE
FINANCING FOR OUR OVERSEAS BUYERS" below. If our revenues do not materialize
for whatever reason, we may have limited ability to expend the capital necessary
to undertake or complete consignment or acquisition programs, and may be forced
to cease operations.
OUR OFFICERS AND DIRECTORS WILL ALLOCATE THEIR TIME TO OTHER BUSINESSES,
THEREBY CAUSING CONFLICTS OF INTEREST IN THEIR DETERMINATION AS TO HOW MUCH TIME
TO DEVOTE TO OUR AFFAIRS, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR ABILITY TO
GROW OUR BUSINESS.
Our officers and directors 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. This could have a negative effect
on our ability to grow our business. We do not currently have any full-time
employees. 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, although we expect Messrs. Gidumal and Wilkens to devote
substantial time to our business during the process of conducting due diligence
and marketing properties for developments for which we have signed option or
consignment agreements. If our executive officers' or directors' other business
affairs require them to devote more substantial amounts of time to such affairs,
it could limit their ability to devote time to our affairs and could have a
negative impact on our ability to grow our business. We cannot assure you that
these conflicts will be resolved in our favor.
WE MAY NOT BE ABLE TO ARRANGE FINANCING FOR OUR OVERSEAS BUYERS.
We market our homes to buyers who expect the Company to assist them in
securing a mortgage for their purchase. Our buyers typically put between 30%
and 48% of the purchase price down in cash, a high percentage relative to
current and historical averages in the U.S., which we believe makes these buyers
attractive to mortgage lenders. However, we do not yet have a program in place
with a lending partner that assures a steady supply of mortgage capital for our
buyers. Therefore, our buyers may meet with delays in securing mortgages as
information requirements vary from lender to lender, which may result in an
increase in costs and fees to both the buyer and the Company, and which may also
ultimately result in a loss of sales for the Company. We believe we can secure
such a relationship with a lending partner, but there is no assurance that we
will be able to do so.
WE DEPEND ON CERTAIN KEY PERSONNEL.
We substantially depend upon the efforts and skills of Steven Gidumal, a
director and the Chairman and Chief Financial Officer of the Company, and Tim
Wilkens, a director and the Chief Executive Officer of the Company. The loss of
Mr. Gidumal's or Mr. Wilkens' services, or their inability to devote sufficient
attention to our operations, could materially and adversely affect our
operations. We currently do not maintain key man life insurance on Mr. Gidumal
or Mr. Wilkens.
OUR CURRENT MANAGEMENT RESOURCES MAY NOT BE SUFFICIENT FOR THE FUTURE, AND
WE HAVE NO ASSURANCE THAT WE CAN ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
There can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform. Our success in attracting additional qualified personnel
will depend on many factors, including our ability to provide them with
competitive compensation arrangements, equity participation and other benefits.
There is no assurance that (if we need to) we will be successful in attracting
highly qualified individuals in key management positions.
LIMITATIONS ON CLAIMS AGAINST OUR OFFICERS AND DIRECTORS, AND OUR
OBLIGATION TO INDEMNIFY THEM, COULD PREVENT OUR RECOVERY FOR LOSSES CAUSED BY
THEM.
The corporation law of Delaware allows a Delaware corporation to limit the
liability of its directors to the corporation and its stockholders to a certain
extent, and our Third Amended and Restated Certificate of Incorporation has
eliminated our directors' liability to the maximum extent permitted by the
corporation law of Delaware. Moreover, our Bylaws provide that we must
indemnify each director, officer, agent and/or employee to the maximum extent
provided for by the corporation law of Delaware. Further, we may purchase and
maintain insurance on behalf of any such persons whether or not we have the
power to indemnify such person against the liability insured against.
Consequently, because of the actions or omissions of officers, directors, agents
and employees, we could incur substantial losses and be prevented from
recovering such losses from such persons. Further, the Commission maintains
that indemnification for liabilities arising under the Securities Act is against
the public policy expressed in the Securities Act, and is therefore
unenforceable.
MANAGEMENT OWNS A CONTROLLING PERCENTAGE OF OUR OUTSTANDING STOCK,
AND CUMULATIVE VOTING IS NOT AVAILABLE TO STOCKHOLDERS.
Our current management, Steven Gidumal and Tim Wilkens (through two family
trusts he controls), together with a third party, currently own (directly or
indirectly) approximately 91.7% of our outstanding common stock (considered on
an undiluted basis) through their ownership of all of the shares of common stock
of GGH. Although Section 214 of the Delaware General Corporation Law allows for
cumulative voting if a corporation's certificate of incorporation specifically
provides for it, the Company's Third Amended and Restated Certificate of
Incorporation has no provision for cumulative voting. Accordingly, the holder
or holders of a majority of our outstanding shares of common stock may elect all
of our directors. Management's large percentage ownership of our outstanding
common stock helps enable them to maintain their positions as such and thus
control of our business and affairs.
REAL ESTATE PRICES CAN BE VOLATILE, WHICH MAY AFFECT OUR ABILITY TO ATTRACT
BUYERS AT THE PRICES WE NEED TO MAKE A PROFIT.
Our revenues, profitability and future growth and the carrying value of our
properties will depend substantially on the prices we realize for the sale of
our consigned and owned units. Our realized prices will also affect the amount
of cash flow available for subsequent acquisitions and our ability to borrow and
raise additional capital. Residential homes are currently in surplus supply and
their prices are subject to fluctuation in response to changes in supply and
demand. Historically, the markets for California residential real estate have
shown consistent growth although the State went through a period of price
deflation in the 1993 - 1995 timeframe, and the California market is likely to
continue to be volatile for the immediate future. Despite the historically low
current prices for California residential properties, there can be no assurance
that even lower prices will not be experienced in the future. Residential real
estate price movements cannot be predicted with certainty. A substantial or
extended decline in California residential home prices may materially and
adversely affect our future business, financial condition, results of
operations, liquidity and ability to finance property acquisitions.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO SELECT RESIDENTIAL
PROJECTS THAT ULTIMATELY PROVE SUCCESSFUL ECONOMICALLY.
The economic success of any project will depend on a number of factors,
including our ability to discern and estimate the quantity of residential
projects we can sell at a price sufficient to make a profit after corporate
overhead and any financing carrying costs. All of these factors affect whether
or not a project will ultimately generate cash flows sufficient to provide a
suitable return on investment. Our assessments and estimations of these factors
(which are inherently inexact and uncertain) may prove inaccurate. Although we
have criterion for selecting the residential projects that we will decide to
pursue, we might stray from it. Accordingly, we will have significant
flexibility in selecting such projects. There can be no assurance that we will
be able to identify economically successful residential projects or that we will
be able to pursue these projects successfully even if identified. Our failure
to select economically successful residential projects will materially and
adversely affect our business, results of operations and financial condition.
We will be constantly challenged to add new projects through further
consignments or further acquisitions of new properties. There can be no
assurance that our acquisition efforts will be successful in adding new
profitable projects. If we fail to identify new projects, our future revenues,
profitability and cash flows will be adversely impacted.
WE ARE CURRENTLY FOCUSING OUR PROPERTY CONSIGNMENT AND ACQUISITION EFFORTS
IN ONLY ONE GEOGRAPHICAL AREA, AND OUR CURRENT LACK OF GREATER DIVERSIFICATION
ENTAILS RISK.
Currently, all of our potential consignment and acquisition contracts are
in the State of California, although we may in the future explore properties in
Nevada, Washington, Arizona and Florida. To our foreign clients, California is
generally considered a desirable, travel-accessible destination. At the
present, our success depends entirely upon our ability to locate and secure
properties on a profitable basis in California. There can be no assurance that
we will be able to do this, and that we will not encounter one or more problems
arising from the particular legal, economic, environmental and market conditions
of California. Our current lack of diversification beyond California may make
our results of operations more volatile than they would be if we were seeking to
sell residential properties in more than one area.
OUR INABILITY TO PROCURE ADEQUATE INSURANCE COVERAGE FOR CERTAIN OCCURANCES
COULD ADVERSELY AFFECT OUR BUSINESS.
Presently, as we close on projects under contract, we may elect to purchase
insurance coverage. However, we may choose not to obtain insurance for some
risks if we believe the cost of available insurance is excessive relative to the
risks presented. In addition, some risks may either not be fully insurable or
not insurable at all. Even if we broaden our insurance coverage, our insurance
would probably not cover all potential claims or may not adequately indemnify us
for all liability to which we will be exposed. Any liability or legal defense
expenses not covered by insurance or exceeding our insurance coverage could
materially and adversely affect our business, operating results and financial
condition. Moreover, we do not currently carry business interruption insurance.
WE RELY ON A NUMBER OF THIRD PARTIES, AND SUCH RELIANCE EXPOSES US TO A
NUMBER OF RISKS.
Our operations depend on a number of third parties. We have limited
control over these third parties. We rely on Premier Capital, an international
seller of real estate properties that was founded in 1988 and expanded into
China in 1997. We believe that Premier Capital is one of the leading sellers of
international properties to Chinese citizens. We rely upon Premier Capital's
ability to bring potential buyers to presentations of the Company's real estate
in the five leading cities of China and to follow up on all leads with
prospective Chinese buyers. The Company has an exclusive agreement with Premier
Capital through the middle of October 2014, which limits Premier Capital to sell
exclusively the Company's properties located in California, Nevada, Arizona and
Washington within China, and the agreement automatically renews for one-year
terms upon the satisfaction of certain conditions. See "ITEM 1. BUSINESS -
OVERVIEW-- The Company's Business - Strategic Partner and Exclusive Marketing
Agreement". We also rely upon the services of California-based and
international banks to provide mortgage financing to our international buyers.
In addition, we rely upon our acquisition team to identify promising
consignment, auction and acquisition properties suitable for our international
clientele. Overall, our inability to maintain satisfactory relationships with
the requisite third parties on acceptable commercial terms, or the failure of
such third parties to maintain the quality of services they provide at a
satisfactory standard, could materially adversely affect our business, results
of operations and financial condition.
THE UNAVAILABILITY OR HIGH COST OF CONSIGNMENT PROPERTIES COULD MATERIALLY
ADVERSELY AFFECT US.
Either shortages or increases in the cost of consignment properties could
delay or adversely affect our operations, which could materially adversely
affect our business, financial condition and results of operations. These costs
may increase further, and necessary consignment properties may not be available
to us at economical prices.
WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL
REGULATIONS, WHICH CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY OF DOING
BUSINESS.
Acquiring, completing, renovating and selling residential properties are
subject to extensive laws and regulations, including environmental laws and
regulations. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Under these laws and
regulations, we could be liable for personal injuries, property damage,
remediation and clean-up costs and other environmental damages. Failure to
comply with these laws and regulations also may result in the suspension or
termination of our operations and subject us to administrative, civil and
criminal penalties. Moreover, these laws and regulations could change in ways
that substantially increase our costs. Accordingly, any of these liabilities,
penalties, suspensions, terminations or regulatory changes could materially
adversely affect our financial condition and results of operations.
CHANGES IN FOREGN CURRENCY EXCHANGE RATES AND INTEREST RATES COULD
ADVERSELY AFFECT OUR BUSINESS.
As a company that focuses on marketing real estate located in the United
States to foreign buyers, we are exposed to certain market risks, specifically
with regard to foreign currency exchange risks (and initially in particular the
dollar/yuan exchange rate) and interest rates. While we monitor these
exposures, we currently have no plan to manage these risks through hedging or
other derivatives transactions. As a result, unfavorable changes in foreign
currency exchange rates and interest rates could affect the affordability of our
properties to prospective foreign buyers, which could have a substantial adverse
effect on our financial condition and results of operations.
OUR COMPETITORS MAY HAVE GREATER RESOURCES, WHICH COULD ENABLE THEM TO PAY
A HIGHER PRICE FOR PROPERTIES AND TO BETTER WITHSTAND PERIODS OF LOW MARKET
PRICES FOR RESIDENTIAL PROPERTIES.
The residential real estate industry is intensely competitive, and we
compete with other companies that have substantially larger financial resources,
operations, staffs and facilities. Many of these companies not only develop,
purchase and sell residential properties but also carry on construction
operations and market properties on a regional or national basis. Such companies
may be able to pay more for residential properties or develop, evaluate, bid for
and purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, such companies may have a greater ability
to continue acquisition activities during periods of low home market prices. Our
ability to enter into consignment transactions to market additional properties
and to sell them profitability in the future will be dependent upon our ability
to evaluate and select suitable properties and to consummate transactions in a
highly competitive environment.
OUR AUTHORIZED PREFERRED STOCK EXPOSES HOLDERS OF OUR COMMON STOCK TO
CERTAIN RISKS.
Our Third Amended and Restated Certificate of Incorporation authorizes the
issuance of up to 1,000,000 shares of preferred stock, par value $0.0001 per
share. The authorized but unissued preferred stock constitutes what is commonly
referred to as "blank check" preferred stock. This type of preferred stock may
be issued by the Board of Directors from time to time on any number of
occasions, without stockholder approval, as one or more separate series of
shares comprised of any number of the authorized but unissued shares of
preferred stock, designated by resolution of the Board of Directors stating the
name and number of shares of each series and setting forth separately for such
series the relative rights, privileges and preferences thereof, including, if
any, the: (i) rate of dividends payable thereon; (ii) price, terms and
conditions of redemption; (iii) voluntary and involuntary liquidation
preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v)
terms of conversion to common stock, including conversion price, and (vi) voting
rights. Such preferred stock may provide our Board of Directors the ability to
hinder or discourage any attempt to gain control of us by a merger, tender offer
at a control premium price, proxy contest or otherwise. Consequently, the
preferred stock could entrench our management. Currently, no shares of
preferred stock had been issued, nor is there any intention to issue preferred
shares at this time.
OUR COMMON STOCK HAS EXPERIENCED ONLY LIMITED TRADING.
Our Common Stock is quoted and traded in limited quantities on the OTC
Electronic Bulletin Board in the United States under the symbol "GNGT.OB".
Until shares of our common stock become more broadly held and orderly markets
develop and even thereafter, the prices of our common stock may fluctuate
significantly.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We have received no written comments regarding our periodic or current
reports from the staff of the Securities Exchanged Commission that were issued
180 days or more preceding the end of our 2007 fiscal year and that remain
unresolved.
ITEM 2. PROPERTIES.
We maintain our executive offices at 14 Wall Street, 20th Floor, New York,
New York 10005. Our mailing address is Golden Gate Homes, Inc., P.O. Box 2490,
Napa, California 94510.
ITEM 3. LEGAL PROCEEDINGS.
To the knowledge of management, there is no litigation or administrative
proceeding currently pending or contemplated against us or any of our officers
or directors in their capacity as such.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The shares of the Company's common stock are currently quoted on the Over
the Counter Bulletin Board under the symbol GNGT.OB. Until April 12, 2010, the
Company's warrants and units were quoted on the Over the Counter Bulletin Board
under the symbols GNGTW.OB and GNGTU.OB, respectively. Each unit of the Company
consisted of one share of Company common stock and two redeemable common stock
purchase warrants. The Company warrants became separable from the Company common
stock on May 11, 2006. The warrants entitled holders to purchase from the
Company shares of common stock at a full share equivalent price of $525 per
share (after giving effect to the 1-for-35 reverse stock split), commencing the
later of the completion of a business combination or April 11, 2007. The Company
warrants expired by their terms at 5:00 p.m., New York City time, on April 10,
2010, or earlier upon redemption. However, because April 10, 2010 was a
Saturday, the Company determined that it would allow holders of the warrants to
exercise the warrants until 5:00 p.m., New York City time, on Monday, April 12,
2010. Prior to April 11, 2006, there was no established public trading market
for our common stock.
The Company does not currently have any authorized or outstanding
equity compensation plans.
The following table sets forth, for the calendar quarter indicated, the
quarterly high and low sales prices of our common stock, warrants and units as
reported on the Over the Counter Bulletin Board for the years ended December 31,
2010 and 2009, and gives effect to the 1-for-35 reverse stock split.
Common Stock Warrants Units
Quarter Ended High Low High Low High Low
March 31, 2010 $0.75 $0.20 n/a n/a. n/a n/a
June 30, 2010 $1.05 $0.35 n/a n/a n/a n/a
September 30, 2010 $1.70 $0.25 n/a n/a n/a n/a
December 31, 2010 $0.75 $0.20 n/a n/a n/a n/a
Common Sock Warrants Units
Quarter Ended High Low High Low High Low
March 31, 2009 $1.05 $0.735 $0.0035 $0.0035 $0.385 $0.385
June 30, 2009 $0.1155 $0.0875 n/a n/a $0.385 $0.385
September 30, 2009 $1.715 $0.14 $0.0035 $0.0035 $0.385 $0.385
December 31, 2009 $1.435 $0.1925 $0.0035 $0.0035 $0.455 $0.455
Source: Bloomberg historical pricing. Gives effect to 1-for-35 reverse stock
split.
HOLDERS
As of December 31, 2010, there were approximately six holders of record of
our common stock. It is likely that the actual number of beneficial holders
exceeds this amount.
DIVIDENDS
We have not paid any dividends on our common stock to date. The payment of
dividends in the future will be contingent upon our revenue and earnings, if
any, capital requirements and general financial condition. The payment of any
dividends will be within the discretion of our then Board. It is the present
intention of our Board to retain all earnings, if any, for use in our business
operations and, accordingly, our Board does not anticipate declaring any
dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we sold the following shares of common stock
without registration under the Securities Act:
On December 21, 2009, the Company issued James P. Wilson and Keith D.
Spickelmier, former officers and directors of the Company, 1,920,165 and
1,571,044 shares of common stock, respectively, pursuant to conversion of
convertible promissory notes (the "Promissory Notes") in the principal amounts
of $510,500.10 with respect to Mr. Wilson and $417,681.90 with respect to Mr.
Spickelmier. The conversion price was $0.008 per share of common stock.
On June 30, 2010, the Company issued 45,606 shares of common stock to Basil
N. Argerson, Senior Vice President of the Company, for $20,795 in cash, at a
purchase price of $0.456 per share, and 38,379 shares of common stock to Keith
D. Spickelmier, a former officer and director of the Company, for $17,500 in
cash, at a purchase price of $0.456 per share. On July 31, 2010, the Company
issued 15,000 shares of common stock to a consultant of the Company as
compensation for services rendered. On August 9, 2010, the Company also issued
7,692 shares of common stock to another individual for $10,000 in cash, at a
purchase price of $1.30 per share.
Such shares are exempt from registration under regulations promulgated by
the SEC under Section 4(2) of the Securities Act. The exemption was available on
the basis that there was no general solicitation in connection with the
placement and sales were only made to accredited investors.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company has historically been a blank check company. It was formed in
2005 to serve as a vehicle for the acquisition, through a merger, capital stock
exchange, asset acquisition or other similar business combination with a then
unidentified operating business. On April 11, 2006, the Company completed its
IPO of equity securities, raising net proceeds of $76,632,404. On September 6,
2006, the Company, Multi-Shot and various other parties entered into the Merger
Agreement and related agreements. See "ITEM 1. BUSINESS-OVERVIEW-Early Company
History". Over the course of this transaction, the parties twice amended the
terms of the Merger Agreement and twice extended the transaction. On January 31,
2008, the Company announced that the special meeting of its stockholders to vote
on the proposed merger with Multi-Shot had been cancelled. The Company
determined and informed Multi-Shot that the proposed merger would not receive
the votes of its stockholders required for approval. The Merger Agreement
expired on January 31, 2008, and the proposed merger with Multi-Shot was
abandoned. As a result, the Company's Board of Directors determined it would be
in the best interests of the stockholders to distribute to stockholders holding
shares of common stock issued in the IPO all amounts held in a trust fund (net
of applicable taxes) established by the Company at the consummation of the IPO
into which a certain amount of the net proceeds from the IPO had been deposited.
Because the Company did not consummate a qualifying business combination,
the Company's Board of Directors contemplated alternatives for preserving value
for stockholders. Before any such action was taken, a change of control of the
Company occurred on December 31, 2009 when GGH acquired from the Company's two
largest stockholders shares of the Company's common stock representing
approximately 96.5% of the outstanding shares of the common stock. GGH purchased
the shares to pursue a business plan through the Company, pursuant to which the
Company sells residential real estate in the United States (initially primarily
in California) to international home buyers (residing initially in China). See
"ITEM 1. BUSINESS--OVERVIEW-- Change in Control". For a more complete
description of the Company's business plan, see "ITEM 1. BUSINESS-OVERVIEW-The
Company's Business".
RESULTS OF OPERATIONS
Comparison of Fiscal Year Ended December 31, 2010 to Fiscal Year Ended
December 31, 2009
For the fiscal year ended December 31, 2010, we had a net loss of $705,456.
For the fiscal year ended December 31, 2009, we had net income of $82,240. For
the fiscal year ended December 31, 2010, we incurred $709,751 of general and
administrative expenses, as compared to the fiscal year ended December 31, 2009,
when we incurred $89,177 of operating expenses, had a gain on settlement of debt
of $6,937, and had interest expense of $48,721. This increase in expenses is
reflective of the Company's increased activity as it puts its new business plan
into effect. During the fourth quarter, we wrote off an option deposit in the
amount of $50,000 in connection with a consignment transaction we had entered
into to sell certain properties in northern California, which had been
previously reflected on the Company's balance sheet as an asset, as it may be
difficult to recover this deposit given the delay in home sales closings. Of the
$709,751 of general and administrative expenses reflected on the Company's
Statements of Income for the year ended December 31, 2010, $48,457 was expended
on the Company's behalf by the entity that holds a controlling interest in the
Company to research and develop the Company's new business plan prior to its
acquisition of such control on December 31, 2009.
For the fiscal year ended December 31, 2010, we had $650,500 in gross
revenues on the sale of two properties. Margins on these transactions were
narrow, as the consignment agreement the Company entered into with the developer
of the properties was priced aggressively as the Company attempts to prove its
business concept. In addition, the Company had revenues of $777 from its asset
management business.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's cash position as of December 31, 2010 is $1,913. The Company
had outstanding payables and other current liabilities of $161,811 as of
December 31, 2010. Because of the Company's current cash position versus its
outstanding payables and accruals, there is substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern. The future of the Company is dependent upon the Company's ability to
consummate sales of properties and the development of new business
opportunities. See "ITEM 1A. RISK FACTORS." Management may need to raise
additional funds via a combination of equity and/or debt offerings. These
financial statements do not include any adjustments that might arise from this
uncertainty.
For the first quarter of fiscal 2011, the Company has closed an additional
one sale totaling approximately $358,000 and realized approximately $22,600 in
gross income. Additionally, the Company currently has 16 sale reservations
across three projects totaling approximately $5.2 million of gross real estate
sales which represent approximately $775,000_ of net revenue before commissions
and expenses and $330,000 of gross income after all expenses that are currently
waiting on third-party mortgage financing, and that the Company expects will be
a source of cash for operations.
The Company has taken numerous steps to conserve cash. We have closed our
shared office in Napa and eliminated our full-time employees However, given the
Company's current cash position, it may be difficult for the Company to enter
into any new agreements to market properties to its international clients
without obtaining additional funding.
The Company can make no assurances that any additional financing will be
available to it when needed or, if available, that it can be obtained on
commercially reasonable terms.
To conserve on the Company's capital requirements, the Company may issue
shares of its common stock to pay certain expenses. During the quarter ended
March 31, 2011, the Company issued 32,500 shares of its common stock to a
consultant as payment for services rendered, and issued an additional 50,000
shares of its common stock as payment for legal services rendered. These stock
issuances reduced outstanding payables reflected on our financial statements on
December 31, 2010 by approximately $31,000. See Note 9 to the Company's
Financial Statements.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of
business, we do not have any off-balance sheet financing arrangements or
liabilities, guarantee contracts, retained or contingent interests in
transferred assets or any obligation arising out of a material variable interest
in an unconsolidated entity. We do not have any majority-owned subsidiaries.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to our financial statements beginning on page F-1 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer
and principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934) as of December 31, 2010. Based on such
evaluation, our principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures were operating
effectively as of December 31, 2010.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting as that term is defined in Exchange
Act Rule13a-15(f). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our financial statements for external reporting
purposes in accordance with generally accepted accounting principles ("GAAP").
Our internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect our transactions and dispositions of our
assets; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of our financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on our financial statements.
Internal control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. In addition,
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.
To evaluate the effectiveness of our internal control over financial
reporting as of December 31, 2010, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, management conducted an assessment, including
testing, based on the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the "COSO Framework"). Based on this evaluation, management has
concluded that, as of December 31, 2010, our internal control over financial
reporting was effective. 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 Exchange Commission that permit the Company to
provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in
Rule13a-15(f) under the Securities Exchange Act of 1934) occurred during the
fourth quarter of fiscal 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Not applicable.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our current directors and executive officers are as follows:
NAME AGE POSITIONS
---- --- ---------
Steven Gidumal 53 Chairman of the Board &
Chief Financial Officer
Tim Wilkens 50 Chief Executive Officer
Basil N. Argerson 51 Senior Vice President, Treasurer
& Secretary
The following is the background of Messrs. Gidumal, Wilkens and Argerson:
STEVEN GIDUMAL. Since 2004, Mr. Gidumal has served as the founder,
President and Portfolio Manager for Virtus Capital, a firm based in Orlando,
Florida that invests in the securities of companies in distressed and
restructuring situations, including a variety of real estate and financial
institutions. From August 2006 to August 2008, Mr. Gidumal also served as
Co-Portfolio Manager of Resurgence Asset Management, a distressed fund based in
New York City for which he co-ran a portfolio in excess of $400 million. Mr.
Gidumal earned a Bachelor of Science, Economics cum laude from the University of
Pennsylvania (Wharton Undergraduate program) and a Master of Business
Administration from Harvard Business School as a Baker Scholar (highest honors).
TIM WILKENS. For the past 11 years, Mr. Wilkens has served as President of
Great Western Holdings. Great Western Holdings is a business that is the
western United States development partner for Wyndham Worldwide, and in the past
has partnered or been approved as a partner for Fairmont Hotels, Marcus Hotels
and Shell Vacations. Mr. Wilkens has been involved in residential and
commercial property development since the early 1980s. He has developed
projects in the Lake Tahoe area, Napa County and Sonoma County. His projects
have included class A office developments, residential housing, multifamily
housing, hotels, resorts and fractional housing. Mr. Wilkens led several
successful ventures that purchased distressed real estate in Texas from 1987 to
1990. Mr. Wilkens has a University Teaching Credential issued by the State of
California and has studied at San Jose State University and also at the
University of California at Berkeley.
BASIL N. ARGERSON. Since February 2006, Mr. Argerson has served as a
management consultant in his own firm, where he focuses on providing merger and
acquisition advice, performing business valuations and evaluating new market
opportunities, primarily for clients in the medical services/devices and real
estate industries. Mr. Argerson received a Bachelor of Arts in Economics, with
distinction, from the University of Virginia, a Juris Doctorate from the
University of Virginia School of Law, and a Master of Business Administration
from the University of Chicago Booth School of Business.
Our Board of Directors has two directors. On December 31, 2009, Steven
Gidumal was elected as a director of the Company, replacing James P. Wilson, and
on March 17, 2010, Tim Wilkens was elected as a director, replacing Keith D.
Spickelmier. Messrs. Gidumal and Wilkens will serve until the next annual
meeting of stockholders and until their successors are elected and qualified.
Messrs. Gidumal and Wilkens serve on the Company's Nominating and
Governance Committee. The Company's Board of Directors has not established any
standing Compensation Committee. The Board of Directors as a whole will
undertake the functions of this committee at the appropriate time. The Board of
Directors may establish a Compensation Committee whenever it believes that doing
so would benefit the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers and persons who own more than 10% of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
beneficial ownership of common stock and other equity securities. Directors,
officers and greater than 10% stockholders are required by SEC regulation to
furnish us with all Section 16(a) forms they file. To our knowledge, based
solely upon our review of the copies of such reports furnished to us, we
believe that all of our directors, officers and greater than 10%
stockholders have complied with the applicable Section 16(a) reporting
requirements.
AUDIT COMMITTEE
No member currently serves on our audit committee.
The audit committee will review the professional services and independence
of our independent registered public accounting firm and our accounts,
procedures and internal controls. The audit committee will also recommend the
firm selected to be our independent registered public accounting firm, review
and approve the scope of the annual audit, review and evaluate with the
independent public accounting firm our annual audit and annual consolidated
financial statements, review with management the status of internal
accounting controls, evaluate problem areas having a potential financial
impact on us that may be brought to the committee's attention by management,
the independent registered public accounting firm or the board of
directors, and evaluate all of our public financial reporting documents.
CODE OF ETHICS
We have adopted a code of conduct and ethics applicable to our directors,
officers and employees in accordance with applicable federal securities laws and
the rules of the American Stock Exchange. A copy of the Company Code of Ethics
and any amendments thereto is available at www.goldengatehomes.net.
-----------------------
ITEM 11. EXECUTIVE COMPENSATION
No executive officer or director has received any cash compensation for
services rendered. The Company has not established standard compensation
arrangements for its directors, and the compensation, if any, payable to each
individual for his or her service on the Company's Board will be determined (for
the foreseeable future) from time to time by the Board of Directors based upon
the amount of time expended by each of the directors on the Company's behalf.
For the 2010 calendar year, we paid Great Western Holdings, Inc. a wholly-owned
entity of two family trusts of which Tim Wilkens is the trustee, an aggregate of
$55,785 for providing us with certain limited office space, in Napa, California.
However, this arrangement was not intended to provide Tim Wilkens compensation
in lieu of a salary. No other executive officer or director has a relationship
with or interest in Great Western Holdings. This office space arrangement was
terminated on December 15, 2010.
The Company has not decided upon the remuneration that it will pay to its
officers as of the date of this Report. The Company does not expect to pay any
such remuneration (other than expense reimbursements) until such time as it is
able to generate sufficient revenues or complete a significant capital raising
event to permit it to do so. In either such event, management expects that the
Company will start to pay management salaries at market levels, consistent with
any restrictions on salaries imposed by investors providing additional funds.
However, our stockholders that also serve as officers will be reimbursed for any
out-of-pocket expenses incurred in connection with activities on our behalf.
There is no limit on the amount of these out-of-pocket expenses and there will
be no review of the reasonableness of the expenses by anyone other than our
Board of Directors, which includes persons who may seek reimbursement, or a
court of competent jurisdiction if such reimbursement is challenged. If none of
our directors are deemed "independent," we will not have the benefit of
independent directors examining the propriety of expenses incurred on our behalf
and subject to reimbursement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
The table set forth below contains certain information as of March 31, 2011
concerning the beneficial ownership of the Company's common stock (i) by each
person who is known by the Company to own beneficially more than 5% of the
outstanding common stock; (ii) by each director; and (iii) by all directors and
officers as a group. The address for all persons listed in the table is 855
Bordeaux Way, Suite 200, Napa, California 94558.
Except as otherwise indicated, all persons listed below have (i) sole
voting power and investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares. Shares not outstanding
but deemed beneficially owned by virtue of the right of a person or member of a
group to acquire them within 60 days of March 31, 2011 are treated as
outstanding only for determination of the number and percent owned by such group
or person.
Amount and Nature of Beneficial Ownership
Name of Beneficial Owner Number Percent
------------------------ ------ -------
GGH, Inc. 3,520,305 (1) 91.7%
Steven Gidumal 3,520,305 (1) 91.7%
Tim Wilkens 3,520,305 (1) 91.7%
Brandon Birtcher 3,520,305 (1) 91.7%
All directors and officers as a group
(three persons) 3,565,911 92.9%
(1) All of these shares are held by GGH, Inc., an entity owned directly
or indirectly by Steven Gidumal and Brandon Birtcher, and two trusts of which
Tim Wilkens is the trustee. Accordingly, Messrs. Gidumal, Birtcher and Wilkens
have shared voting power and shared investment power over these shares. These
shares are also included in the table in the figures of shares beneficially
owned by GGH, Inc. and Messrs. Gidumal, Birtcher and Wilkens. The stock numbers
reflect the 1-for-35 reverse stock split effected on March 8, 2010.
Our officers and directors, collectively, beneficially own approximately
92.9% of the issued and outstanding shares of our common stock. Because of this
ownership block, these stockholders may be able to effectively exercise control
over all matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions other than
approval of a business combination.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
All ongoing and future transactions between us and any of our officers
and directors or their respective affiliates, including loans by our officers
and directors, will be on terms believed by us to be no less favorable than are
available from unaffiliated third parties and such transactions or loans,
including any forgiveness of loans, will require prior approval in each instance
by a majority of our uninterested ''independent'' directors (to the extent we
have any) or the members of our Board who do not have an interest in the
transaction, in either case who had access, at our expense, to our attorneys or
independent legal counsel. In addition, our management will gather pricing
information, estimates or fairness opinions from unaffiliated third parties with
respect to similar transactions undertaken by us.
DIRECTOR INDEPENDENCE
Our common stock is listed for trading on the NASDAQ Over the Counter
Bulletin Board (OTC.BB). Accordingly, we use the standards established by the
OTC.BB for determining whether or not each of our directors is "independent." We
have determined that currently Steven Gidumal and Tim Wilkens are not
independent. The OTC.BB rules generally require that a listed company's Board of
Directors be composed of a majority of independent directors. As a consequence,
we do not presently comply with the OTC.BB rules in this regard.
Moreover, the OTC.BB rules generally require that a listed company's Audit
Committee be composed of at least three members, each of whom must be
independent. We do not presently comply with the OTC.BB rules in this regard
either.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For 2010 and 2009, we incurred fees from our principal accountant of $14,900 and
$1,500, respectively, for the services they performed including the year-end
audit, the quarters and consents on other SEC filings.
Audit-Related Fees
During 2010, our principal accountant did not render assurance and related
services reasonably related to the performance of the audit or review of
financial statements.
Tax Fees
For 2010 and 2009, we paid our principal accountant $2,000 and $1,500,
respectively.
All Other Fees
During 2010, there were no fees incurred for products and services provided by
the principal accountant other than those set forth above.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent auditor for the next year's audit,
management will submit an aggregate of services expected to be rendered during
that year for each of four categories of services to the Audit Committee for
approval.
1. AUDIT services include audit work performed in the preparation of financial
statements, as well as work that generally only the independent auditor can
reasonably be expected to provide, including comfort letters, statutory audits,
and attest services and consultation regarding financial accounting and/or
reporting standards.
2. AUDIT-RELATED services are for assurance and related services that are
traditionally performed by the independent auditor, including due diligence
related to mergers and acquisitions, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements.
3. TAX services include all services performed by the independent auditor's tax
personnel except those services specifically related to the audit of the
financial statements, and includes fees in the areas of tax compliance, tax
planning, and tax advice.
4. OTHER FEES are those associated with services not captured in the other
categories. We generally do not request such services from the independent
auditor.
Prior to engagement, the Audit Committee pre-approves these services by
category of service. The fees are budgeted and the Audit Committee
requires the independent auditor and management to report actual fees versus
the budget periodically throughout the year by category of service. During the
year, circumstances may arise when it may become necessary to engage the
independent auditor for additional services not contemplated in the original
pre-approval. In those instances, the Audit Committee requires specific
pre-approval before engaging the independent auditor.
The Audit Committee may delegate pre-approval authority to one or more of
its members. The member to whom such authority is delegated must report,
for informational purposes only, any pre-approval decisions to the Audit
Committee at its next scheduled meeting.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS:
Index to Financial Statements and Schedules
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2010 and December 31, 2009
Statement of Operations - Year ended December 31, 2010, December 31, 2009, and
Period from May 11, 2005 (Inception) to December 31, 2010
Statement of Stockholders' Equity (Deficit) -Year ended December 31, 2010,
December 31, 2009 and Period from May 11, 2005 (Inception) to December 31, 2010
Statement of Cash Flows -Year ended December 31, 2010, December 31, 2009 and
Period from May 11, 2005 (Inception) to December 31, 2010
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted for the reason that the information is included in the
financial statements or the notes thereto or that they are not required or are
not applicable.
3. EXHIBITS:
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 Form of Underwriting Agreement.*
1.2 Form of Selected Dealers Agreement.*
3.1 Third Amended and Restated Certificate of Incorporation**
3.2 Amended and Restated Bylaws.*
3.3 Amendment to the Amended and Restated Certificate of
Incorporation.*
3.4 Amendment to the Amended and Restated Certificate of
Incorporation.*
4.1 Specimen Unit Certificate.*
4.2 Specimen Common Stock Certificate.***
4.3 Specimen Warrant Certificate.*
4.4 Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant.*
4.5 Form of Unit Purchase Option.*
10.1 Form of Letter Agreement among the Registrant, Ferris, Baker
Watts, Incorporated, and James P. Wilson.*
10.2 Form of Letter Agreement among the Registrant, Ferris, Baker
Watts, Incorporated and Keith D. Spickelmier.*
10.3 Form of Letter Agreement among the Registrant, Ferris, Baker
Watts, Incorporated and Michael H. McConnell.*
10.4 Form of Letter Agreement among the Registrant, Ferris, Baker
Watts, Incorporated and Herbert C. Williamson.*
10.5 Form of Investment Management Trust Agreement between Continental
Stock Transfer & Trust Company and the Registrant.*
10.6 Form of Stock Escrow Agreement between the Registrant, Continental
Stock Transfer & Trust Company and the Initial Stockholders.*
10.7 Form of Letter Agreement between 4350 Management, LLC and the
Registrant regarding administrative support.*
10.8 Advance Agreement between the Registrant and James P. Wilson,
dated May 18, 2005.*
10.9 Advance Agreement between the Registrant and Keith D. Spickelmier,
dated May 18, 2005.*
10.10 Form of Registration Rights Agreement among the Registrant
and the Initial Stockholders.*
10.11 Form of Unit Placement Agreement among each of James P. Wilson and
Keith D. Spickelmier and Ferris, Baker Watts, Incorporated.*
10.12 Advance Agreement between the Registrant and James P. Wilson,
dated December 20, 2005.*
10.13 Advance Agreement between the Registrant and Keith D.
Spickelmier, dated December 20, 2005.*
10.14 Amended Marketing and Sales Partnership Agreement dated March
10, 2010 by and between the Company and Premier Capital, Ltd.**
10.15 Consulting Agreement between the Company and Brian McConnell, dated
April 8, 2010***
31.1 Sarbanes Oxley Section 302 Certifications****
32.1 Sarbanes Oxley Section 906 Certifications****
24 Power of Attorney.*
99.1 Audit Committee Charter*
99.2 Code of Ethics*
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1, as amended, (File No. 333-125211)
** Incorporated herein by reference to the Company's Current Report on Form 8-K
dated March 12, 2010
***Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q dated March 31, 2010
**** Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 14th day of April
2011.
GOLDEN GATE HOMES, INC.
By: /s/ Steven Gidumal
-------------------
Steven Gidumal
Chairman of the Board and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
NAME POSITION DATE
By: /s/ Steven Gidumal Chairman of the April 14, 2011
STEVEN GIDUMAL Board of Directors and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
By: /s/ Tim Wilkens Chief Executive Officer April 14, 2011
TIM WILKENS and Director
(Principal Executive Officer)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Golden Gate Homes, Inc.
(A Development Stage Company)
Napa, California
We have audited the accompanying consolidated balance sheets of Golden Gate
Homes, Inc. (a development stage company) (the "Company") as of December 31,
2010 and 2009, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for the years then ended and from
May 11, 2005 (inception) to December 31, 2010. These financial statements are
the responsibility of Golden Gate Homes, Inc.'s management. Our responsibility
is to express an opinion on these 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 an audit to obtain reasonable assurance about whether the 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 audits 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 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 audits provide 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 Golden Gate Homes, Inc. as of
December 31, 2010 and 2009 and the results of operations and cash flows for the
years then ended and from May 11, 2005 (inception) to December 31, 2010, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that Golden
Gate Homes, Inc. will continue as a going concern. As discussed in Note 2 to the
financial statements, Golden Gate Homes, Inc. has historically suffered losses
from operations which raises substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters also are described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 11, 2011
F-2
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
ASSETS
2010 2009
Current assets:
Cash $ 1,913 $ 10
Prepaid Expenses (753) -
Other current assets 7,150 -
------------------------
Total current assets 8,310 10
------------------------
Total Assets $ 8,310 $ 10
========================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 145,356 $ 10,000
Due to related parties 16,455 -
-------------------------
Total Liabilities $ 161,811 $ 10,000
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value,
1,000,000 shares authorized, none issued
and outstanding - -
Common stock, $0.0001 par value, 600,000,000
shares authorized, 3,755,188 and 3,648,511
shares issued and outstanding at December 31,
2010 and 2009, respectively 375 364
Paid-in capital 2,580,956 2,019,022
Deficit accumulated during the
development stage (2,734,832) (2,029,376)
----------------------
Total Stockholders' Deficit (153,501) (9,990)
----------------------
Total Liabilities and Stockholders'
Deficit $ 8,310 $ 10
=======================
See notes to financial statements.
F-3
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2010, DECEMBER 31, 2009, AND
PERIOD FROM MAY 11, 2005 (INCEPTION) TO DECEMBER 31, 2010
Year Year Period from May
11, 2005
Ended Ended (Inception) to
December 31, December 31, December 31,
2010 2009 2010
Brokerage & Fee Income $ 3,930 $ - $ 3,930
Operating expenses:
General & administrative 709,751 40,456 1,663,340
Impairment of deferred
transaction costs - - 1,844,724
----------------------------------------
Operating loss (705,821) (40,456) (3,504,134)
Other income (expense):
Interest income 365 - 5,663,895
Interest expense (48,721) (77,471)
Loss on extinguishment of debt - - (928,182)
Gain on settlement of debt 6,937 669,656
Gain (loss) on derivative
liabilities - - 203,596
----------------------------------------
Total other income (expenses) 365 (41,784) 5,531,494
----------------------------------------
Net income (loss) (705,456) (82,240) 2,027,360
Income tax expense - - 5,692
Distribution in trust fund
earnings (4,756,500)
----------------------------------------
Net income (loss) $ (705,456) $ (82,240) $ (2,734,832)
========================================
Earnings (loss) per common share:
BASIC & DILUTED $ (0.19) $ (0.02) N/A
Weighted average number of
common shares outstanding:
BASIC& DILUTED 3,705,421 3,648,511 N/A
See notes to financial statements
F-4
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM MAY 11, 2005
(INCEPTION) TO DECEMBER 31, 2010
Additional Total
Common Stock Paid-In Accumulated Deferred Stockholders'
Shares Amount Capital Deficit Compensation Deficit
Stock issued
for cash 28,175 $ 3 $ 31,247 $ 31,250
Net loss $(4,995) (4,995)
---------------------------------------------------------
Balance at December
31, 2005 28,175 3 31,247 (4,995) 26,255
Stock issued for
cash, net of
offering costs 129,127 13 76,606,881 76,606,894
Derivative Liability (14,371,830) (14,371,830)
Proceeds subject to
redemption (15,299,099) (15,299,099)
Sale of underwriter
option 100 100
Increase in value of
common stock subject
to redemption (218,588) (218,588)
Net income 423,436 423,436
-----------------------------------------------------------
Balance at December
31, 2006 157,302 16 46,748,711 418,441 47,167,168
Change in value of
derivative liability 14,168,234 14,168,234
Increase in value of
common stock subject
to redemption (411,018) (411,018)
Net income 1,967,606 1,967,606
-----------------------------------------------------------
Balance at December
31, 2007 157,302 16 60,505,927 2,386,047 62,891,990
===========================================================
Special dividend payment (81,190,596) (81,190,596)
Common stock subject
to redemption 15,928,705 15,928,705
F-5
Loss on extinguish-
ment of debt 928,182 928,182
Distribution of Trust
Fund earnings 4,756,499 (4,756,499)
Net income 423,316 423,316
-----------------------------------------------------------
Balance at December
31, 2008 157,302 16 928,717 (1,947,136) (1,018,403)
===========================================================
Stock issued upon
Conversion of
Promissory
Notes 3,491,209 348 977,190 977,538
Contributed
Capital 113,115 113,115
Net income (82,240) (82,240)
------------------------------------------------------------
Balance at December
31, 2009 3,648,511 $364 $2,019,022 $(2,029,376 $(9,990)
============================================================
Stock issued
of cash 91,677 9 48,286 48,295
Stock issued for
services 15,000 1 15,149 15,150
Contributed
Capital 498,500 498,500
Net income (705,456) (705,456)
-------------------------------------------------------------------
Balance as of
December 31,
2010 3,755,188 $ 374 $ 2,580,957 $ (2,734,832) $ (153,501)
====================================================================
See notes to financial statements.
F-6
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009, AND THE
PERIOD FROM MAY 11, 2005 (INCEPTION) TO DECEMBER 31, 2010
Year Year Period from May 11, 2005
Ended Ended (Inception) to
December 31, December 31, December 31,
2010 2009 2010
Net income (loss) $ (705,456) $ (82,240) (2,734,832)
Shares issued for services 15,150 - 15,150
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Investment income - - (5,663,530)
Loss (Gain) on
derivative liabilities - - (203,596)
Gain on settlement of
interest expenses - (48,722) (711,441)
Gain on settlement of debt - (6,937) (6,937)
Impairment of deferred
transaction costs - 1,828,626
Loss on extinguishment of debt - - 928,182
Change in:
Accounts payable and
accrued expenses 135,225 (11,634) 812,347
Due to related parties 16,455 67,709
Prepaid expenses and other
current assets (6,397) - (6,397)
Accrued expenses 131 131
-------------------------------------------
Net Cash used in
operating activities (544,892) (149,533) (5,674,588)
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred transaction costs - - (1,828,626)
Payment to trust account - - (76,532,404)
Disbursements from trust
account - - 82,195,934
--------------------------------------------
Net cash provided by (used in)
investing activities 0 - 3,834,904
F-7
CASH FLOWS FROM FINANCING ACTIVITIES
Gross proceed from public
offering - - 79,350,000
Gross proceeds from
private placement - - 2,000,004
Proceeds from sale of
stock 48,295 - 79,546
Proceeds from sale of
underwriter option - - 100
Proceeds from advances
from stockholders - - 1,270,282
Payments on advances
from stockholders - - (329,000)
Cash paid for offering
costs - - (4,743,110)
Special dividend payment - - (81,190,596)
Adjustment to retained
earnings - - 4,756,499
Contributed Capital 498,500 611,615
Proceeds from convertible
debt - 36,257
--------------------------------------------
Net cash provided by financing
activities 546,795 149,372 1,841,597
---------------------------------------------
Net change in cash 1,903 (161) 1,913
Cash at beginning of period 10 109,917 0
---------------------------------------------
Cash at end of period $ 1,913 $ 10 $ 1,913
=============================================
Supplemental disclosures:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes - - -
Non-cash transactions:
Common stock subject to
redemption $ - $ - $ -
Increase (Decrease) in value
of common stock subject
to redemption - - -
Conversion of Shareholder
Advances to Notes $ - $ - $ -
Conversion of Notes to
common stock $ - $ 977,539 977,539
See notes to financial statements.
F-8
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Golden Gate Homes, Inc. (hereinafter referred to as the "Company") was
incorporated in Delaware on May 11, 2005 for the purpose of acquiring or merging
with an operating business. Before any acquisition or merger occurred, a change
in control of the Company occurred on December 31, 2009 when GGH, Inc. (formerly
Golden Gate Homes, Inc.), a privately held Delaware corporation ("GGH"),
acquired from James P. Wilson and Keith D. Spickelmier shares of the Company's
common stock representing approximately 96.5% of the outstanding shares and the
controlling interest in the Company. The Company is a development stage company
that markets and sells residential property located in California to buyers in
mainland China through a Chinese broker. The Company enlists the services of
acquisition brokers in California, who present the Company with residential
properties that are typically owned by a developer or financial institution.
The Company is currently focusing on "consignment" transactions whereby the
Company enters into an agreement with the owner of the properties to market such
properties overseas. Terms of the consignment agreement specify the price at
which the Company has an option to purchase each of the properties, which the
Company then seeks to re-sell to buyers in China. If the Company is successful
in completing a major capital raising transaction, it will also consider
purchasing similar assets for resale to the same target market.
REVENUE RECOGNITION
Our revenue is recognized based on objective criteria that do not require
significant estimates or uncertainties. Our policy follows the guidance from SEC
Staff Accounting Bulletin 104, "Revenue Recognition" ("SAB 104"). SAB 104
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements. The Company books revenue at the close of escrow, after
the sale of the property has been consummated and all fees paid and title
recorded. The mechanism of the Company's closings is as follows: the Company
purchases the property from the developer at the agreed upon option price,
records the deed of trust and pays the settlement fees. The Company then sells
the property to the third-party buyer, who pays his share of settlement fees and
records the deed of trust in his or her name. Only after the cash is in hand
does the Company recognize the revenue. The Company records revenue as the net
difference between the sale price to the third-party buyer and the price paid to
the developer for the option. For its asset management services, the asset
management agreement provides for the Company to receive a portion of the fee
for leasing properties to tenants. Revenue is booked only after the lease has
been signed, the fee collected by the property manager, and the fee reflecting
the Company's portion received by the Company. In addition, monthly asset
management service fees are recorded only after the monthly rental has been
collected from the tenant and the portion of the fee allocated to the Company
for its services has been received.
CONTINGENCIES
We account for claims and contingencies in accordance with FASB Accounting
Standards Codification Topic 450 "Accounting for Contingencies" ("ASC 450"). ASC
450 requires that we record an estimated loss from a claim or loss contingency
when information available prior to issuance of our financial statements
indicates that it is probable that an asset has been impaired or a liability has
been incurred at the date of the financial statements and the amount of the loss
can be reasonably estimated. Accounting for claims and contingencies requires us
to use our judgment.
DEVELOPMENT STAGE COMPANY
The Company is considered to be a development stage company and as such the
financial statements presented herein are presented in accordance with FASB
Accounting Standards Codification ("ASC") 915 "Development Stage Entities." The
Company is subject to the risks associated with activities of development stage
companies.
USE OF ESTIMATES
In preparing financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheet
and revenue and expenses in the income statement. Actual results could differ
from those estimates.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less at the time of purchase to be cash equivalents.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a valuation
allowance for deferred tax assets for which it does not consider realization of
such assets to be more likely than not. As of December 31, 2010, the Company
had a net operating loss carryforward of approximately $1,881,787 which expires
beginning 2027. The majority of the unused net operating loss carryforward is
limited due to the change in control on December 31, 2009.
Deferred tax assets consisted of the following:
2010 2009
Net Operating Loss Carryforward $640,000 $ 400,000
Less: Valuation Allowance (640,000) (400,000)
---------------------
Total Deferred Tax Assets $ - $ -
F-9
BASIC AND DILUTED NET INCOME PER SHARE
The basic net income per common share is computed by dividing the net income by
the weighted average number of common shares outstanding. The diluted net income
per common share reflects the potential dilution that could occur if securities
or other contracts to issue common shares were exercised or converted into
common shares or resulted in the issuance of common share that then shared in
the earnings.
REVERSE STOCK SPLITS
On June 17, 2008, the Company implemented a 1-for-3 reverse stock split. The par
value of the common stock was not affected by the reverse stock split. The
effect of the stock split was to change the issued and outstanding shares of our
common stock to 5,505,556 as of June 17, 2008. All shares and per share amounts
have been restated in the financial statements and in the notes to financial
statements for all such periods presented, to reflect the reverse stock split
as if it occurred on the first day of the first period presented. On March 8,
2010, the Company effected a 1-for-35 reverse split, which did not change the
par value of the common stock. The reverse stock split changed the issued and
outstanding shares of our common stock to 3,648,511. All references to common
stock and per share data have been retroactively restated to account for
1-for-35 reverse stock split as if it occurred on the first day of the first
period presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective last year, the Company implemented SFAS No. 165, Subsequent Events
("SFAS 165"). This standard establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. The adoption of SFAS 165 did not impact the
Company's financial position or results of operations. The Company evaluated all
events or transactions that occurred after January 31, 2010 up through April 13,
2011, the date the Company issued these financial statements. The subsequent
events that have occurred through this date are as disclosed in Footnote 7.
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
F-10
NOTE 2 - GOING CONCERN AND LIQUIDATION OF TRUST ACCOUNT
As shown in the accompanying financial statements, the Company has an
accumulated deficit and working capital deficit as of December 31, 2010. These
conditions raise substantial doubt as to its ability to continue as a going
concern.
The Company currently does not have any other binding commitments for, or
readily available sources of, additional financing.
Management believes that, if the Company's operations progress as planned, the
Company will have positive cash flow to partially finance its business.
Management believes it has established relationships with lenders to shorten the
time period for future loan approvals. Moreover, management believes that, if
sales of properties result in sufficient positive cash flow, equity capital
should be available. To conserve on the Company's capital requirements, the
Company may issue shares of its common stock to pay certain expenses.
The Company liquidated the Trust Fund established by the Company at the
consummation of its initial public offering (the "IPO") and into which a certain
amount of the net proceeds of the IPO were deposited (the "Trust Fund"). The
payment date for distributions from the Trust Fund was June 2, 2008. The ex
dividend date was set at June 3, 2008. Public stockholders holding shares as of
the end of the day preceding the "ex dividend" date set by the Financial
Industry Regulatory Authority (FINRA) were entitled to receive the
distributions. Public stockholders who sold their shares before the "ex
dividend" date also sold the right to the distribution by virtue of a due bill.
Due bills were redeemable on June 5, 2008. At the date of liquidation, June 2,
2008, the Trust Fund had a balance of $81,190,595 (net of $98,110 withheld for
taxes). The liquidation of the Trust Fund resulted in a distribution of $6.14
per share to eligible shareholders.
NOTE 3 - ADVANCES FROM SHAREHOLDERS, NOVATION AGREEMENT AND CONVERTIBLE NOTES
In May 2008, the Company borrowed from James P. Wilson and Keith D. Spickelmier
an aggregate amount of $103,182 to pay certain outstanding Company payables.
Each of Messrs. Wilson and Spickelmier was then an officer and a director of the
Company. Messrs. Wilson and Spickelmier had previously advanced to the Company
an aggregate of $825,000 pursuant to separate advance agreements, as described
above. The additional $103,182 advance was made pursuant to a Novation
Agreement, which, among other things, replaced all of the previous advance
agreements. The Novation Agreement provided that (a) the aggregate amount of
Company indebtedness to Messrs. Wilson and Spickelmier was $928,182, after the
additional $103,182 advance, (b) all amounts owing by the Company to Messrs.
Wilson and Spickelmier would bear interest at the rate of five percent (5.0%)
per annum, (c) all amounts owing by the Company to Messrs. Wilson and
Spickelmier would be due in payable in full on demand, and (d) Messrs. Wilson
and Spickelmier have the right, at their election, to have the indebtedness owed
to them represented by a promissory note. During the fourth quarter of 2008,
Messrs. Wilson and Spickelmier advanced an additional $13,100 bringing the total
under the Novation Agreement to $941,282 with accrued interest of $28,754 as of
December 31, 2008. The Novation Agreement also provided for the release of
certain agreements between the Company, on the one hand, and Messrs. Wilson and
Spickelmier, on the other hand, entered into in connection with the Company's
initial public offering. These agreements were released because they no longer
had any relevance in view of the proposed amendments to the Company's
Certificate of Incorporation that were to be considered (and that were
subsequently approved) at the special meeting of stockholders scheduled for
May 27, 2008.
F-11
In July 2008, the Company revised the terms of the above stated debt with its
stockholders, by issuing new promissory notes. Under the terms of the new notes,
the principal and any accrued but unpaid interest may be converted at any time
into common stock at a conversion rate of $.008. The other terms of the note
are substantially the same as those described in the preceding paragraph. The
modification of the note agreements to include a conversion feature resulted in
a substantial modification of debt in accordance with EITF 96-19, "Debtor's
Accounting for a Modification or Exchange of Debt Instruments." As a result,
the Company recognized a loss on extinguishment of debt of $928,182 during 2008.
On December 21, 2009, Messrs. Wilson and Spickelmier converted the promissory
notes into 67,205,779 and 54,986,547 common shares, respectively (1,920,165 and
1,571,044 shares, respectively, after giving effect to the 1-for-35 reverse
split), in connection with the change in control of the Company.
NOTE 4- EQUITY
Prior to the 1-for-35 reverse stock split, the Company had outstanding warrants
to purchase an aggregate of 9,038,889 common shares at $15 per share. Some of
these warrants were attached to shares of the Company's common stock in the form
of units. As a result of the 1-for-35 reverse stock split, these warrants
entitled the holders thereof to purchase an aggregate of 258,254 shares at $525
per share. All of the warrants (including those comprising Units) expired on
April 10, 2010.
In June 2010, the Company sold 83,985 shares of common stock to an officer of
the Company and to a former director of the Company for $38,295 in private
transactions.
The Company issued 15,000 shares valued at $15,150 to an individual as
compensation for consulting work. In addition, on August 9, 2010, the Company
sold 7,692 shares of common stock to an individual in a private transaction for
$10,000.
NOTE 5 - RELATED PARTY TRANSACTION
During 2008, the Company agreed to pay 4350 Management, LLC, a related party
and privately-held company owned by the Company's then chief executive
officer, an administrative fee of $7,500 per month for office space and
administrative, technology and secretarial services from the effective
date of the initial public offering through the acquisition date of a target
business. This agreement was terminated March 31, 2008. For 2008, $22,500 has
been expensed for the administrative fee of which the entire amount was unpaid
as of December 31, 2008. During 2009, $90,615 was advanced to the Company by the
related party. Payment of the entire amount outstanding, as well as $22,500 in
rent, was waived by the related party in December 2009 and has been reflected in
contributed capital.
F-12
For the 2010 calendar year, the Company paid Great Western Holdings, Inc., a
wholly-owned entity of two family trusts of which Tim Wilkens, the Company's
CEO, is the trustee, an aggregate of $55,785 for providing the Company with
certain limited office space in Napa, California. No other executive officer or
director has a relationship with or interest in Great Western Holdings. This
office space arrangement was terminated on December 15, 2010. The amount paid
to Great Western Holdings, Inc. is separate from, and not included in, the
amount reflected in the line item labeled "Due to related parties" on the
Company's balance sheet at December 31, 2011.
Expenses paid on behalf of the Company and funds contributed to the Company
through the entity that holds a controlling interest in the Company are treated
as contributed capital and reflected in additional paid-in capital. $498,500
was contributed during 2010.
NOTE 6 - RESERVES
The Company has provided a rental rate guarantee for a period of one year to the
purchaser of one of the properties sold during the third quarter. However,
because the property is currently rented at a price above the rate of the rental
guarantee, and the current tenant has furnished a security deposit that would
apply to any early termination of such lease and the Company's property manager
has assured the Company that the property could be re-leased at an equivalent
price in a short time frame, the Company has not reserved against this
guarantee. There may be situations in the future, however, that will require
the Company to reserve against similar guarantees.
NOTE 7 - REVENUE
Our revenue is comprised of the following:
Year ended Period from May 11,
December 31, (inception) to December
2010 31, 2010
Revenues:
Gross revenues from brokerage sales $ 650,500 $ 650,500
Cost of properties sold (601,500) (601,500)
Broker commissions (U.S.) (8,732) (8,732)
Broker commissions (H.K.) (35,290) (35,290)
Closing costs (1,825) (1,825)
Income from brokerage sales 3,153 3,153
-------------------------------
Asset Management Services:
Asset management fees 151 151
Property leasing fees 626 626
-------------------------------
Brokerage & Fee Income 3,930 3,930
F-13
NOTE 8-GAIN ON SETTLEMENT OF DEBT
The Company reached settlement with a certain service provider for $6,937 which
was recorded as a gain on settlement of debt during 2009.
NOTE 9- SUBSEQUENT EVENTS
The Company issued 25,000 shares of its common stock, valued at $6,250 to an
individual for consulting work performed during the third and fourth quarters,
which was accrued for, and an additional 7,500 shares of its common stock,
valued at $5,625 for consulting work performed during the first quarter ending
March 31, 2011. The consulting agreement with this individual was terminated on
February 15, 2011. In addition, the Company issued 50,000 shares of its common
stock as payment for an outstanding payable of approximately $24,700.
F-1
