(1) DESCRIPTION OF BUSINESS AND ORGANIZATION
China Grand Resorts, Inc. (CGND) and its wholly owned subsidiaries Sun New Media Transaction Service Ltd. (SNMTS), China Focus Channel Development Co., Ltd (CFCD) and Key Proper Holdings Limited (KPH), financial statements defined herein below, collectively referred to as the Company or we" have been prepared in accordance with accounting principles generally accepted in the United States of America( US GAAP).
On November 16, 2009, the Company effected a 20 for 1 reverse split of our issued and outstanding common stock. The par value and our total number of authorized shares were unaffected by the reverse stock split. All shares and per share amounts in these consolidated financial statements and note thereto have been retrospectively adjusted to all periods presented to give effect to the reverse stock split.
The Company was incorporated in the state of Nevada on September 21, 1989 under the name Fulton Ventures, Inc.
On March 30, 2009, we completed an acquisition pursuant to an Acquisition Agreement (the Acquisition Agreement)with the shareholders of GlobStream Technology Inc. (GlobStream) to acquire 100% of GlobStream, a Cayman Islands corporation for $156,000.GlobStream was founded by Dr. WenjunLuo, one of our previous directors. In May 2009, we terminated the operations related to GlobStream because the mobile phone multi-media and advertising businesses of GlobStream were not performing well. Effective on August 1, 2009, the Company used the ownership in GlobStream to acquire from Beijing Hua Hui Hengye Investment Limited, the commercial income rights as detailed below acquisition of commercial income rights.
On July 1, 2007, the Company acquired 100% interest of SNMTS, a company incorporated in Hong Kong, and its wholly owned subsidiary CFCD, a company incorporated in the Peoples Republic of China, from NextMart Inc. for $1. In December 2009, the Company incorporated KPH, a company incorporated in the British Virgin Islands.
Below is the organization chart in existence as of September 30, 2012:
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 Hotels 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.
Acquisition of commercial income rights - continued
The Apartment Complex consists of a total of 215,000 square meters located on an approximately 3.6 acre piece of land. The Project when completed, 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 Companys 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 another 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 Huis Chairman and majority shareholder and the Companys Chairman and Chief Executive Office, are deemed the beneficial owner of such shares. After giving effect to the transaction, Hua Hui became the Companys majority shareholder and beneficially owns approximately 84.8% Companys 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.
(b) Nature of prior businesses
In January 2008, our business focus was based on the interest acquisition in Jiangxi HongchengTengyi Telecommunication Company, Ltd (JXHC) and the Provincial Class One Full Service Operator license for the Jiangxi Province from Union Max Enterprises Ltd. We attempted to provide ancillary services for cell-phone customers in Jiangxi Province whereby customers could buy minutes on the fly using their debit card or bank account. However, in December 2008, due to third party issues which negatively affected our ability to launch that business, we determined to terminate that business which resulted in a sale of our interests to an unaffiliated third party effective in March 2009 for $100.