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EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATIONS - China Grand Resorts, Inc.f10q123112_ex32z1.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATIONS - China Grand Resorts, Inc.f10q123112_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

 

FORM 10-Q

_______________

 

  X .

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2012

  

      .

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


 For the transition period from ______to______.

 

CHINA GRAND RESORTS, INC.

 (Exact name of registrant as specified in Charter)

 

NEVADA

  

0-27246

  

62-1407521

(State or other jurisdiction of incorporation or organization)

  

(Commission File No.)

  

(IRS Employee Identification No.)


RM 1901, Reignwood Center

No.8 Yong’an Dongli Jianguomen Outer Street,

Chaoyang District Beijing, 100022,

People’s Republic of China

 (Address of Principal Executive Offices)

 _______________

 

 (86-10) 6482 7785

 (Issuer Telephone number)


_______________

 (Former Name or Former Address if Changed Since Last Report)

 

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.     X .  Yes       .  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       .  Yes     X .  No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):


Large Accelerated Filer         .               Accelerated Filer                  .

Non-Accelerated Filer          .               Smaller Reporting Company     X .


Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act       . Yes   X . No


State the number of shares outstanding of each of the issuer’s classes of common equity, as of December 31, 2012: 3,272,311 shares of common stock 



1



  

TABLE OF CONTENTS


 

 

 

PART I - FINANCIAL INFORMATION

Page

 

 

Item 1.  

Financial Statements

3

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operation

18

Item 4.  

Controls and Procedures

24

  

  

  

PART II -OTHER INFORMATION

 

Item 6.  

Exhibits.

25

SIGNATURES

 

26

 

 

 




2



CHINA GRAND RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(IN U.S. DOLLARS)


 

As of

 

 

December 31, 2012

 

September 30, 2012

 

 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

$

22,517

$

911

Other receivables

 

10,429

 

10,500

Total Current Assets

 

32,946

 

11,411

 

 

 

 

 

Property and equipment, net

 

5,531

 

15,764

Security deposit

 

-

 

19,147

 

 

 

 

 

Total Assets

$

38,477

$

46,322

  

 

 

 

 

Current Liabilities

 

 

 

 

 Other payables

$

26,914

$

32,801

Loan from related parties

 

1,135,336

 

1,058,552

Total Current Liabilities

 

1,162,250

 

1,091,353

Total Liabilities

 

1,162,250

 

1,091,353

 

 

 

 

 

Commitment and Contingencies

 

 

 

 

 

 

 

 

 

Stockholders' Deficiency

 

 

 

 

Common stock, $0.001 par value, authorized 1,750,000,000 shares, 3,272,311 shares issued and outstanding as of December 31, 2012 and September 30, 2011                                                                       

 

3,272

 

3,272

Additional paid-in capital

 

10,099,040

 

10,099,040

Accumulated deficit

 

(11,248,837)

 

(11,178,764)

Accumulated other comprehensive loss

 

22,752

 

31,421

Total Stockholders' Deficiency

 

(1,123,773)

 

(1,045,031)

Total Liabilities and Stockholders’ Deficiency

$

38,477

$

46,322


See accompanying notes to the consolidated financial statements



3



 CHINA GRAND RESORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN U.S. DOLLARS)


 

For the three months ended

 

December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Operating expenses

 

 

 

 

   General and administrative expenses

$

47,215

$

53,949

   Depreciation and amortization

 

10,326

 

2,256

 

 

 

 

 

Operating loss

 

(57,541)

 

(56,205)

 

 

 

 

 

Other (expenses) income

 

 

 

 

   Interest income

 

3

 

19

   Interest expenses

 

(12,536)

 

(9,127)

   Other expenses

 

-

 

(121)

Total other expenses, net

 

(12,533)

 

(9,229)

 

 

 

 

 

Loss before income taxes 

 

(70,074)

 

(65,434)

Income tax expense

 

-

 

-

Net loss

$

(70,074)

$

(65,434)

 Effects of foreign currency conversion


 

(8,668)

 

(6,048)

Comprehensive income/(loss)

$

(78,742)

$

(71,482)

 

 

 

 

 

Loss per common share - basic and diluted

$

(0.02)

$

(0.02)

 

 

 

 

 

Weighted average number of common shares outstanding  

- basic and diluted

 

3,272,311

 

3,272,311



See accompanying notes to the consolidated financial statements



4



CHINA GRAND RESORTS. INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)


 

For the three months ended

December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

(Unaudited)

Cash flows from operating activities :

 

 

 

 

Net loss

$

(70,074)

$

(65,434)

Adjustments to reconcile net loss to net cash used in operating activities :

 

 

 

 

    Interest expenses                                            

 

12,536

 

9,127

    Depreciation and amortization

 

10,326

 

2,256

Change in operating assets and liabilities:

 

 

 

 

    Other receivables

 

19,218

 

(947)

    Other payables

 

(5,887)

 

814

Net cash used in operating activities

 

(33,881)

 

(54,184)

 

 

 

 

 

Cash flows from financing activities :

 

 

 

 

Advances from shareholders

 

64,248

 

74,593

Net cash provided by financing activities

 

64,248

 

74,593

 

 

 

 

 

Effect of exchange rate fluctuations on cash

 

(8,761)

 

(177)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

21,606

 

20,232

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

911

 

6,367

 

 

 

 

 

Cash and cash equivalents at end of period

$

22,517

$

6,599

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

-

$

-

Income taxes

$

-

$

-




See accompanying notes to consolidated financial statements.










5



CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(1)  DESCRIPTION OF BUSINESS AND ORGANIZATION

 

The Company was incorporated in the State of Nevada on September 21, 1989 under the name Fulton Ventures, Inc. On September 19, 2002, we changed our name to Asia Premium Television Group, Inc., and on November 16, 2009, we changed our name to China Grand Resorts, Inc. to more accurately reflect our business focus.


On March 30, 2009, we completed an acquisition pursuant to an Acquisition Agreement (the “Acquisition Agreement”) with the shareholders of GlobStream Technology Inc. (“GlobStream”) to acquire 100% of GlobStream, a Cayman Islands corporation for $156,000. GlobStream was founded by Dr. Wenjun Luo, one of our previous directors. In May 2009, we terminated the operations related to GlobStream because the mobile phone multi-media and advertising businesses of GlobStream were not performing well. Effective on August 1, 2009, the Company used the ownership in GlobStream to acquire from Beijing Hua Hui Hengye Investment Limited, the commercial income rights as detailed below – acquisition of commercial income rights.


On July 1, 2007, the Company acquired 100% interest of Sun New Media Transactional Services Limited (“SNMTS”), a company incorporated in Hong Kong, and its wholly owned subsidiary China Focus Channel Development Co., Ltd (“CFCD”), a company incorporated in the People’s Republic of China, from a third party for limited consideration.  In December 2009, the Company incorporated Key Prosper Holdings Limited (“KPH”), a company incorporated in the British Virgin Islands.


 Below is the organization chart in existence as of December 31, 2012:


[f10q123112_10q002.gif]


Acquisition of commercial income rights


On August 1, 2009, the Company entered into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Ltd. (“Hua Hui”), an unaffiliated PRC company. Hua Hui is a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resorts, hotels, and apartment properties in popular tourist and other destinations within the PRC. Under the Agreement, we received from Hua Hui the commercial income rights to 10,000 square meters of a 17 story apartment building in the Huadun Changde International Hotel’s Apartment Complex located in the city of Changde, Hunan Province (“Project”). The Project is currently under development by Changde Hua Hui Construction Investment Co., Ltd.(“Changde Hua Hui”), a 99.33% owned subsidiary  of Hua Hui. Changde Hua Hui also agreed to convey to us the commercial income rights to 10,000 square meters of the Project.



6



CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(1)  DESCRIPTION OF BUSINESS AND ORGANIZATION – CONTINUED



The Apartment Complex consists of a total of 215,000 square meters located on an approximately 3.6 acre piece of land. The Project when completed, at second quarter of calendar year 2013, will be comprised of a total 128 apartments, of which we will have the commercial rights to approximately 60 apartments. The commercial income rights means the exclusive right to own and/or receive any and all income and proceeds derived from these apartments pursuant to this Project in any capacity which were valued at approximately $8,777,000 by an independent valuation firm and we agreed to pay a total of $7,317,000 as consideration. In exchange, we agreed to issue to Hua Hui,2,774,392 shares of our common stock valued at $2.4 per share (the closing price of the Company’s common stock on the transaction date, August 1, 2009 after giving effect of 20 for 1 reverse split) for a total stock value of $6,658,536 and transferred to Hua Hui certain other Company assets valued at $658,241. These assets consisted of all of our shares of the GlobStream, certain assets of both Sun New Media Transaction Services Limited and China Focus Channel Development Co., Ltd, and other miscellaneous assets of ours.


On September 8, 2009, we satisfied the issuance of the 2,774,392 shares by issuing 832,318 shares to Wise Gold Investment Ltd., a British Virgin Island company acting on behalf of Hua Hui. On that same date, we also issued 1,942,074 shares of common stock to Blossom Grow Holdings Limited, a British Virgin Island company, as escrow agent under an escrow agreement by and among us the escrow agent, and Hua Hui. The escrow agent will hold the escrow shares pending completion of the Project which is expected to occur at or near the end of calendar 2010. If the escrow agent receives written instructions from the Company that the Project is completed in accordance with the terms of the Agreement, the escrow agent will release the escrow shares to Hua Hui. However, if after the projected completion date, the Project has not been completed, the escrow shares will continue to be held at escrow for one year. If after one year, the project still has not been completed, then the Company and Hua Hui will negotiate an agreement to deal with the escrow shares. On December 5, 2011, the Company entered into a Supplemental Agreement with Hua Hui and Blossom Grow Holdings Limited, pursuant to which, the escrow agent will hold the escrow shares to August 31 2012. Due to change of decoration structure and style and the impact of sever weather, Hua Hui has informed us that the Project is expected to be completed during the second quarter of calendar year 2013. On September 1, 2012, the Company entered into second Supplemental Agreement with Hua Hui and Blossom Grow Holdings Limited, pursuant to which, the escrow agent will hold the escrow shares to August 31 2013. All permits concerning the Project have been acquired from governmental authorities, and the construction of the Project is approximately 95% completed as the date of this report. During the escrow period, Hua Hui will be able to vote such shares provided it has reached an agreement with us on such matter(s). Otherwise, the escrow agent will not vote on such matter(s). As a result, Hua Hui and Mr. Menghua Liu, Hua Hui’s Chairman and majority shareholder and the Company’s Chairman and Chief Executive Office, are deemed the beneficial owner of such shares. After giving effect to the transaction, Hua Hui became the Company’s majority shareholder and beneficially owns approximately 84.8% Company’s outstanding shares.


With respect to the Project, Changde Hua Hui will perform the actual unit sales. We expect to pay Changde Hua Hui a sales commission of not less than 0.5% and not more than 8% of the unit sales price and we will receive the remainder of the unit sales price.  As of the date of this report, we do not have any formal agreements or arrangements with any developer or Changde Hua Hui for fees that we will earn, or fees that we will pay Changde Hua Hui.




7



CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(2)

SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES


(a)

 Basis of Presentation and Consolidation


The accompanying unaudited consolidated financial statements of China Grand Resorts, Inc. (“CGND”) and its wholly owned subsidiaries including Sun New Media Transaction Service Ltd. (“SNMTS”), China Focus Channel Development Co., Ltd (“CFCD”) and Key Prosper Holdings Limited (“KPH”), defined herein below, collectively referred to as the “Company” or “we" have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with US GAAP have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of such consolidated financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's most recent audited consolidated financial statements and notes included in its annual report on Form 10-K for the fiscal year ended September 30, 2012 filed on December 31, 2012. Operating results for the three months ended December 31, 2012, are not necessarily indicative of the results that may be expected for longer periods or the entire year.


The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“USGAAP”)and applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.


The consolidated financial statements include the accounts of the Company and its subsidiaries, SNMTS, CFCD and KPH. All inter-company balances and transactions between the entities have been eliminated in consolidation.


Certain amounts in the prior year's consolidated financial statements and notes have been revised to conform to the current year presentation.


(b)

 Going Concern and Management Plan


As of December 31, 2012, the Company had an accumulated deficit totaling $11,248,837 and negative working capital $1,129,304. The Company suffered a loss of $70,074 for the three months ended December 31, 2012 and 265,250 for the year ended September 30, 2012. In view of the matters described above, the appropriateness of the going concern basis is dependent upon continuing operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


As a result of the transaction with Hua Hui as discussed in Note (1), we received the commercial income rights of the Project.


The Company is actively pursuing additional capital in an effort to fund its ongoing capital requirements, as well as seeking agreements with potential strategic partners to develop a new business strategy, other than its ownership of the commercial income rights to the Project.





8




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(2)

SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED


(c)

 Use of estimates


The preparation of the financial statements in conformity with US GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the years presented. Actual results could differ from those estimates. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in the Company's consolidated financial statements include allowance for doubtful accounts, estimated useful lives and contingent liabilities.


(d)

Foreign currency translation


The Company uses United States dollars (“U.S. Dollar” or “USD” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in their respective functional currency, Chinese Renminbi (“RMB”) and Hong Kong dollars (“HK$”), being the lawful currency in the PRC and Hong Kong, respectively. Assets and liabilities of the subsidiaries are translated from RMB or HK$ into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of operations and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.


The exchange rates used to translate amounts in RMB and HK$ into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:-


 

2012

2011

December 31,

RMB6.2855=$1

HK$7.7519= $1

RMB6.3009 = $1

HK$7.7724= $1

Three months ended December 31,

 RMB6.3133=$1

HK$7.7531= $1

RMB6.3279 = $1

HK$7.7827 = $1

 

  There is no assurance that the RMB amounts could have been, or could be, converted into U.S.dollars at the above rates.


(e)  Cash

 

 Cash consists of cash on hand and at banks which are unrestricted as to withdrawal or use. Management believes that the  

 banks which hold the Company’s cash are of high credit quality


(f)  Property and equipment


Property and equipment are recorded at cost less accumulated depreciation and amortization. Expenditures for major additions and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to general and administrative expense as incurred. Depreciation of property and equipment is computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the estimated useful life.




9




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(STATED IN US DOLLARS)


(2)  SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED


(f) Property and equipment - Continued


Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflect in operation.


The estimated useful lives of the assets are as follows:


Computer software

3 years

Office equipment

2-5 years

Leasehold improvement

Lease duration


(g)

Impairment of long-lived assets


Long-lived assets, including intangible assets with definite lives and property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.


Based on the Company’s assessment, there have been no events or changes in circumstances that would indicate any impairment of long-lived assets as of December 31, 2012 and 2011.


(h)

Fair value measurements


ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:


Level 1 -

Quoted prices in active markets for identical assets or liabilities.


Level 2 -   Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3 -Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.


The carrying values of cash and cash equivalents, other receivables, other payables, shareholders payables and related party payable approximate fair values due to their short maturities.


There was no asset or liability measured at fair value on a non-recurring basis as of December 31, 2012 and 2011.




10




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(STATED IN US DOLLARS)


(2)

SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED


(i)   Income taxes


The Company follows the liability method of accounting for income taxes in accordance with ASC 740 “Income Taxes”. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain. It is uncertain for the Company that the operating result in PRC will have profit and it is more likely than not that the Company will not realize the future benefit. Therefore, there was no deferred tax asset as of December 31, 2012 and 2011.


The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, "Interim Reporting".  The Company has determined an estimated annual effect tax rate.  The rate will be revised, if necessary, as of the end of each successive interim period during the Company's fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period. The income tax rate is 25% for the three months ended December 31, 2012 and 2011, and there is no income tax expenses in the three months ended December 31, 2012 and 2011due to the net loss occurred.


(j)

Revenue recognition


Revenue is recognized when the following four criteria are met as prescribed by U.S. Securities andExchange Commission (“SEC”) Staff Accounting Bulletin No. 104 (“SAB 104”): (i) persuasive evidence of an arrangement exists, (ii) product delivery has occurred or the services have been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured.


(k)  Loss per share


Basic earnings (loss) per share is computed on the basis of the weighted-average number of shares of the Company’s common stock outstanding during the fiscal years. Diluted earnings (loss) per share is computed on the basis of the weighted-average number of shares of the common stock plus any (loss) effect of dilutive potential common shares outstanding during the year using the if-converted method. As the Company has a loss, presenting diluted net loss per share is considered anti-dilutive and not included in the consolidated statements of operations.


(l)

Nonmonetary transactions


The Company accounts for nonmonetary transactions based on the fair value of the assets (or services) involved in accordance with the requirements of FASB ASC Topic 845, “Nonmonetary Transactions”.


(m)

Comprehensive income


Comprehensive income is defined as the change in equity of a company during the period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income (loss) and comprehensive income (loss) consist of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.




11




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(2)

SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED


(n)

Commitments and contingencies


The Company is subject to lawsuits, investigations and other claims related to operations, product, taxing authorities, environmental and other matters out of the normal course of business, and is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses and fees.  A determination of the amount of reserves and disclosures required, if any, for these contingencies are made after considerable analysis of each individual issue. The Company accrues for contingent liabilities when an assessment of the risk of loss is probable and can be reasonably estimated. The Company discloses contingent liabilities when the risk of loss is reasonably possible or probable.


(o)

Pension and employee benefits


Full time employees of the Company’s PRC subsidiary participate in a government mandated multi- employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The PRC labor regulations require the Company to accrue for these benefits based on certain percentages of the employees’ salaries. Cost for the pension and employee benefits for the three months ended December 31, 2012 and 2011 were $6,149 and $8,824, respectively.


(p)

Recently issued accounting standards


In July 2012, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2012-02 (“ASU 2011-12”), Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.


In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact on the Company’s financial position, results of operations, and cash flows.


Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.


(3)   CONCENTRATION OF CREDIT RISK


As at December 31, 2012 and 2011, approximately 99% of the Company’s cash represented cash balances deposited with banks located in the PRC. According to existing PRC laws and regulations, remittance of these cash balances out of the PRC is subject to various restrictions imposed by the PRC government. Remittance of these cash balances out of the PRC is subject to various restrictions imposed by the PRC government.


The Company does not have any off-balance-sheet credit exposure as a result of its customers.




12




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(4)

PROPERTY AND EQUIPMENT, NET

 

The following is a summary of property and equipment, at cost, less accumulated depreciation:


 

As of


December 31,

2012

 

September 30, 2012

 

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

Computer software

$

1,704

 

$

1,689

Office equipment

 

21,516

 

 

21,327

Leasehold improvement

 

20,253

 

 

20,076

 

 

43,473

 

 

43,092

Less: accumulated depreciation and amortization

 

(37,942)

 

 

(27,328)

Property and equipment, net

$

5,531

 

$

15,764


Depreciation and amortization expenses for the three months ended December 31, 2012 and 2011 were $ 10,326and $2,256 respectively.


(5)

OTHER PAYABLES


Other payables consist of the following:

  

                                            

 

 

December 31,

2012

 

September 30, 2012

 

 

(Unaudited)

 

(Audited)

      Professional Fees

$

14,000

$

20,000

      Office expenses

 

12,914

 

12,801

Total

$

26,914

$

32,801


(6)

RELATED PARTY TRANSACTIONS


 Loan from related parties

 

As of

 

December 31,

2012

 

September 30, 2012

 

(Unaudited)

 

(Audited)

 

 

 

 

 

 

  Redrock Capital Venture Limited (a)

$

100,281

 

$

100,281

  Beijing Hua Hui Hengye Investment Limited (b)

 


1,035,055

 

 

958,271

Total

$

1,135,336

 

$

1,058,552


(a)

Commencing in June 2009, we began receiving loans from time to time from Redrock Capital Venture Limited (“Redrock”), a shareholder, for working capital purposes. As of December 31, 2012, the amount due to Redrock is $100,281, which is due on demand and bears no interest. Redrock is a shareholder holding equity interest of approximately 2.8%.




13




CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(6)

RELATED PARTY TRANSACTIONS - CONTINUED


(b)

Commencing in October 2009, we began receiving loans from time to time from Hua Hui, our largest shareholder, for working capital purposes. As of December 31, 2012, the amount due to Hua Hui is$1,035,055 which is due on demand and bears interest at the prevailing rate charged by the PRC Central Bank. The interest accrued for the three months ended December 31, 2012 amounted to approximately $12,536 and the effective interest rate of the loans was 5.55%. The interest accrued for the three months ended December 31, 2011 amounted to approximately $9,127 and the effective interest rate of the loans was 5.24%.


(7)

CAPITAL STOCK


(a)

Common stock


On September 8, 2009, pursuant to the transaction with Hua Hui on August 1, 2009, the Company issued 832,318 shares of its common stock to Wise Gold Investment Ltd., a British Virgin Island company, acting on behalf of Hua Hui. In addition, on that same date, it issued 1,942,074 shares of common stock to Blossom Grow Holdings Limited, a British Virgin Island company, as escrow agent under an escrow agreement by and among the Company, the escrow agent, and Hua Hui.


On November 14, 2009, the Board of Directors resolved to return and retired the 500 treasury stock held by the Company.


Effective on November 16, 2009, we effected a 20 for 1 reverse split of our issued and outstanding common stock. This reverse stock split already gave retroactive effect in the computation of basis and diluted EPS for all period presented accordingly.


As of December 31, 2012, the Company had 3,272,311 shares issued and outstanding.


(b)

Warrants/options


On June 28, 2009, pursuant to the Acquisition Agreement made and entered into by the Company and GlobStream, the Company issued warrants to Mr. Luo Wenjun for the option to purchase 7,782 shares of common stock with an exercise price of $3 per share and an expiration after March 23, 2019.


These Warrants may be exercised, in whole or in part, by the Holder during the Exercise Period by (i) the presentation and surrender of this Warrant to the Company along with a duly executed Notice of Exercise specifying the number of Warrant Shares to be purchased, and (ii) delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise.

 

As of December 31, 2012, the Company had 7,782 common stock warrants outstanding.


(c)

2001 stock plan


In 2001, the Board of Director adopted a Stock Plan (“Plan”). Under the terms and conditions of the Plan, the Board of Directors is empowered to grant stock options to employees, consultants, officers and directors of the Company. Additionally, the Board will determine at the time of granting the vesting provision and whether the options will be qualified as Incentive Stock Options under Section 422 of the Internal Revenue Code (Section 422 provides certain tax advantages to the employee recipients). The Plan was approved by the shareholders of the Company on September 15, 2001. The total number of shares of common stock available under the Plan may not exceed 100. As of December 31, 2012, no options were granted under the Plan.



14



CHINA GRAND RESORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(7)

CAPITAL STOCK - CONTINUED


(d)

Development fund


In 2004, certain shareholders, directors, and officers entered into an agreement to establish a fund wherein 32,500 shares of common stock would be returned by the shareholders to the Company for cancellation and reissuance as incentives to compensate new officers, directors and other management team members based on the management effort and performance decided by the three shareholders.


On July 28, 2005, one of the shareholders returned 500 shares to the Company, which is treated as treasury stock at the face value and the premium as additional paid-in capital. The shares have been valued at a predecessor cost value of $0.02 per share and were held by the Company. On November 14, 2009, the Board of Directors resolved to return and retire these 500 shares.


(8)

RENTAL EXPENSE


In December 2009, we relocated our office to a new location in Beijing consisting of 192.70 square meters. The new Beijing office lease is from December 11, 2009 to December 10, 2011 and provides for monthly lease payment of $5,333 with two months period of free rent. In August 2011, we renewed this lease agreement from December 11, 2011 to December 12, 2012. The monthly lease payment is $6,253. Currently, Hua Hui, our majority shareholder, provides an office to us for free. However, Hua Hui may charge us in the future. We have not reach an agreement as of the date of this filing.


        Rental expenses for the three months ended December 31, 2012 and 2011 was $12,790.and $15,965 respectively.


(9)   LOSS PER SHARE


The following data show the amounts used in computing loss per share and the weighted average number of shares for the three months ended December 31, 2012 and 2011.  As the Company has a loss, presenting diluted net loss per share is considered anti-dilutive and not included in the consolidated statement of operations.


  

 

For the Three Months Ended

  

 

December 31,

  

 

2012

 

2011

Net loss

 

$

(70,074)

 

$

(65,434)

Weighted average number of common shares outstanding – basic and diluted

 

 

3,272,311

 

 

3,272,311

Loss per share - basic and diluted

 

$

(0.02)

 

$

(0.02)



15



CHINA GRAND RESORTS, INC.

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


(10)  INCOME TAXES


The entities within the Company file separate tax returns in the respective tax jurisdictions that they operate.


British Virgin Islands


Key Prosper Holdings Limited incorporated in the British Virgin Islands as exempted company is not subject to any income tax in the British Virgin Islands.


Hong Kong


SNMTS is generally subject to Hong Kong income tax on its taxable income derived from trade or businesses carried out in Hong Kong at 16.5% for the three months ended December 31, 2012 and 2011. However, as SNMTS has not generated any revenue or income, no provision for Hong Kong income tax has been made. As SNMTS has yet commenced operations, the expenses incurred are not deductible and no loss carry forward was thus resulted.


PRC


CFCD established in the PRC was subject to the PRC Enterprise Income Tax (“EIT”) at 33% prior to January 1, 2008.


The PRC Enterprise Income Tax Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises registered in the PRC. The New EIT Law provides a grandfathering on tax holidays which were granted under the then effective tax laws and regulations.The NEW EIT Law also imposes a withholding tax of 10% unless reduced by a tax treaty, for dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC for earnings accumulated beginning on January 1, 2008 and undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. As the PRC subsidiary is loss status, the Company has not provided for withholding taxes of its PRC subsidiary as of December 31, 2012 and 2011.


According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational or other errors made by the taxpayer or the withholding agent. The statute of limitations extends five years under special circumstances. In the case of transfer pricing issues, the statute of limitations is 10 years.


There is no state of limitations in the case of tax evasions. Accordingly, the income tax returns of China Grand Resorts, Inc. for the three months ended December 31, 2012 and 2011 are open to examination by the PRC state and local tax authorities.


As of December 31, 2012 and 2011, the Company did not have any significant temporary differences and carry forwards that may result in deferred tax. The Company has analyzed the tax positions taken or expected to be taken in its tax filing and has concluded it has no material liability related to uncertain tax positions or unrecognized tax benefits. The Company does not anticipate any significant increases or decreases to its liability for unrecognized tax benefits within the next 12 months.



16




CHINA GRAND RESORTS, INC.

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(STATED IN US DOLLARS)


 (11)   NON-MONETARY TRANSACTION


On August 1, 2009, we entered into a subscription and asset sale agreement with Hua Hui. Under the terms of the Agreement, we received from Hua Hui the commercial income rights to 10,000 square meters to a 17 story apartment building in the Huadun Changde International Hotel’s Apartment Complex located in the city of Changde, Hunan Province (“Project”). The Project is currently under development by Changde Hua Hui. In exchange, we agreed to issue to Hua Hui 2,774,392 shares of our common stock. As additional consideration, we transferred to Hua Hui all of our shares of the GlobStream Technology Inc., certain assets of both SNMTS and CFCD and certain assets of the Company.


According to ASC 845-10-S99, transfers of non-monetary assets to a company by its promoters or shareholders in exchange for stock prior to or at the time of the entity’s initial public offering normally should be recorded at the transferors' historical cost basis determined under GAAP.  In this transaction, Hua Hui became the controlling shareholder of the Company after it transferred the commercial income rights to the Company.  Therefore, the accounting principles in ASC 845-10-S99 were followed and the Company recorded the rights at its historical cost basis, which was internally developed and had zero basis.


According to ASC 845-10-30, the accounting for non-monetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis as that used in monetary transactions. Thus, the cost of a non-monetary asset acquired in exchange for another non-monetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange. The fair value of the asset received shall be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered. Similarly, a non-monetary asset received in a nonreciprocal transfer shall be recorded at the fair value of the asset received. A transfer of a non-monetary asset to a stockholder or to another entity in a nonreciprocal transfer shall be recorded at the fair value of the asset transferred and a gain or loss shall be recognized on the disposition of the asset. We recorded the disposal of the subsidiaries and assets at fair value. As the result of the transaction with Hua Hui, we experienced a loss on disposal of the above mentioned assets of $1,345,688 in fiscal year 2009.




17





ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the U. S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended(the “Exchange Act”). Such statements relate to, among other things, our future plans of operations, business strategy, operating results and financial position and are often, though not always, indicated by words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “outlook,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” and similar words or phrases. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief regarding future events, many of which by their nature are inherently uncertain and outside of our control. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, those described in the section titled “Risk Factors” previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2012, as well as the following:


  

  

our ability to implement and execute our current business plan, including the ability to sell the apartment units of the Project;

  

  

  

  

  

  

the economic conditions in the Changde market, the location of the apartment units and elsewhere in the PRC for our consulting and marketing business;

  

  

  

  

  

  

Laws and regulations implemented by the PRC government designed to temper the real estate market in the PRC;

  

  

  

  

  

  

our ability to execute key strategies;

  

  

  

  

  

  

actions by our competitors;

  

  

  

  

  

  

our ability to raise additional funds, including loans from affiliates, to execute our new business plan ;

  

  

  

  

  

  

risks associated with assumptions we make in connection with our critical accounting estimates;

  

  

  

  

  

  

potential adverse accounting related developments;

  

  

  

  

  

  

other matters discussed in this Quarterly Report generally.


Consequently, readers of this Quarterly Report should not rely upon these forward-looking statements as predictions of future events. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we access the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statement in this Quarterly Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Quarterly Report are expressly qualified by these cautionary statements.



18



Overview


We were organized under the laws of the State of Nevada on September 21, 1989. We engaged in a variety of business, described in part below, and effected various name changes prior to November 2009 when the name was changed to China Grand Resorts, Inc. Our subsidiary is Sun New Media Transaction Service Ltd. (“SNMTS”), a company incorporated in Hong Kong, which has a wholly owned subsidiary China Focus Channel Development Co., Ltd (“CFCD”), a company incorporated in People’s Republic of China. In December 2009, the Company incorporated Key Prosper Holdings Limited, a company incorporated in the British Virgin Islands on December 8, 2009, with 100% shareholdings.


During the three year period prior to December 2007, our principal business was providing marketing, brand management, advertising, media planning, public relations and direct marketing services to clients in the PRC. During December 2007 through January 2008, we re-directed our business towards providing mobile phone based services in the PRC. In January 2008, we divested ourselves of our advertising and marketing business.


On December 31, 2007, we acquired a 70% equity interest in Jiangxi Hongcheng Tengyi Telecommunication Company, Ltd (“JXHC”), a local reseller of top-up mobile minutes in Jiangxi Province. Effective March 31, 2009, we acquired a Provincial Class One Full Service Operator license for the Jiangxi Province, PRC. The Class One license enabled us to sell mobile phone based products within the Jiangxi province. During this period, we also acquired other mobile phone based technologies to compliment our existing technology. We sought to market these technologies in the Jiangxi Province of China through JXHC utilizing our recently acquired Class One license. However, due to a lack of operating funds and other factors beyond our control, JXHC was unable to effectively develop its business. Consequently, effective on March 31, 2009, we sold our ownership in JXHC to an unaffiliated third party for $100.


On March 30, 2009, we acquired additional mobile internet software technology through our acquisition of GlobStream Technology Inc. (“Globstream”) from its shareholders for $156,000. GlobStream was founded by Dr. Wenjun Luo, one of our former directors. In May of that same year, we terminated the operations related to GlobStream. Effective on August 1, 2009, we sold our ownership in GlobStream to Hua Hui.


On August 1, 2009, as previously disclosed herein, we entered into a subscription agreement with Beijing Hua Hui Investment Holding Ltd., an unaffiliated company organized under the laws of the PRC (“Hua Hui”). Hua Hui is a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within the PRC. Under the Agreement, we received from Hua Hui the commercial income rights (described herein) to 10,000 square meters of apartment space in the Huadun Changde International Hotel’s Apartment Complex located in the city of Changde in China’s Hunan Province (“Project”). The Project is currently under development by Changde Hua Hui Construction Investment Limited (“Changde Hua Hui”), a 99% owned subsidiary of Hua Hui. In exchange, we agreed to issue to Hua Hui subject to certain conditions, a total of 2,774,392 shares of our common stock which is valued at $2.40 per share (the closing price of our common stock on the transaction date (August 1, 2009) after giving effect of 20 for 1 reverse split) for a total stock value of $6,658,536. As additional consideration, Hua Hui received from us all of the shares of the GlobStream Technology Inc., our wholly owned subsidiary, certain assets of Sun New Media Transaction Services Limited and China Focus Channel Development Co., Ltd, and certain other miscellaneous assets of us which were valued at $658,241.


Our Current Business Strategy


General


Hua Hui and its affiliates, including Changde Hua Hui, are a PRC real estate construction and development group that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within the PRC. As a result of the transaction with Hua Hui, we intended to become a leading specialty real estate consulting and marketing company for tourism projects in the PRC. Initially, our plan was to market the commercial rights to the Project that we received from Hua Hui. We further planned on expanding our business by using existing resources and knowhow of our affiliates and other parties to engage in providing consulting and marketing services for real estate developers. However, beginning in late 2009 and continuing through 2012, the PRC State Council adopted a number of initiatives designed to cool a perceived overheated real estate market. As a result, the Company has suspended its plans to engage in consulting and marketing services for real estate developers. Presently, apart from the Project (discussed below), we are evaluating other markets and business opportunities, including subject to market conditions its previously proposed real estate consulting business, however, as of the date of the report, it has not committed to any specific market or business opportunity.



19



General - Continued

 

With respect to the Project, Changde Hua Hui will be responsible for all project marketing and actual unit sales. We expect to pay Changde Hua Hui a sales commission of not less than 0.5% and not more than 8% of the unit sales price and we will receive the remainder of the unit sales price.  As of the date of this report, we do not have any formal agreements or arrangements with any developer or Changde Hua Hui for fees that we will earn, or fees that we will pay Changde Hua Hui.


The Project


As mentioned above, the Project consists of 10,000 square meters of apartment space in the concerning Building of the Huadun Changde International Hotel’s Apartment Complex, a 17 story building, located in the city of Changde, Hunan Province (“Project”). The Project is currently under construction by Hua Hui. Changde is a popular tourist destination located in China’s central Hunan province. Upon completion, the Complex will consist of a total of 215,000 square meters located on an approximately 3.6 acre piece of land that has access roads on the North, East, and West. The city is accessible by rail and air and is in close proximity to several tourist, scenic, and commercial areas. The Project is in close proximity to several tourist, scenic, and commercial areas. Construction began on June 1, 2009 and initially was expected to be completed on December 31, 2010. However, due to change of decoration and style implemented by Hua Hui and the impact of severe weather, Hua Hui has informed us that the Project is expected to be completed in the second quarter of calendar year 2013. All permits concerning the Project have been acquired from governmental authorities, and the construction of the Project is approximately 95% completed as of the date hereof. We also have acquired the pre-sale permits for the sale of the apartments from the local real estate authority.

 

The Project when completed will be comprised of a total number of 128 apartments. The units are expected to range in size from 120 square meters to 210 square meters. Under current market conditions, we expect that the price of the apartment units to be approximately RMB3,880 ($616) per square meter, subject to market conditions. The units when sold will be unfurnished. Hua Hui began pre-completion marketing efforts in the mid-calendar 2010. In this regard, Hua Hui has initiated advertisements in the Changde airport, the Changde Evening paper and the Hunan Morning paper, Hua Hui also initiated advertisements in the Changde TV and the Changde broadcasting station. Hua Hui have initiated a text messaging program to potential buyers and posted advertisements on an outdoor billboard on the main street of Changde City. Finally, Hua Hui has printed sales brochures, hosted potential buyers and commenced website design for the Project. A sales center and several model units with respect to the Project were completed by Hua Hui in late November 2010. Potential buyers can tour these models to gain appreciation of the design, structure and appearance of the units. We have actively collaborated with Hua Hui with regard to the content of information contained in the outdoor billboard and print media, as well as the design of the sales center. We expect to play an active role in Hua Hui’s future marketing plans. In any pre-completion sale, the amount of the down payment that we will be able to obtain from a buyer is subject to the housing policy of governing real estate authorities. The current policy allows for a down payment ranging from 30% to 50% of the sales price dependent on the property size. As mentioned, Changde Hui Hua will act as the sales agent and is expected to receive a sales commission of not less than 0.5% and not more than 8% of the unit sales price. Changde Hua Hui has informed us that in course of selling the units, it will act in good faith in selling the units and will not act preferentially toward selling its units over the units of the Company. However, at the present time, the Company does not have a formal agreement with Changde Hua Hui regarding sales commission or the manner of sale with respect to the units. As of the date of this filing, we have not sold any of the units.


Our estimated working capital budget for the next 12 months is approximately $128,000 which relate principally to costs of our executive offices. This amount is comprised of $47,000 in professional fees, $61,000 in salaries and related personnel costs, and $20,000 in miscellaneous expenses. We will not incur any costs of marketing the Project. In addition, Hua Hui, our majority shareholder, may provide an office to us for free, however, we have not reach an agreement as of the date of this filing. As a result, we have not included rent on our budget. We expect to generate revenues from the sale of the apartment units at the second quarter of calendar year 2013. Thereafter, subject to the foregoing, we believe that revenues from the Project will be sufficient to fund our ongoing working capital needs.

 

Our business strategies are subject to certain risks and uncertainties, including our ability to raise additional funds in the future. We cannot predict whether we will be successful in any of business strategies. We do not anticipate seasonal fluctuations in our business.



20



Results of Operations


Unless otherwise indicated, all amounts are in U.S. Dollars.


Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011


Total Revenues and Gross Margin

For the three month period ended December 31, 2012, we were waiting on the completion of the Project, and as a result, we had no revenues from operations or gross margins. During the comparable period in 2011, we had no revenues and related expenses from our consulting business due to the general slowdown in economic activity in the PRC during such period. We terminated our consulting business in 2011.


Loss from Operations

During the three months ended December 31, 2012, we incurred general and administrative expenses of $47,215 compared with $53,949 for the three months ended December 31, 2011. The decrease in general and administrative expenses is primarily due to decrease in staff headcount. We also had $10,326 in depreciation and amortization for the three months ended December 31, 2012 compared with $2,256 for the comparable three months ended December 31, 2011. This was mainly attributed to the increase in the depreciation of the leasehold improvement, as we moved our office in December 31, 2012. Our loss from operations for the three months ended December 31, 2012 was $57,541 compared to $56,205 for the three months ended December 31, 2011. The difference between the periods is due to higher depreciation and amortization expenses and the decrease of general and administrative expenses discussed above.

 

Other expense

Other expense for the three months ended December 31, 2012 is $12,533, which mainly is the interest expense related to the loans from Hua Hui for the period. For the corresponding period in year 2011, other expense is $9,229which mainly is the interest expense related to the loans from Hua Hui. The increase in other expense is a result of higher principal loan amounts from Hua Hui during the current period. During the current period, we received $64,248 in loans from Hua Hui. Our loan balance in favor of Hua Hui was $1,035,055 and $793,258, as of December 31, 2012 and 2011, respectively.


Net loss

As a result of the foregoing, our net loss was $70,074for the three months ended December 31, 2012 compared to a net loss of$65,434for the three months ended December 31, 2011. The difference is due to the reasons discussed above.


Comprehensive loss

During three months ended December 31, 2012, we had a foreign currency translation loss of $ 8,668compared with a loss of $6,048 for the three months ended December 31, 2011. The difference is due to fluctuation of value of US dollar against RMB. As a result of all of the issues mentioned above, we had a total comprehensive loss of $78,742 for the three months ended December 31, 2012 compared with a total comprehensive loss of $71,482 for the comparable three months ended December 31, 2011.


Liquidity and Capital Resources


We finance our operations primarily through cash generated from operating activities, a mixture of short and long-term loans (including loans from affiliates) and issuance of common stock.


The following table summarizes our cash flows for the nine months ended December 31, 2012 and 2011:

 

 

Three Months Ended

December 31,

 

2012

 

 

2011

Net cash used in operating activities

$

(33,881)

 

 

$

(54,184)

Net cash provided by financing activities

$

64,248

 

 

$

74,593

Effect of exchange rate fluctuations on cash and cash equivalents

$

(8,761)

 

 

$

(177)

Net increase/(decrease) in cash and cash equivalents

$

21,606

 

 

$

20,232

Cash and cash equivalents (closing balance)

$

22,517

 

 

$

26,599




21




The net cash used in operating activities for the three months ended December 31, 2012 was negative $33,881compared with net cash used in operating activities of negative $54,184, for the three months ended December 31, 2011. The difference of $20,303 is primarily due to the reduction of other receivables, as we collected the security deposit for the office lease terminated in December 2012, and the increase of finance cost during the three months ended December 31, 2012.


The net cash used in investing activities for the three month ended December 31, 2012 and 2011 was $0.


The net cash provided by financing activities for the three month ended December 31, 2012 was $64,248 compared with net cash provided by financing activities of $74,593for the three month ended December 31, 2011. The difference of $10,345is mainly due to the decrease of loan from related parties during the three months ended December 31, 2012.


The effect of the exchange rate on cash was a loss of $8,761 for the three months ended December 31, 2012, compared with a loss of $177 for the three months ended December 31, 2011. The difference is due to fluctuation of value of US dollar against RMB.


The difference between the closing balance of cash and cash equivalents for the three months ended December 31, 2012 and 2011 is due to the reasons mentioned above.


Capital Requirements for the Next 12 Months


We continue to experience significant losses from operations. As discussed below, we anticipate that we will generate sales from the Project commencing at the second quarter of calendar year 2013. However, we nonetheless have an immediate need for capital to conduct our new business endeavors as well as our ongoing working capital needs. We anticipate raising capital through additional private placements of our equity securities, and, if available on satisfactory terms, debt financing. It is conceivable that funding of all or part of the budget required above may come from Hua Hui, our largest shareholder, or Redrock Capital Venture Limited, a shareholder. Commencing in June 2009, we began receiving loans from Redrock Capital Venture Limited. As of December 31, 2012, the amount due to Redrock is $100,281, in which the amount is due on demand and bears no interest. In addition, commencing in October 2009, we received loans from Hua Hui, our majority shareholder, in various increments totaling approximately $958,271 as the date of this report. These loans are due on demand and bear interest at the prevailing rate charged by the PRC Central Bank on the payment date.


However, we do not have any agreements, arrangements or commitments with or guarantees from any party, including our largest shareholder or Redrock, to provide funding to us. We cannot guarantee that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may force us to restructure, file for bankruptcy, sell assets or cease operations, any of which could adversely impact our business and business strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing, including transactions with affiliates which may include equity conversions of outstanding loans, will likely create significant dilution to the then existing shareholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant dilution to existing shareholders.


Our estimated capital budget for the next 12 months is as follows:


$128,000 for our executive offices expenditures, which includes $61,000 in salaries and related costs of personnel, $47,000 in professional fees, and $ 20,000 in miscellaneous office expenditures. 


We expect to generate revenues from the sale of the apartment units at the second quarter of calendar year 2013. Thereafter, the Company believes that revenues from the Project will be sufficient to support our ongoing capital working needs for the ensuing six to twelve month period. However, our projections are subject to certain risks and uncertainties, including our ability to raise additional funds in the near future. We cannot predict whether we will successful with any of business strategies.


Contractual Obligations

 

In December 2009, we relocated our office to a new space in Beijing. The initial term of this office lease was from December 11, 2009 to December 10, 2011 with a monthly lease payment of $5,333 with two months period of free rent. In August 2011, we renewed this lease agreement from December 11, 2011 to December 12, 2012 with new monthly payment of $6,253. This lease has been expired on December 12, 2012. Currently, Hua Hui, our majority shareholder, provides an office to us for free. However, Hua Hui may charge us in the future. We have not reach an agreement as of the date of this filing. The lease expenses for the year ended September 30, 2012 amounted to $75,418 and, as of September 30, 2012, the total lease commitment for the year ended September 30, 2013 is $14,856.



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CRITICAL ACCOUNTING POLICIES


Our significant accounting policies are described in Note 2 to our consolidated financial statements included in the annual report for the year ended September 30, 2012. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management’s judgment.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

FASB Establishes Accounting Standards Codification


In April, 2011, the FASB issued ASU No. 2011-02 “Receivables (Topic 310)”. The purpose of this Update is to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether are structuring constitutes a troubled debt restructuring. Diversity in practice could adversely affect the comparability of information for users about restructurings of receivables. None of the new pronouncements has current application to the Company.


In September, 2011, the FASB issued ASU No. 2011-09 “Compensation—Retirement Benefits— Multiemployer Plans (Subtopic 715-80))”. The purpose of this Update is to address concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Similarly, in some cases, if an employer chooses to stop participating in a Multiemployer plan, the withdrawing company may be required to pay to the plan a final payment (the withdrawal liability). Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this Update will require additional disclosures about an employer’s participation in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans. In developing the new guidance, the FASB’s goal was to help users of financial statements assess the potential future cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. None of the new pronouncements has current application to the Company.


In December, 2011, the FASB issued ASU No. 2011-10 “Property, Plant, and Equipment (Topic 360)”, the purpose of this Update is to resolve the diversity in practice about whether the guidance in Subtopic 360-20 applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This Update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. None of the new pronouncements has current application to the Company.


In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, “Comprehensive Income”. This ASU effectively defers the changes in ASU No. 2011-05, “Presentation of Comprehensive Income” that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. ASU No. 2011-12 should be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this policy effective January 1, 2012. None of the new pronouncements has current application to the Company.


Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.



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OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS


We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.


Revenue Recognition

 

We rely on SEC Staff Accounting Bulletin: No. 104 “Revenue Recognition in Financial Statements” (“SAB 104”) (ASC No.605) to recognize our revenue. SAB 104 in establishing our accounting policy states that revenue generally is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.


Income Taxes

 

We account for income taxes under ASC No 740, “Income Taxes”. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income using the balance sheet liability method at the effective rate applicable in China in our consolidated statements of operations and comprehensive loss. There is no income tax expenses in 2011 and 2012 due to net loss occurred.


ITEM 4/4T CONTROLS AND PROCEDURES


Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal controls


There were no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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PART II - OTHER INFORMATION

 

ITEM 6. EXHIBITS.

  

 

 

 

31.1

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

  

  

31.2

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

  

  

32.1

  

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

  

  

32.2

  

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002









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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  

China Grand Resorts, Inc.

  

  

Date: February 5, 2013

By:  

/s/Menghua Liu

  

  

Menghua Liu

Chief Executive Officer and Acting Chief Financial Officer





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