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, 2009
[ ] 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
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.)
of incorporation or organization)
855 Bordeaux Way Suite 200, Napa, California 94558
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (707) 254-8880
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Units of Common Stock and Warrants to Purchase Common Stock
-----------------------------------------------------------
Common Stock, par value $.0001 per share
----------------------------------------
Warrants to purchase shares of Common Stock
-------------------------------------------
(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 completed second fiscal
quarter: $14,700.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,647,687 shares of common stock,
par value $0.0001 per share, 26,927,018 warrants and 31,609 units as of March
26, 2010.
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.
RECENT 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,
Wilkens and Birtcher is set forth in "ITEM 10. DIRECTORS, OFFICERS AND CORPORATE
GOVERNANCE" below. The funds for the purchase of the shares came personally
from Messrs. Gidumal and Birtcher, and from the accounts of the Wilkens Trusts.
GGH purchased the shares to pursue a business opportunity through the Company.
For more information about this business opportunity, see "The Company's New
Business" below.
-1-
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 the new 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 NEW BUSINESS
GENERAL
As a result of the change in control of the Company, the Company is
adopting a significant change in its corporate direction. The Company has
decided to focus its initial efforts on a plan of operation that would focus 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 has created opportunities in the 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." Huliq News has reported that
total residential foreclosures in the United States for the two years and nine
months ending with the third quarter of 2009 numbered 7,827,219, with the
possibility of the total number of foreclosures reaching 25 million before the
housing crisis ends. These adverse developments in the United States residential
market have had a devastating effect on housing prices. On September 29, 2009,
SEATTLEPI.COM reported that the S&P/Case-Schiller Home Price Index released on
that date indicated that home prices in 20 metropolitan areas in the United
States were down about 33% from a mid-2006 peak.
Due to the current economic decline 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.
-2-
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 the recent
upward movement of the S&P/Case-Schiller Home Prices Index 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. Tim Wilkens, the
Company's Chief Executive Officer, is a veteran of the Houston real estate
market that went sour in the mid 1980's as oil prices crashed. During the
1980's, Mr. Wilkens led the acquisition of over 600 properties in Houston. Mr.
Wilkens believes that an opportune time has arisen in many U.S. real estate
markets akin to the real estate market that emerged in Houston during the late
1980's.
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. The inventory of foreclosed REO ("real estate
owned" by banks) town homes and condominiums in California (the Company's
primary target areas) numbers approximately 37,000 properties that need
resolution.
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 extensive background of the Company's new management in real
estate and distressed situations to grow the Company's new
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 will strive
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 new 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 that the Company is
developing 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 unique overseas distribution network, to facilitate
their domestic sales process.
-3-
* Use a unique, exclusive sales and marketing distribution network
within China for properties to be marketed and sold through the
Company's marketing agreement with 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.
The Company believes that this approach will attract 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.
* Rapidly turn over inventories of properties to Chinese and other
international buyers. The Company will strive to sell entire
projects within two to six months of their initial consignment or
acquisition, as the case may be. Rapid turnover of properties
should lead to an efficient use of capital.
Property Selection
------------------
The Company's management will make all decisions in identifying and
selecting prospective target properties. The Company will use a rigorous
selection process to bring value to its buyer-clients. In searching for and
evaluating prospective target properties, the Company intends to use 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;
* Focus on well-built, new construction near 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.
-4-
The Company has established general attributes and criteria for prospective
target properties. In evaluating a prospective target property, the Company's
management will consider, 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 will conduct an extensive due diligence review that will
encompass, 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 will be conducted either by the Company's
management or by unaffiliated third parties the Company may engage.
-5-
The time and costs required to select and evaluate a target property and to
structure and complete the consignment or acquisition cannot presently be
ascertained with any degree of certainty. Any costs incurred with respect to the
identification and evaluation of a prospective target that is not ultimately
completed will result in a loss to the Company and reduce the amount of capital
available to otherwise complete other transactions.
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 class to wealthy class in China, home ownership had been unattainable
under prior Chinese law, but that has changed in recent years. However, 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 supplier of U.S. residential properties has stepped in to fill
this need. The Company plans on introducing Chinese buyers to U.S. residential
properties where they currently have no access. The Company plans on providing
"one-stop" shopping to the "retail" buyer that wants to own one or more
California properties. The Company expects that it will, as an assistance to
its overseas buyers: (i) perform the property due diligence, (ii) assist in
arranging the bank financing, (iii) manage the buyer's property (find tenants,
collect rents, pay bills from owner account, etc.) through a separate affiliated
property management firm, and (iv) send quarterly statements to the property
buyer/owner.
The Company will focus on marketing 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.
-6-
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
2009, Chinese citizens would have been required to pay only 39% 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
Avg. CA Yuan / Avg. CA Yuan Index to
Year Home Price($)(3) 1US$(2) Home Price(Yuan) Buy Home(1)
---- ------------- ---- ---------------- --------
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
(1) Index uses 2005 as the base year = 100. Note 2005 was the last year before
the Yuan began to float.
(2) Exchange rate as of June of each year, per Bloomberg.
(3) Avg. CA Home Price from "California Realtors"' website
-7-
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.
Management believes that Premier Capital is one of the most reputable
international real estate consulting firms in Asia and China, and is highly
regarded for selling international properties throughout China and other parts
of Asia. 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 on which the Company will
initially focus. Premier Capital also has offices in Australia, Singapore and
New Zealand.
Under the exclusive marketing agreement, the Company has appointed Premier
Capital as the Company's exclusive agent for purposes of marketing properties
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 will pay the bulk of the expenses arising in
connection with the marketing of Approved Properties in Hong Kong and China,
although Premier Capital will bear some of these expenses as well. For its
services, Premier Capital will be 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 an almost 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.
PLAN OF OPERATION
GENERAL
-------
The Company intends to engage primarily in 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 capital raising
transaction, it will also consider purchasing similar assets for resale to the
same target market.
-8-
PROPOSED INITIAL ACTIVITIES
-----------------------------
Thus far, the Company has been engaged in preliminary activities relating
to the launch of the Company's plan of operation. The Company expects to
commence its plan of operation in earnest by the spring of 2010. However, the
commencement of this plan of operation depends in part on the procurement of
consignment properties and necessary capital, as discussed in "ITEM 7.
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CHANGES IN FINANCIAL CONDITION-Liquidity and Capital Resources".
The Company's initial 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, consignment
agreements or outright ownership of certain properties. 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. The Company believes it will have adequate
capital to achieve its initial business objectives, particularly upon the
completion of the raising of its "seed" capital from its management and persons
working with the Company as described in "ITEM 7. MANAGEMENTS' DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CHANGES IN FINANCIAL
CONDITION-Liquidity and Capital Resources". To the extent that the Company is
able to complete larger capital raising transactions, it will be able to pursue
a more expansive plan of operation.
EMPLOYEES.
The Company currently has 6 employees, of which 2 are full-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.
-9-
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 a business opportunity through the Company,
pursuant to which the Company will seek 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--Recent Change
in Control". Currently, we have entered into several letters of intent for
option agreements to acquire residential properties for sale through our
distribution partner in China. However, to date, we have established no 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 no revenues. Our future liquidity will depend upon
numerous factors, including the success of our residential property sales
efforts and our capital raising activities. We believe we have sufficient funds
to run our business for at least the next 12 months but for our long-term
stability we will need funds to finance our day-to-day needs, if sales do not
materialize within that timeframe. We plan to finance our operations for the
next 12 months through cash flow from consignment 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. Moreover, there can
be no assurance that we will realize the unit sales that we are now
anticipating. 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.
WE DEPEND ON CERTAIN KEY PERSONNEL.
We substantially depend upon the efforts and skills of Steven Gidumal, a
director and the Chairman of the Company, Tim Wilkens, a director and the Chief
Executive Officer of the Company and Brandon Birtcher, the President of the
Company. The loss of Mr. Gidumal's, Mr. Wilkens' or Mr. Birtcher's 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, Mr. Wilkens or Mr. Birtcher.
-10-
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, Tim Wilkens (through two family
trusts he controls) and Brandon Birtcher, currently own (directly or indirectly)
approximately 96.5% 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.
WE MAY EXPERIENCE RAPID GROWTH, AND IN SUCH CASE WE WILL NEED TO MANAGE
THIS GROWTH EFFECTIVELY.
We believe that, given the right business conditions and opportunities, we
may expand our operations rapidly and significantly. If rapid growth were to
occur, it could place a significant strain on our management, operational and
financial resources. To manage any significant growth of our operations, we
will be required to undertake the following successfully:
-11-
* Manage relationships with various strategic partners and other third
parties;
* Hire and retain skilled personnel necessary to support our business;
* Train and manage a growing employee base; and
* Continually develop our financial and information management systems.
If we fail to make adequate allowances for the costs and risks associated with
this expansion or if our systems, procedures or controls are not adequate to
support our operations, our business could be harmed. Our inability to manage
growth effectively could materially adversely affect our business, results of
operations and financial condition.
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 during the current recession. 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.
-12-
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 intend to broaden our
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 WILL RELY ON A NUMBER OF THIRD PARTIES, AND SUCH RELIANCE EXPOSES US TO
A NUMBER OF RISKS.
Our operations will depend on a number of third parties. We will have
limited control over these third parties. We will 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 will be
reliant 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 four-year agreement with Premier Capital, 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 New Business - Strategic Partner
and Exclusive Marketing Agreement". We will also rely upon the services of
California based banks to provide mortgage financing to our international
buyers. The Company currently is in discussion with a number of banks
interested in making mortgage loans to Chinese citizens, and while the level of
interest in partnering with the Company appears high, there is no guarantee that
such a relationship can be achieved. In addition, we will 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.
-13-
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 will focus on marketing real estate located in the United
States to foreign buyers, we will be 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 will
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 acquire 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.
-14-
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 855 Bordeaux Way, Suite 200, Napa,
California 94558. 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.
-15-
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, warrants, and units are currently
quoted on the Over the Counter Bulletin Board under the symbols GNGT.OB,
GNGTW.OB and GNGTU.OB, respectively. Each unit of the Company consists 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 entitle 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 will expire 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 is a Saturday, the Company has
determined that it will allow holders of the warrants to exercise the warrants
until 5:00 p.m., New York City time, on Monday, April 12, 2010, although due to
the high exercise price, management does not expect any warrants will be
exercised. 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,
2009 and 2008, and does not give effect to the 1-for-35 reverse stock split.
Common Sock Warrants Units
Quarter Ended High Low High Low High Low
------------------------------------------------------------------------------
March 31, 2009 $0.03 $0.0021 $0.0001 $0.0001 $0.011 $0.011
June 30, 2009 $0.0033 $0.0025 n/a n/a $0.011 $0.011
September 30, 2009 $0.049 $0.004 $0.0001 $0.0001 $0.011 $0.011
December 31, 2009 $0.041 $0.0055 $0.0001 $0.0001 $0.013 $0.013
Source: Bloomberg historical pricing. Does not give effect to 1-for-35
reverse stock split.
Common Sock Warrants Units
Quarter Ended High Low High Low High Low
March 31, 2008 $6.50 $5.54 $0.2001 $0.0002 $6.25 $5.75
June 30, 2008 $6.34 $0.02 $0.0100 $0.0001 $6.15 $5.80
September 30, 2008 $0.05 $0.01 $0.0070 $0.0001 $0.03 $0.03
December 31, 2008 $0.02 $0.01 $0.0050 $0.0001 $0.03 $0.02
-16-
HOLDERS
As of December 31, 2009, there were approximately five holders of record of
our common stock, three holders of record of our warrants, and one holder of
record of our units. It is likely that the actual number of beneficial holders
exceeds these amounts.
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.
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.
-17-
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 opportunity through the Company, pursuant to
which the Company will seek 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-- Recent Change in
Control". Currently, we have entered into several letters of intent for option
agreements to acquire residential properties for sale through our distribution
partner in China. For a more complete description of the Company's new
direction, see "ITEM 1. BUSINESS-OVERVIEW-The Company's New Business". In
connection with the change of control that occurred on December 31, 2009, James
P. Wilson and Keith D. Spickelmier released the Company from interest that had
accrued on the Promissory Notes in the amounts of $42,611.18 and $34,863.70,
respectively. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES-RECENT SALES OF
UNREGISTERED SECURITIES."
RESULTS OF OPERATIONS
Comparison of Fiscal Year Ended December 31, 2009 to Fiscal Year Ended
December 31, 2008
For the fiscal year ended December 31, 2009, we had a net loss of $82,240.
For the fiscal year ended December 31, 2008, we had net income of $423,316. For
the fiscal year ended December 31, 2009, we incurred $40,456 of operating
expenses, had a gain on settlement of debt of $6,937, and had interest expense
of $48,721, as compared to the year ended December 31, 2008, when we incurred
$169,011 of operating expenses, had interest income on the trust fund
investments of $886,540, a gain on settlement of debt of $662,719, loss on
extinguishment of debt of $928,182, and interest expense of $28,750.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's cash position as of December 31, 2009 is $10. The Company had
outstanding payables as of $10,000 as of December 31, 2009. The former officers
and directors of the Company, James P. Wilson and Keith D. Spickelmier, in
connection with the change of control of the Company that occurred on December
31, 2009, have agreed to directly pay off or to indemnify the Company for the
full amount of the outstanding payables.
On May 22, 2008 and May 30, 2008 the Company borrowed from James P. Wilson
and Keith D. Spickelmier an aggregate amount of $103,182 to pay certain
outstanding Company payables. Messrs. Wilson and Spickelmier had previously
advanced to the Company an aggregate of $825,000 pursuant to separate advance
agreements. 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 and 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. 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
-18-
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.
In July 2008, the Company revised the terms of the above stated debt with
its stockholders, by issuing the Promissory Notes. Under the terms of the
Promissory Notes, the principal and any accrued but unpaid interest could be
converted at any time into common stock at a conversion rate of $.008. As
described in "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES--RECENT SALES OF UNREGISTERED
SECURITIES, Messrs. Wilson and Spickelmier converted the Promissory Notes into
1,920,165 and 1,571,044 shares of common stock, respectively, in connection with
the change in control of the Company.
The Company expects to raise "seed" capital in the near future in the
aggregate amount of approximately $687,500 from its management and persons who
have a relationship with management; these amounts will be in addition to the
$312,500 used to purchase the controlling ownership interest of the Company. As
of March 31, 2010, $212,500 of the additional amount has been raised and there
are commitments to invest the bulk of the additional funds before the end of the
second quarter. The Company intends to use the proceeds of this capital for
working capital and general corporate purposes. On March 8, 2010, the Company
completed a 1-for-35 reverse split of the Company's common stock. The Company
expects that the providers of this "seed" capital will be issued an aggregate of
approximately 1,926,000 post-split shares of Common Stock. Because these shares
will not be registered under the Securities Act, such shares will be "restricted
securities" (as defined in Rule 144 promulgated under the Securities Act) and
accordingly, may not be sold or transferred unless such shares are registered
under the Securities Act or are sold or transferred pursuant to an exemption
therefrom.
The Company is also seeking to raise additional funds to enable it to
expand its operations beyond exclusive selling agreements and consignment
arrangements to outright purchases of properties for resale. The scope of this
aspect of the Company's plan depends completely upon the Company's ability to
secure additional financing beyond the "seed" capital described above. The
Company currently does not have any binding commitments for, or readily
available sources of, additional financing, although the Company's largest
stockholder has entered into a "best efforts" placement agreement with a
broker/dealer to raise up to an additional $20 million through a future equity
offering. This agreement may be assigned to the Company, or the Company may
enter into a similar agreement with the same broker/dealer. However, no terms or
conditions of any placement have been set, and the Company has no letter of
intent or agreement in principal in effect (much less any definitive agreement)
regarding any financing by any investor. If the Company is successful in raising
$20 million, the Company expects that it would use most of this capital for
property acquisitions, and the rest of the funding for working capital, general
corporate purposes, reserves and the various fees and expenses incurred in
connection with the raise. If the capital raising transaction raises less than
$20 million, management will simply scale back in the near-term the amount or
size of properties acquired for resale, but expects that its plan to market
properties through exclusive selling agreements and consignment arrangements
will be unaffected.
As an alternative to the larger raise described above, the Company is also
considering undertaking a smaller capital raising transaction (without the
assistance of a broker/dealer) focusing on investors with whom management
already has a pre-existing relationship. 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.
-19-
Management believes that, if the Company's operations progress as planned,
the Company will have positive cash flow to partially finance its business.
Moreover, management believes that, if sales of properties result in sufficient
positive cash flow, conventional bank financing will be available. Nevertheless,
the Company can make no assurances as to future cash flow or the future
availability of bank financing.
To conserve on the Company's capital requirements, the Company may issue
shares of its common stock to pay certain expenses.
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, 2009. 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, 2009.
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.
-20-
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, 2009, 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 due to certain adjustments required by our registered public
accounting firm to our financial statements, as of December 31, 2009, our
internal control over financial reporting was not 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 2009 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:
Effective December 31, 2009, all of the Company's then serving officers
resigned from their respective Company positions. None of their resignations
was a result of any disagreement with the Company. Moreover, the Company
elected a new slate of officers as indicated in the following table:
-21-
NAME AGE POSITIONS
Steven Gidumal 52 Chairman of the Board &
Chief Financial Officer
Tim Wilkens 49 Chief Executive Officer
Brandon Birtcher 56 President
Basil N. Argerson 50 Senior Vice President, Treasurer & Secretary
The following is the background of Messrs. Gidumal, Wilkens, Birtcher 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.
Brandon Birtcher. Since 2004, Mr. Birtcher has been the President and sole
owner of Birtcher Development & Investments, a leading West Coast development
company founded by his great-grandfather in 1939. Mr. Birtcher began his real
estate career as property manager for the family firm in 1976. Mr. Birtcher was
the recipient of the Southern California Property Owner's Association's
"Developer of the Year" award in 1987, and the company was the National
Association of Industrial and Office Properties' (NAIOP) "Real Estate Developer
of the Year" for America in 1989. The firm was also named Orange County
Business Journal's "Family Business of the Year" in 2000. Mr. Birtcher holds a
Bachelor's Degree in Business/Economics from Claremont Men's College.
Basil N. Argerson. From February 2006 to December 2009, Mr. Argerson served
as a management consultant in his own firm, where he focused 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. From 2004 to February 2006, Mr. Argerson was a partner
in NB Partners, a family owned commercial real estate partnership. 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.
-22-
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.
-----------------------
-23-
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.
Commencing January 1, 2010, we will pay Great Western Holdings, a wholly-owned
entity of Tim Wilkens, a fee of $4,500 per month for providing us with certain
limited administrative, technology and secretarial services, as well as the use
of certain limited office space, in Napa, California. However, this arrangement
is solely for our benefit and is 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.
Other than this $4,500 per-month fee, the Company has not decided upon the
remuneration that it will pay to its newly elected 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 initial
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,
2010 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, 2010 are treated as
outstanding only for determination of the number and percent owned by such group
or person.
-24-
Amount and Nature of Beneficial Ownership
-----------------------------------------
Name of Beneficial Owner Number Percent
--------------------------------------------------------------------------------
GGH, Inc. 3,520,305(1) 96.5%
Steven Gidumal 3,520,305(1) 96.5%
Tim Wilkens 3,520,305(1) 96.5%
Brandon Birtcher 3,520,305(1) 96.5%
All directors and officers as a
group (four persons) 3,520,305(1) 96.5%
(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
96.5% of the issued and outstanding shares of our common stock. Because of this
ownership block, these initial 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.
On May 22, 2008 and May 30, 2008 the Company borrowed from James P. Wilson
and Keith D. Spickelmier, former directors and executive officers of the
Company, an aggregate amount of $103,182 to pay certain outstanding Company
payables. Messrs. Wilson and Spickelmier had previously advanced to the Company
an aggregate of $825,000 pursuant to separate advance agreements. 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. 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.
-25-
In July 2008, the Company revised the terms of the above stated debt with
its stockholders, by issuing the Promissory Notes. Under the terms of the
Promissory Notes, the principal and any accrued but unpaid interest could be
converted at any time into common stock at a conversion rate of $.008. As
described in "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES--RECENT SALES OF UNREGISTERED
SECURITIES", on December 21, 2009, Messrs. Wilson and Spickelmier converted the
Promissory Notes into 67,205,779 and 54,986,547 shares of common stock,
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.
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 2009 and 2008, we incurred fees from our principal accountant of $11,500 and
$24,900, respectively, for the services they performed including the year-end
audit, the quarters and consents on other SEC filings.
Audit-Related Fees
During 2009, 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 2009 and 2008, we paid our principal accountant $1,500 and $1,450,
respectively.
All Other Fees
During 2009, there were no fees incurred for products and services provided by
the principal accountant other than those set forth above.
-26-
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.
-27-
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, 2009 and December 31, 2008
Statement of Operations - Year ended December 31, 2009, December 31, 2008, and
Period from May 11, 2005 (Inception) to December 31, 2009
Statement of Stockholders' Equity (Deficit) -Year ended December 31, 2009,
December 31, 2008 and Period from May 11, 2005 (Inception) to December 31, 2009
Statement of Cash Flows -Year ended December 31, 2009, December 31, 2008 and
Period from May 11, 2005 (Inception) to December 31, 2009
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.*
-28-
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.**
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
*** Filed herewith
-29-
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 31st day of March
2010.
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 Chief Executive Officer, March 31,2010
STEVEN GIDUMAL and Chairman of the
Board of Directors
(Principal Financial
and Accounting Officer)
By: /s/ Tim Wilkens Chief Executive Officer March 31, 2010
TIM WILKENS and Director
(Principal Executive Officer)
-30-
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-7
NOTES TO FINANCIAL STATEMENTS F-9
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. (formerly JK Acquisition Corporation), ("the Company") as of
December 31, 2009 and 2008, and the related consolidated statements of expenses,
shareholders' deficit, and cash flows for the years then ended December 31, 2009
and 2008 and inception through December 31, 2009. 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 audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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, 2009 and 2008 and the results of operations and cash flows for the
two years then ended December 31, 2009 and 2008 and inception to December 31,
2009, 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
March 30, 2010
F-2
GOLDEN GATE HOMES, INC.
(FORMERLY JK ACQUISITION CORP.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
ASSETS
2009 2008
Current assets:
Cash $ 10 $ 171
-----------------------
Total current assets 10 171
-----------------------
Total Assets $ 10 $ 171
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,000 $ 26,038
Due to related parties - 51,254
Short term debt-due to shareholders - 941,282
---------------------
Total Liabilities $ 10,000 $ 1,018,574
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, 3,648,511 and 157,301
shares issued and outstanding at December 31,
2009 and 2008, respectively 364 16
Paid-in capital 2,019,022 928,717
Earnings (Deficit) accumulated during the
development stage (2,029,376) (1,947,136)
----------------------
Total Stockholders' Deficit (9,990) (1,018,403)
----------------------
Total Liabilities and Stockholders'
Deficit $ 10 $ 171
=======================
See notes to financial statements.
F-3
GOLDEN GATE HOMES, INC.
(FORMERLY JK ACQUISITION CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009, DECEMBER 31, 2008, AND
PERIOD FROM MAY 11, 2005 (INCEPTION) TO DECEMBER 31, 2009
Year Year Period from
Ended Ended Inception to
December 31, December 31, December 31
2009 2008 2009
Operating expenses:
General & administrative $40,456 $ 152,913 $953,589
Impairment of deferred
transaction costs - 16,098 1,844,724
----------------------------------
Operating loss (40,456) (169,011) (2,798,313)
Other income (expense):
Interest income - 886,540 5,663,530
Interest expense (48,721) (28,750) (77,471)
Loss on extinguishment of debt - (928,182) (928,182)
Gain on settlement of debt 6,937 662,719 669,656
Gain (loss) on derivative liabilities - - 203,596
---------------------------------
Total other income (expenses) (41,784) 592,327 5,531,129
---------------------------------
Net income (loss) (82,240) 423,316 2,732,816
Income tax expense - - 5,692
---------------------------------
Net income (loss) $(82,240) $ 423,316 $2,727,124
===================================
Earnings (loss) per common share:
BASIC & DILUTED ($0.02) $0.00 N/A
Weighted average number of
common shares outstanding:
BASIC& DILUTED 3,648,511 157,302 N/A
See notes to financial statements
F-4
GOLDEN GATE HOMES, INC.
(FORMERLY JK ACQUISITION CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT) YEAR ENDED DECEMBER 31,
2009 AND 2008 AND THE PERIOD FROM MAY 11, 2005 (INCEPTION) TO DECEMBER 31, 2009
Earnings
(Deficit)
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage Total
--------------------------------------------------------------
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)
============================================================
See notes to financial statements.
F-6
GOLDEN GATE HOMES, INC.
(FORMERLY JK ACQUISITION CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008 AND
PERIOD FROM MAY 11, 2005(INCEPTION) TO DECEMBER 31, 2009
Year Year Period from
Ended Ended Inception to
December 31, December 31, December 31,
2009 2008 2009
Net income (loss) $ (82,240) $ 423,316 $ 2,727,124
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Investment income - (886,540) (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) (662,719) (6,937)
Impairment of deferred
transaction costs - 1,828,626
Loss on extinguishment of
debt - 928,182 928,182
Change in:
Accounts Payable (11,634) (177,629) 677,122
Due to related party 51,254 51,254
--------------------------------------------------
Net Cash used in
operating activities (149,533) (324,138) (373,196)
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred transaction costs - (1,828,626)
Payment to trust account - - (76,532,404)
Disbursements from trust
account - 81,288,706 82,195,934
--------------------------------------------------
Net cash provided by
(used in) investing
activities 0 81,288,706 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 - - 31,250
Proceeds from sale of
underwriter option - - 100
Proceeds from advances from
stockholders - 116,282 1,270,282
Payments on advances from
stockholders - - (329,000)
Cash paid for offering costs - - (4,743,110)
Special dividend payment - (81,190,596) (81,190,596)
Contributed Capital 113,115 113,115
Proceeds from convertible
debt 36,257 36,257
----------------------------------------------------
Net cash provided by
financing activities 149,372 (81,074,314) (3,461,698)
-----------------------------------------------------
Net change in cash (161) (109,746) 10
Cash at beginning of
period 171 109,917 0
-----------------------------------------------------
Cash at end of period $ 10 $ 171 $ 10
======================================================
Supplemental disclosures:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes $ - $ - $ -
Non-cash transactions:
Common stock subject to
redemption $ - $(15,299,099) $ -
Increase (Decrease) in value
of common stock subject
to redemption $ - $ (629,606) $ -
Conversion of Shareholder
Advances to Notes $ - $ 928,182 $ -
Conversion of Notes to
common stock $ 977,539 $ - 977,539
See notes to financial statements.
F-8
GOLDEN GATE HOMES, INC.
(FORMERLY JK ACQUISITION CORP.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Golden Gate Homes, Inc. (formerly JK Acquisition Corp. and 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 has now decided to focus on marketing high-quality, distressed
residential properties in exclusive US markets (initially in California) to
international buyers (primarily from China and other parts of Asia) through
exclusive selling agreements or consignment arrangements. 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.
DEVELOPMENT STAGE COMPANY
As of December 31, 2009, the Company had no operations since inception and was a
development stage company.
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, 2009, the Company
had a net operating loss carryforward of approximately $1,176,000 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 as of December 31, 2009 and 2008 consisted of the following:
F-9
2009 2008
Net Operating Loss Carryforward $400,000 $ 372,000
Less: Valuation Allowance (400,000) (372,000)
----------------------
Total Deferred Tax Assets $ - $ -
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 this 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, 2009 up through March 30,
2010, the date the Company issued these financial statements. The subsequent
events which have occurred through this date are as disclosed in Footnote 7.
In June 2009, the FASB issued guidance now codified as ASC 105, "Generally
Accepted Accounting Principles" as the single source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP, aside from
those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. The
adoption of ASC 105 did not have a material impact on the Company's financial
statements, but did eliminate all references to pre-codification standards.
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, 2009. These
conditions raise substantial doubt as to its ability to continue as a going
concern.
The Company expects to raise "seed" capital in the near future in the aggregate
amount of approximately $687,500 from its management and persons who have a
relationship with management; these amounts will be in addition to the $312,500
used to purchase the controlling ownership interest of the Company. As of March
31, 2010, $212,500 of the additional amount has been raised and there are
commitments to invest the bulk of the additional funds before the end of the
second quarter. The Company intends to use the proceeds of this capital for
working capital and general corporate purposes. The Company expects that the
providers of this "seed" capital will be issued an aggregate of approximately
1,926,000 post-split shares of Common Stock.
The Company currently does not have any other binding commitments for, or
readily available sources of, additional financing, although the Company's
largest stockholder has entered into a "best efforts" placement agreement with a
broker/dealer to raise up to an additional $20 million through a future equity
offering. This agreement may be assigned to the Company, or the Company may
enter into a similar agreement with the same broker/dealer. However, no terms or
conditions of any placement have been set, and the Company has no letter of
intent or agreement in principal in effect (much less any definitive agreement)
regarding any financing by any investor.
As an alternative to the larger raise described above, the Company is also
considering undertaking a smaller capital raising transaction (without the
assistance of a broker/dealer) focusing on investors with whom management
already has a pre-existing relationship.
Management believes that, if the Company's operations progress as planned, the
Company will have positive cash flow to partially finance its business.
Moreover, management believes that, if sales of properties result in sufficient
positive cash flow, conventional bank financing will 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.
F-11
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.
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 now
entitle the holders thereof to purchase an aggregate of 258,254 shares at $525
per share. As of December 31, 2009 and 2008, all warrants remain outstanding
and are currently exercisable, although at the current exercise price management
believes it is unlikely that holders will convert. All of the warrants
(including those comprising Units) will expire on April 10, 2010. In December
2009, James P. Wilson and Keith D. Spickelmier waived an aggregate of $113,115
that they had previously advanced the Company to pay certain expenses. Because
Messrs. Wilson and Spickelmier were affiliated parties, this settlement of debt
resulted in a contribution to capital in the amount of $113,115.
F-12
Warrant summary as of December 31, 2009 (gives effect to the 1-for-35 reverse
stock split):
Number of Weighted
Warrants Average
Outstanding Exercise
Price
Warrants outstanding, inception (May 11, 2005) - -
Warrants issued - -
Warrants expired/forfeited - -
-----------------------------
Warrants outstanding, December 31, 2006 - -
Warrants issued 258,254 $525.00
Warrants expired/forfeited - -
-----------------------------
Warrants outstanding, December 31, 2007 258,254 $525.00
Warrants expired / forfeited - -
------------------------------
Warrants outstanding, December 31, 2008 258,254 $525.00
Warrants expired/ forfeited - -
------------------------------
Warrants outstanding, December 31, 2009 258,254 $525.00
===============================
Exercise Number of Weighted Aggregate
Price Warrants Average Intrinsic
Contractual Value
Life (in
years)
Warrants $525.00 258,254 0.25 $0.00
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.
NOTE 6-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.
F-13
NOTE 7- SUBSEQUENT EVENTS
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 3,647,687. 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.
The Company solicited consents of its stockholders for a proposal to change the
name of the Company from "JK Acquisition Corp." to "Golden Gate Homes, Inc."
The stockholders approved the proposal, and on March 8, 2010, the Company
effected the name change by filing the Company's Third Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State.
F-14
