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EX-2.1 - EX-2.1 - Greatmat Technology Corp | v200800_2-1.htm |
EX-21 - EX-21 - Greatmat Technology Corp | v200800_ex21.htm |
EX-3.2 - EX-3.2 - Greatmat Technology Corp | v200800_ex3-2.htm |
EX-10.1 - EX-10.1 - Greatmat Technology Corp | v200800_ex10-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported): October 30, 2010
Aurum
Explorations, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
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000-53481
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68-0681042
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(State
or other jurisdiction of incorporation or organization)
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(Commission
File Number)
|
(IRS
Employer Identification No.)
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Room
2102-03, 21/F, Kingsfield Centre
18-20
Shell Street, North Point, Hong Kong
(Address
of principal executive offices)
Telephone
– 852-2891-2111
Suite 903, Allied Kajima Building
138 Gloucester Road Wanchai, Hong Kong
(Former Address)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a -12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d -2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e -4(c))
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
report contains forward-looking statements. The forward-looking statements are
contained principally in the sections entitled “Description of Business,” “Risk
Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. In some
cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar
expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements include, among
other things, statements relating to:
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the
impact that a downturn or negative changes in the market for building
materials may have on sales.
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·
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our
ability to obtain additional capital in future years to fund our planned
expansion.
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·
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economic,
political, regulatory, legal and foreign exchange risks associated with
our operations.
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the
loss of key members of our senior management and our qualified sales
personnel.
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our
continued relationship with our single third-party manufacturer of our
goods.
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Also,
forward-looking statements represent our estimates and assumptions only as of
the date of this report. You should read this report and the documents that we
reference and filed as exhibits to the report completely and with the
understanding that our actual future results may be materially different from
what we expect. Except as required by law, we assume no obligation to update any
forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the
future.
Use
of Certain Defined Terms
Except
where the context otherwise requires and for the purposes of this report
only:
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·
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the
“Company,” “we,” “us,” and “our” refer to the combined business of (i)
Aurum Explorations, Inc. or “Aurum,” a Nevada corporation, (ii) Greatmat
Holdings Limited, or “Greatmat Holdings,” a BVI limited company and
wholly-owned subsidiary of Aurum, (iii) Greatmat Technology Limited, or
“Greatmat Limited,” a Hong Kong limited company and wholly-owned
subsidiary of Greatmat Holdings, (iv) Greatmat Technology (HK) Limited, or
“Greatmat Hong Kong,” a Hong Kong limited company and wholly-owned
subsidiary of Greatmat Holdings, and (v) Greatmat Technology (China)
Limited, or “Greatmat China,” a BVI limited company and wholly-owned
subsidiary of Greatmat Holdings, as the case may
be;
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·
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“BVI”
refers to the British Virgin
Islands;
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·
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“Exchange
Act” refers to the Securities Exchange Act of 1934, as
amended;
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·
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“Hong
Kong” refers to the Hong Kong Special Administrative Region of the
People’s Republic of China and “Hong Kong dollars” and “HK$” refer to the
legal currency of Hong Kong;
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·
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“PRC,”
“China,” and “Chinese,” refer to the People’s Republic of China (excluding
Hong Kong and Taiwan);
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“Renminbi”
and “RMB” refer to the legal currency of
China;
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“Securities
Act” refers to the Securities Act of 1933, as amended;
and
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·
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“U.S.
dollars,” “dollars” and “$” refer to the legal currency of the United
States.
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In this
current report we are relying on and we refer to information and statistics
regarding the building materials industry and economy in East Asia and that we
have obtained from various cited government and institute research publications.
Much of this information is publicly available for free and has not been
specifically prepared for us for use or incorporation in this current report on
Form 8-K or otherwise. We have not independently verified such information, and
you should not unduly rely upon it.
ITEM
1.01
ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT
On
October 30, 2010, we entered into and closed a share exchange agreement, or the
Share Exchange Agreement, with Greatmat Holdings Limited, a BVI company, or
Greatmat Holdings, Chris Yun Sang SO, the sole shareholder of Greatmat Holdings,
and Yau-sing TANG, our sole director and former sole officer and majority
beneficial shareholder, pursuant to which we acquired 100% of the issued and
outstanding capital stock of Greatmat Holdings in exchange for 36,560,700 shares
of our Common Stock, which constituted 75.0% of our issued and outstanding
capital stock as of and immediately after the consummation of the transactions
contemplated by the Share Exchange Agreement.
The
foregoing description of the terms of the Share Exchange Agreement is qualified
in its entirety by reference to the provisions of the agreement filed as Exhibit
2.1 to this report, which are incorporated by reference herein.
ITEM
2.01
COMPLETION
OF ACQUISITION OR DISPOSITION OF ASSETS
On
October 30, 2010, we completed an acquisition of Greatmat Holdings pursuant to
the Share Exchange Agreement. The acquisition was a reverse acquisition in
accordance with ASC 805-40 “Reverse Acquisitions”. The legal parent is Aurum
Explorations, Inc. which was the accounting acquiree while the Greatmat group of
companies was the accounting acquirer. There was no non-controlling interest
after the acquisition. This transaction was accounted for as a recapitalization
effected by a share exchange, wherein Greatmat Holdings is considered the
acquirer for accounting and financial reporting purposes. The assets and
liabilities of the acquired entity have been brought forward at their book value
and no goodwill has been recognized.
As a
result of the acquisition, our consolidated subsidiaries include Greatmat
Holdings Limited, our wholly-owned subsidiary which is incorporated under the
laws of the BVI, Greatmat Technology Limited, or Greatmat Limited, a
wholly-owned subsidiary of Greatmat Holdings which is incorporated under the
laws of Hong Kong, Greatmat Technology (HK) Limited, or Greatmat Hong Kong, a
wholly-owned subsidiary of Greatmat Holdings which is incorporated under the
laws of Hong Kong, and Greatmat Technology (China) Limited, or Greatmat China, a
wholly-owned subsidiary of Greatmat Holdings which is incorporated under the
laws of the BVI. Greatmat Limited, Greatmat Hong Kong and Greatmat China
are sometimes collectively referred to herein as the “Operating
Subsidiaries.”
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FORM
10 DISCLOSURE
As
disclosed elsewhere in this report, on October 30, 2010, we acquired Greatmat
Holdings in a reverse acquisition transaction. Item 2.01(f) of Form 8-K
states that if the registrant was a shell company like we were immediately
before the reverse acquisition transaction disclosed under Item 2.01, then the
registrant must disclose the information that would be required if the
registrant were filing a general form for registration of securities on Form 10
upon consummation of the transaction.
Accordingly,
we are providing below the information that would be included in a Form 10 if we
were to file a Form 10. Please note that the information provided below
relates to the combined enterprises after the acquisition of Greatmat Holdings,
except that information relating to periods prior to the date of the reverse
acquisition only relate to Greatmat Holdings and its consolidated subsidiaries
unless otherwise specifically indicated.
DESCRIPTION
OF BUSINESS
Business
Overview
Greatmat
was established in May 2004 and is a leading innovative building material
company that provides customers with customized designs, manufacturing solutions
and technical advice for building projects. In particular, Greatmat is a
supplier of high-quality engineered stone floor and wall surfaces to commercial
construction projects in China, Hong Kong and elsewhere in Asia. Our
principal business consists of the design, research and development and
production of engineered stone for installation in construction projects.
Our company headquarters and main sales office is located in Hong
Kong.
Greatmat
possesses a strong research and development team to help develop new solutions
and innovative designs. We are often sought after by major property
developers who want a unique material appearance for their flooring and exterior
walls, typically in exclusive shopping centers around Asia. The Company
designs, produces, sells and services all of its finished products.
Project after project, the Company keeps coming up with unique finishing
materials for ever-demanding property developers in Asia. After years in
the building material industry, Greatmat has built a reputation in the region
for having one of the highest quality standards in the field.
In 2005,
Greatmat was awarded a grant from the Hong Kong Innovative Technology Fund for
creating a new environmentally-friendly solution which could be applied to the
walls, flooring and exterior of commercial buildings. In 2009, the Company
was also awarded a Hong Kong Award for Environmental Excellence. Greatmat
has successfully completed numerous signature projects in Hong Kong, Japan,
Singapore and China for blue-chip clients such as Swire Properties, Sino Group,
the Hong Kong Jockey Club, Sun Hung Kei Properties, Hang Lung Properties, and
Shui On Properties, just to name a few. We maintain a website at http://www.greatmat.com,
which is not incorporated into this Report.
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Greatmat
Flooring on Display in Disneyland Hong Kong
Our
Corporate History and Background
Aurum
Explorations, Inc. was originally incorporated under the laws of the State of
Nevada on April 27, 2007. Prior to our reverse acquisition of Greatmat
Holdings, Aurum had originally intended to acquire exploration and development
stage natural resource properties. The Company acquired the mineral rights
to one property which subsequently reverted before the Company began mining
operations. In July 2009, there was a change in control of Aurum.
Thereafter, Aurum became dormant and began actively seeking a business
combination through the acquisition of, or merger with, an operating business.
From July 2009 until the present, Aurum was inactive and could be deemed to be a
so-called “shell” company, whose only purpose at that time was to determine and
implement a new business purpose.
As a
result of our reverse acquisition of Greatmat Holdings, we are no longer a shell
company and active business operations were revived.
Acquisition
of Greatmat Holdings
On
October 30, 2010, we completed a reverse acquisition transaction through a share
exchange with Greatmat Holdings and its sole shareholder, whereby we acquired
100% of the issued and outstanding capital stock of Greatmat Holdings in
exchange for 36,560,700 shares of our Common Stock, which constituted 75.0% of
our issued and outstanding capital stock as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse
acquisition, Greatmat Holdings became our wholly-owned subsidiary and the former
shareholder of Greatmat Holdings became our controlling stockholder. The
share exchange transaction with Greatmat Holdings and its shareholder, or Share
Exchange, was treated as a reverse acquisition, with Greatmat Holdings as the
acquirer and Aurum as the acquired party for accounting purposes. Unless the
context suggests otherwise, when we refer in this report to business and
financial information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial information of
Greatmat Holdings and its consolidated subsidiaries.
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Immediately
prior to the Share Exchange, the common stock of Greatmat Holdings was solely
owned by Chris Yun Sang SO, the founder and chief executive officer of
Greatmat.
Upon the
closing of the reverse acquisition, Yau-sing TANG, Aurum’s sole director and
officer, submitted a resignation letter pursuant to which he resigned from all
offices that he held effective immediately and from his position as our director
that will become effective on the tenth day following the mailing by us of an
information statement, or the Information Statement, to our stockholders that
complies with the requirements of Section 14f-1 of the Exchange Act. In
addition, our board of directors on October 30, 2010 increased the size of our
board of directors to three directors and appointed Chris Yun Sang SO, Carol Lai
Ping HO and Rick Chun Wah TSE to fill the vacancies created by such resignation
and increase in the size of the board, which appointments will become effective
upon the effectiveness of the resignation of Yau-sing TANG on the tenth day
following the mailing by us of the Information Statement to our
stockholders. In addition, our sole executive officer Yau-sing TANG was
replaced upon the closing of the reverse acquisition as indicated in more detail
below.
As a
result of our acquisition of Greatmat Holdings, we now own all of the issued and
outstanding capital stock of Greatmat Holdings, which in turn owns all of the
issued and outstanding capital stock of Greatmat Limited, Greatmat Hong Kong and
Greatmat China, our operating subsidiaries.
Greatmat
Limited was established in Hong Kong in September 2010. Greatmat Hong Kong
was established in Hong Kong in May 2004. Greatmat China was established
in the British Virgin Islands in December 2008. Greatmat Holdings was
established in the British Virgin Islands in July 2010 to serve as an
intermediate holding company. Greatmat Holdings currently owns 100% of
Greatmat Limited, Greatmat Hong Kong and Greatmat China. Chris Yun Sang SO
currently serves as the sole director of each of Greatmat Holdings, Greatmat
Limited and Greatmat Hong Kong, and Greatmat Holdings currently serves as the
sole director of Greatmat China.
Our
Corporate Structure
All of
our business operations are conducted through our Hong Kong and BVI
subsidiaries. The chart below presents our corporate structure. We
conduct business in China through Greatmat China, we conduct business in Hong
Kong through Greatmat Hong Kong, and we conduct business in all other export
markets through Greatmat Limited.
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Our Industry and Principal
Markets:
The
Chinese economy has grown by leaps and bounds since the PRC government
introduced economic reforms in the late nineteen seventies. From the mid
nineteen nineties onward, China became one of the fastest growing economies in
the world. China’s GDP growth has since been the envy of the world and one
of the main engines driving its growth is in the area of infrastructure,
renovation and real estate development, as these sectors exceeded the growth
rate of the general GDP by a substantial margin. Correspondingly, the
growth in sales of building materials in China also outstripped GDP growth
during the same period.
According
to the Economic Times, China is projected to overtake the U.S. as the world’s
largest construction market by 2018. In the next ten years, China’s
construction market is projected to be worth about $2.4 trillion and represent
19.1% of global construction output. Despite India’s continued
construction boom, China’s construction market is still projected to be three or
four times larger than India’s at the end of the next decade.
At the
current pace of growth, China will have 200 modern cities within the next
decade. Cities, commercial buildings and shopping malls are all competing
against each other largely on the basis of aesthetic appeal. The fact that
many of these newly erected commercial structures are designed by foreign
architects and interior designers has increased the demand for high-quality
innovative materials with unique finishing looks. It is our aim to capture
a larger portion of this high-end segment of the market.
At
present, we are well positioned to capitalize on this growing demand. Over
the past years, the Company has completed numerous high profile projects in Hong
Kong and China. Because our main office is strategically situated in Hong Kong,
the Company is in close contact with its core customers which are mainly the
major Hong Kong and foreign property developers. The Company is also well
situated to do business in other major markets in Asia and the Middle
East.
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Greatmat
Flooring Installed in the Hong Kong Coliseum
Our
principal end-markets are high-end shopping malls, buildings and other
commercial projects in China, Hong Kong and elsewhere in Asia. In the
future, we hope to expand our markets to North America and worldwide. The
Company believes that there are excellent growth opportunities for our business
within China and the rest of Asia. Despite the economic downturn, it is
also our belief that the USA could provide ample opportunities as well.
The Company also believes there may be significant business opportunities in
other closely related industry segments that it has not yet
explored.
Engineered
or reconstituted stone is just being introduced and accepted in the Chinese
market. Real estate developers are always looking for high-end building
materials which can enhance and distinguish the aesthetic appeal of their
projects. However, budget is always a concern. This is where we can meet
their need as we are able to provide high-end finishing materials at only half
the price of some of our competitors, and with faster turnaround times.
Furthermore, our customers are increasingly environmentally conscious and our
products use recycled materials and can reduce the production of construction
waste.
Traditionally,
property developers would have only a limited number of choices for their wall
or flooring surfaces. If a developer was big enough, perhaps it might be
able to commission a manufacturer to produce something unique for them.
But this was quite rare and very expensive and time consuming. Therefore,
most developers typically choose building materials “off the rack” from a
manufacturer’s showroom. Greatmat offers an innovative solution to its
corporate clients who want that “special” building material for their signature
project, yet at a reasonable cost. We believe that this is a rather
revolutionary way of doing business in the building materials industry.
Instead of bringing samples to show to the client, Greatmat simply asks the
client what they would like to achieve in their flooring or wall design.
Then Greatmat can come up with a solution to fulfill the client’s stated
wish. We believe that this is one of the reasons why we have been so
successful in pitching new projects. In addition, Greatmat keeps raising
the bar for its competitors by setting higher and higher standards (even by U.S.
standards) for the quality and features of its products. Greatmat also
provides a ten year product warranty in writing for all of its products.
We believe our novel approach to providing customized solutions for our clients
is a win-win situation for both parties. And a major advantage of this
model for Greatmat is that Greatmat is not required to hold any inventory of its
products.
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A
Greatmat Surface Making Use of Discarded Tires
Our
Products
Greatmat
has developed a new finishing building material by applying a newly modified
chemical together with recycled materials such as glass, quartz and other
materials. Greatmat has patented and trademarked this new finishing
material as “Sani-Crete” stone.
Sani-Crete
stone can be use for the exterior and interior of a new or renovated building
structure, and can be applied to floors and walls. “Sani-Crete” stone is
much stronger than ordinary finishing building materials and is suitable for
heavy duty/high traffic area building projects, such as shopping malls,
commercial buildings, residential towers and hospitals. Technical test
data have shown that Sani-Crete stone products outperform natural stone for
durability, hardness and waterproofing. Sani-Crete stone has the added
benefit of being “anti-bacterial” and “anti-virus,” making it suitable even for
scientific laboratories and hospitals.
Sani-Crete
stone can be produced in virtually any color, graphic pattern, surface texture,
size and thickness, and can duplicate the appearance of any kind of natural
stone pattern, including stones that are no longer naturally available.
Our products offer value-added attributes such as high wind velocity resistance
and resistance to color fading. Since we can produce and apply all kinds
of patterns such as corporate or brand logos onto patterned stone, we believe
that there is a good opportunity for us to market our products to the high-end
luxury brand market segment.
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Tactile
Elements for the Benefit of the Visually Impaired
Graphical Elements
Incorporated into a Greatmat Surface
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With a
minimum thickness of only 5 millimeters, Sani-Crete stone is well-suited for
flooring as well. This thinness provides a large advantage in connection
with renovation work because the Sani-Crete surface will not damage most
substrates, thereby eliminating the need for taking out the original substrate
and creating additional construction waste. Sani-Crete stone can be laid
directly on any kind of material surface, such as the ceramic tile, stone and so
forth, which can prove to be economical, time-saving and efficient for the
renovation process.
Sani-Crete
is a co-epoxy based liquid chemical which can be mixed with other elements such
as glass or quartz, or applied directly as a functional finishing decorative
building material. Sani-Crete stone can be produced in tile form (known as
the Sani-Crete Reconstituted Stone) or in liquid form and applied directly on a
construction site to be a jointless finishing building material (known as the
Sani-Crete H-Series). Sani-Crete stone can also be combined with other
solid elements such as bamboo, gold, etc. to form new patterns.
Examples
of Greatmat Products with Translucent Effect
Currently,
the bulk of our manufactured products belong to the “Quartz” line
collection. The Quartz line of products mixes fine quartz or marble with
various recycled materials to produce sophisticated textures in various
attractive colors. We are currently developing our new “Clone” and “Glow”
lines, which may require substantial investments in the near future. We
have begun to take orders for our Clone and Glow product lines and we expect to
start production in 2011. Our Clone line of products reproduces the
appearance of certain natural stones, but typically with a much lower cost and
better performance than the original natural stone. Our Glow line of
products literally glows by radiating light that they have absorbed and stored,
creating a dramatic aesthetic effect as well as providing safety benefits.
We are not aware of any other companies making products similar to our Clone and
Glow lines in Asia.
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A
Kitchen Counter Top Made from Sani-Crete
Our
Third-Party Manufacturer
With a
view to enhancing the efficiency of our operations, Greatmat has outsourced, and
currently intends to continue to outsource, the manufacturing process for all of
our products to our third-party manufacturer, Yunfu Changyi Stone Factory, a
company located in the PRC. The third-party manufacturer is exclusively
engaged in the manufacturing of Greatmat products based on specifications and
designs received from Greatmat and does not itself engage in the marketing, sale
and distribution of building material products or the production of building
material products for anyone other than Greatmat. As a result, there is no
competition between Greatmat and its third-party manufacturer with respect to
Greatmat’s end-customers. In the interest of efficiency, the Company
sometimes engages its third-party manufacturer to carry out research and
development activities on its behalf.
The
Company’s relationship with its third-party manufacturer is governed by an
Exclusive Manufacturing Agreement dated June 30, 2004 between Greatmat Hong Kong
and Yunfu, a copy of which is filed as Exhibit 10.1 to this report.
Pursuant to the terms of the Exclusive Manufacturing Agreement, during the term
of the agreement, the Company is required to use Yunfu exclusively to process
its engineered stone, and Yunfu may only provide manufacturing and processing
services for the Company’s products. The original term of the Exclusive
Manufacturing Agreement ended on June 30, 2009, whereupon the agreement was
automatically renewed for an indefinite period. As a result, there is
currently no fixed term for the agreement and either party may terminate the
agreement at any time. See the Risk Factor below “RISKS RELATED TO OUR
BUSINESS—We rely on a
single third-party manufacturer to manufacture our
products.”
Pursuant
to the terms of the Exclusive Manufacturing Agreement, Greatmat provides all of
the machines, equipment and packaging, as well as designs and logos and certain
specialized materials, to be used in production of its products to Yunfu.
Yunfu provides the physical manufacturing facility, utilities and certain basic
materials, as well as all of the labor in producing the engineered stone
products, and is responsible for meeting the specifications for the products set
forth in the work orders, while Greatmat provides management and technical
support and retains the right to inspect the production process. Yunfu is
responsible for meeting PRC legal requirements with respect to the facility and
its workers. The processing fee to be paid by Greatmat to Yunfu is agreed
to by both parties when the order is placed, with 30% of such fee payable upon
placing the order and 70% due when the final products are inspected and
approved. Greatmat is required to order a minimum amount of products from
Yunfu each year or pay a sizable penalty. Greatmat has never failed to
meet its minimum purchase requirements with Yunfu, nor does it expect any
problem in meeting such requirements in the future.
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Our Production
Process
Recycled
elements, such as quartz, stone or glass are grinded into various sizes of fine
powder. Dirt particles in the powder are then taken away by means of
filtration while metallic material is removed using magnetic force.
Different sizes of the powder are independently mixed to provide different
batches of evenly-sized powdered material. They are then mixed
together. Sani-Crete co-epoxy base liquid chemical is added and mixed with
these powders. The resulting chemical mix will go through a process which
includes high pressure compression, vacuum and machine vibration. The
semi-finished product is taken out to dry for a few hours. The mold is
then taken away and the semi-finished product will be left for 24 hours of
cooling. The semi-finished product is then shaved to the requested
thickness by a heavy-duty machine. Once the desired thickness is reached,
the semi-finished product is polished. “Anti-dirt” coating is applied to
the surface. Another layer of protective cover is then added to the
surface. The product is then cut to the requested size. Once the
final quality control check is done, the finished product is packed and
shipped. Greatmat does not install the finished product in the
construction project, but will provide developers with referrals to contractors
able to install the finished products.
Quality
control is an important part of our production process. Greatmat currently
employs six employees in the quality control division. These employees are
responsible for quality inspections throughout the production processes.
All raw materials, semi-finished products and final products are subject to
sampling and quality inspection in connection with each stage of
processing.
Raw
Materials
The main
raw materials used in our production process are glass, quartz, and a special
mix of adhesives. We purchase most of the raw materials from Chinese
suppliers and the raw materials are generally in abundant supply and available
from numerous sources. Many of our raw materials are recycled from
otherwise unwanted waste materials. The price and availability of raw
materials may vary from year to year due to market conditions and production
capacities. We do not expect a lack of availability or significant price
increases for our raw materials in the foreseeable future. We currently
purchase adhesive material from Cathay Coating, a Taiwanese company, and quartz
from Dak Wai, a Chinese company.
Energy is
also a significant cost in our production. Any increase or material
fluctuation in energy and fuel costs could have a material adverse effect on our
business, financial condition and results of operations.
Customers
We have
about 20 customers and they are all large property developers based in Hong Kong
and China. Most of our customers are “blue chip” property developers
headquartered in Hong Kong and almost all are publicly listed companies in Hong
Kong. In fact, we currently are doing business with five of the six
largest property developers in Hong Kong. Currently, our largest customer
in terms of sales is Hang Lung Properties, which currently accounts for about
50% of our 2010 sales. Our next two largest customers are China Estate
Holdings and Sino Group, which each account for about 20% of our
sales.
Currently,
about 65% of our sales are to projects in China, about 30% to Hong Kong, and
about 5% to other parts of Asia. We are currently planning to increase the
percentage of our sales to other parts of Asia in order to reduce our risk
related to geographic concentration.
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Contract Pricing
Our work
is performed under fixed-price contracts. It typically takes us between
one to three months to perform one of our contracts. Under fixed-price
contracts, we receive a fixed price. A disadvantage of fixed-price
contracts is that we realize a profit only if we control our costs and prevent
cost over-runs on the contracts, which can oftentimes be out of our control,
such as cost of materials. An advantage of these contracts is that we can adjust
the material and technology that we use in the project, as long as we satisfy
the requirements of our customer, and there is a potential to benefit from lower
costs of materials.
During
2009, we completed about 30 projects, large to small. Our two largest projects
were worth approximately $3,300,000 and $800,000 and they accounted for about
62% and 15% of our sales, respectively, for the year ended December 31,
2009. We currently estimate that our three largest projects in 2010 will
be worth about $6,500,000, $1,200,000 and $650,000 when completed.
Contract
Backlog
As of
October 2010, our total backlog of orders considered to be firm was
approximately $7.5 million. This is comprised of three different projects; one
is a large shopping complex by Hang Lung Properties in China and two are
infrastructure projects by the Hong Kong government in Hong Kong.
We define
backlog as the total anticipated revenue from projects already begun and
upcoming projects for which contracts have been signed or awarded and pending
signing. We view backlog as an important statistic in evaluating the level
of sales activity and short-term sales trends in our business. However, as
backlog is only one indicator, and is not an effective indicator of the ultimate
profitability of our sales, we do not believe that backlog should be used as the
sole indicator of our future earnings. There can be no assurance that the
backlog at any point in time will translate into net revenue in any subsequent
period.
Sales
and Marketing
Sales
We have a
marketing staff of five people, who market primarily to major property
developers in Hong Kong. We also have one
independent sales representative in China. We believe that we will
be better able to satisfy the different needs of our clients by expanding the
scope of our offerings in the future. We also believe that we will be
better able to market our products abroad by establishing offices in other
cities.
Sales
managers lead our sales and marketing efforts through our domestic headquarters
in Hong Kong. Our sales representatives attempt to maintain relationships
with governments, developers, general contractors, architects, engineers, and
other potential sources of business to determine potential new projects under
consideration. Our sales efforts are further supported by our executive officers
and engineering personnel, who have substantial experience in the design,
engineering, fabrication, and installation of engineered stone
surfaces.
We
primarily compete for new project opportunities through our relationships and
interaction with our active and prospective customer base, which we believe
provides us with valuable current market information and sales opportunities. In
addition, we are often contacted by governmental agencies in connection with
public construction projects, and by large private-sector project owners and
general contractors and engineering firms in connection with new building
projects both in China and other countries, often at the recommendation of
architects and engineers we have worked with in the past.
Marketing
Management
believes that we have developed a reputation for innovative technology and
quality in the market for specialty high-end finishing materials. Marketing
efforts are geared towards advancing us as a brand of choice for building the
world’s most modern and challenging projects. To better showcase our products to
potential customers, we plan to exhibit at leading trade shows and exhibitions
and are striving to improve our company website.
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Research
and Development
Producers
of construction materials face strong pressure to respond quickly to industry
demands with new designs and product innovations that support rapidly changing
technical demand and regulatory requirements. We devote a substantial amount of
attention to the research and development of advanced engineered stone materials
that meet the demands of project-specific needs while striving to lead the
industry in value, materials and processes. We have sophisticated in-house
R&D and testing facilities, a highly technical onsite team, and access to
highly specialized market research, cooperation with leading research
institutions, experienced management, and close relationships with leading
materials experts. We currently expend about 5% of our sales on research and
development. We bear the cost of our research and development
ourselves.
Patents
We rely
on a combination of trade secret and patent laws to protect our proprietary
technology. We have made substantial investments in improving our
manufacturing process which have enabled us to improve the properties of our
products and facilitated our development of new products. The Company has
received a patent from the Hong Kong government relating to the manufacture of a
seamless inlay surface.
Trademarks
Our
products are sold under the brands Greatmat and Sani-Crete, which are officially
registered trademarks in Hong Kong. We believe that our trademarks are of
considerable value to us as they allow our customers to differentiate our
products from those of our competitors and allow us to reap the benefits of our
marketing efforts. Although the enforceability of trademark rights in the
PRC and elsewhere in Asia is somewhat more developed than with respect to patent
rights, there is still some risk that we will not be able to stop infringement
of such rights.
Employees
At
October 30, 2010, we maintained nine full-time corporate staff employees
stationed in Hong Kong. There are 120 full-time workers of Chinese
nationality in our third-party manufacturer’s facility dedicated exclusively to
producing our products, although they are technically not Greatmat’s
employees. Our employees are not covered by collective bargaining
agreements. We believe that our relationships with our employees are
good.
Our
Facilities and Property
We do not
own or lease any of our production facilities, which are operated by our
third-party manufacturer. We have leased our executive offices in Hong
Kong under a two-year lease which expires in May 2011. The monthly rental
and management fees due under the lease total about HK$18,607 (US$2,385).
We are currently looking into alternative office leasing arrangements at the end
of our current lease and do not believe that the termination of this lease
should have an adverse effect on our business.
Competition
We
believe that we are well positioned vis-à-vis our competitors based on our
following competitive strengths:
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•
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Well
known reputation in our market for high quality
work
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•
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High
efficiency and resulting low cost
|
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•
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Ability
to expand our customer base in new markets within a relatively short time
frame through referrals
|
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•
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Access
to a large pool of engineering talent resulting in technical innovations
and strong ability to market and commercialize our technical
innovations
|
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•
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Continual
improvement of our product development, product quality and customer
service
|
|
•
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Ability
to produce higher value-added
products
|
|
•
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Ability
to expand our production capacity in a relatively short time
frame
|
We are
currently aware of about 30 manufacturers of quartz-based engineered stone in
the world. Therefore, supplies are somewhat limited. We estimate
that about 80% of these manufacturers target the low-end price-sensitive segment
of the market and have little research and development capacity. Interest
in this low-end segment of the market has been limited because of the perception
that it is capital intensive and offers little potential for profit. Our
principal competitors in the market for engineered stone products include mostly
imported European manufacturers from Spain and Italy.
We view
most of our competitors in the building materials market in Hong Kong and China
basically to be trading firms which are inflexible in terms of their product
offerings and cost. They obtain their showroom samples from their
manufacturer and cannot modify them because their product is mass
produced. In contrast, we are able to offer our customers customized
solutions based on their specifications and particular needs.
Cyclicality
Our
industry is affected by a variety of factors, including fluctuations in new
shopping mall projects and volatility in the real estate market. We manage
potential risks in the PRC’s volatile market environment by operating in
different business segments and serving different customer bases.
Operating in different business segments allows us to better cope with the
cyclical nature of China’s building material industry. We believe that the
combinations of our different business segments (which produce different
products and serve different customers) will enabled us to reduce the disruptive
effects of such downturns on our sales and operations. In addition, we
also intend to expand to other Asian and North American markets in order to
reduce our dependency on the China and Hong Kong markets.
Regulation
Because
our exclusive third-party contract manufacturer is located in the PRC, our
business may be deemed to be to some extent regulated by the national and local
laws of the PRC. We believe that our conduct of our business materially
complies with existing Hong Kong and PRC laws, rules and
regulations.
General
Regulation of Businesses
We
believe that our third-party contract manufacturer is in material compliance
with all applicable labor and safety laws and regulations in the PRC, including
the PRC Labor Contract Law, the PRC Production Safety Law, the PRC Regulation
for Insurance for Labor Injury, the PRC Unemployment Insurance Law, the PRC
Provisional Insurance Measures for Maternity of Employees, PRC Interim
Provisions on Registration of Social Insurance, PRC Interim Regulation on the
Collection and Payment of Social Insurance Premiums and other related
regulations, rules and provisions issued by the relevant governmental
authorities from time to time, for their operations in the PRC.
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According
to the PRC Labor Contract Law, employers are required to enter into labor
contracts with their employees. They are required to pay no less than local
minimum wages to their employees. They are also required to provide their
employees with labor safety and sanitation conditions satisfying PRC government
laws and regulations.
Environmental
Matters
Our
third-party manufacturer is subject to various pollution control regulations
with respect to noise, water and air pollution and the disposal of waste and
hazardous materials. They are also subject to periodic inspections by
local environmental protection authorities. We are not currently subject
to any pending actions alleging any violations of applicable environmental laws
or regulations, nor have we been punished or reprimanded for violating any such
laws or regulations. We aim to develop our business without compromising
environmental protection.
Insurance
We have
standard insurance coverage as required by Hong Kong law, including property
coverage for our office premises and coverage for our employees in the case of
work-related injury. We do not carry liability or business interruption
coverage. Insurance companies in Hong Kong offer limited business
insurance products. While business interruption insurance is available to a
limited extent in Hong Kong, we have determined that the risks of interruption,
cost of such insurance and the difficulties associated with acquiring such
insurance on commercially reasonable terms make it impractical for us to have
such insurance. As a result, we could face liability from the interruption of
our business as summarized under “Risk Factors – Risks Related to Our Business –
We do not carry business interruption or other insurance, so we have to bear
losses ourselves.”
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RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below, together with all of the other
information included in this report, before making an investment decision. If
any of the following risks actually occurs, our business, financial condition or
results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment. You
should read the section entitled “Special Notes Regarding Forward-Looking
Statements” above for a discussion of what types of statements are
forward-looking statements, as well as the significance of such statements in
the context of this report.
RISKS
RELATED TO OUR BUSINESS
We
have a short operating history.
We were
founded in 2004. We may not succeed in implementing our business plan
successfully because of competition from domestic and foreign market entrants,
failure of the market to accept our products, or other reasons. Therefore,
you should not place undue reliance on our past performance as they may not be
indicative of our future results.
Our senior
management lacks experience managing a public company and complying with laws
applicable to operating as a U.S. public company.
On
October 30, 2010, Greatmat Holdings completed a transaction with Aurum, the
result of which was for Greatmat Holdings to become wholly-owned subsidiaries of
Aurum, a U.S. public company. At the same time, however, the management of
Aurum resigned from its positions within Aurum, and the management of Greatmat
became the management of our Company. While the previous management of
Aurum had experience in managing a U.S. publicly traded company, the management
of Greatmat did not. Prior to the completion of the Share Exchange,
Greatmat was operated as a private company located in Hong Kong.
As a
result of these transactions, our Company will become subject to laws,
regulations and obligations that did not previously apply to it, and our senior
management currently has limited experience in complying with such laws,
regulations and obligations. For example, we will need to comply with the
Nevada laws applicable to companies that are domiciled in that state. By
contrast, such senior management is currently experienced in operating the
business of Greatmat in compliance with Hong Kong law. Similarly, by virtue of
these transactions we will be required to file quarterly and annual reports and
to comply with U.S. securities and other laws, which may not have applied to our
Company in the past. These obligations can be burdensome and complicated,
and failure to comply with such obligations could have a material adverse effect
on our company. In addition, we expect that the process of learning about such
new obligations as a public company in the United States will require senior
management to devote time and resources to such efforts that might otherwise be
spent on the operation of the business of selling and producing engineered stone
products.
We face risks
related to general domestic and global economic conditions and to the current
credit crisis.
Our
current operating cash flows provide us with stable funding capacity.
However, the current uncertainty arising out of domestic and global economic
conditions, including the recent disruption in credit markets, poses a risk to
the Asian economy, and may impact our ability to manage normal relationships
with our customers, suppliers and creditors. If the current situation
deteriorates significantly, our business could be materially negatively
impacted, as demand for our products may decrease from a slow-down in the
general economy, or supplier or customer disruptions may result from tighter
credit markets.
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Our
business is subject to the health of the PRC, Hong Kong and Asian economies and
our growth may be inhibited by the inability of potential customers to fund
purchases of our products.
Our
products are dependent on the strength of the construction industry in China,
Hong Kong and elsewhere in Asia, which could be adversely affected by an
economic downturn.
In order to grow
at the pace expected by management, we will require additional capital to
support our long-term growth strategies. If we are unable to obtain additional
capital in future years, we may be unable to proceed with our plans and we may
be forced to curtail our operations.
We will
require additional working capital to support our long-term growth strategies,
which include increasing the number of projects we take on, establishing
additional marketing and research facilities, developing additional product
lines and engaging in increased promotion of our products and brands. Our
working capital requirements and the cash flow provided by future operating
activities, if any, may vary greatly from quarter to quarter, depending on the
volume of business during the period. We may not be able to obtain adequate
levels of additional financing, whether through equity financing, debt financing
or other sources. Additional financings could result in significant
dilution to our earnings per share or the issuance of securities with rights
superior to our currently outstanding securities. In addition, we may grant
registration rights to investors purchasing our equity or debt securities in the
future. If we are unable to raise additional financing, we may be unable to
implement our long-term growth strategies, develop or enhance our products and
related brands, take advantage of future opportunities or respond to competitive
pressures on a timely basis.
We depend on the leadership
and services of Chris Yun Sang SO who is our
founder and
chief executive officer, and our business and growth prospects may be severely
disrupted if we lose his services.
Our future success is
dependent upon the continued service of Chris Yun Sang SO, our founder and chief executive officer. We rely on his industry
expertise and experience in our business operations, and in particular, his
business vision, management skills, and working relationships with our
employees and
customers.
We do not have
an employment agreement with Mr. So and he is under no
obligation to remain with Greatmat. We do not maintain key-man
life insurance for Mr. So. If he is unable or
unwilling to continue in his present position or if he joins a competitor or
forms a competing company, we may not be able to replace him easily or
at all. As a result, our business and growth prospects may be severely disrupted
if we lose his services.
If
we are unable to attract and retain senior management and qualified technical,
research and sales personnel, our operations, financial condition and prospects
will be materially adversely affected.
Our
future success depends in part on the contributions of our management team and
key technical, research and sales personnel and our ability to attract and
retain qualified new personnel. In particular, our success depends on the
continuing employment of our Chief Executive Officer, Chris Yun Sang SO, our
General Manager, Carol Lai Ping HO, and our Marketing Director, Rick Chun Wah
TSE. We do not have employment agreements with any of our management
personnel or employees. There is significant competition in our industry
for qualified managerial, technical, research and sales personnel and we cannot
assure you that we will be able to retain our key senior managerial, technical,
research and sales personnel or that we will be able to attract, integrate and
retain other such personnel that we may require in the future. If we are
unable to attract and retain key personnel in the future, our business,
operations, financial condition, results of operations and prospects could be
materially adversely affected.
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We
rely on a single third-party manufacturer to manufacture our
products.
We depend
on a single contract manufacturer to manufacture the products that we
sell. Any significant problems at our third-party manufacturer’s
production facility could impact our ability to deliver our products. If
this contract manufacturer is unable to maintain adequate manufacturing and
shipping capacity, it may be unable to provide us with timely delivery of
products of acceptable quality. Our inability to meet our customers’ demand
for our products could have a material adverse impact on our business, financial
condition and results of operations. In addition, if the prices charged by
this contractor increase for reasons such as increases in labor costs or
currency fluctuations, our cost of manufacturing would increase, adversely
affecting our results of operations. We also depend on third parties to
transport and deliver our products. Due to the fact that we do not have any
independent transportation or delivery capabilities of our own, if these third
parties are unable to transport or deliver our products for any reason, or if
they increase the price of their services, including as a result of increases in
the cost of fuel, our operations and financial performance may be adversely
affected.
We
require our contract manufacturer to meet our standards in terms of product
quality and other matters. Any failure by our contract manufacturer to meet
these standards, to adhere to labor or other laws or to diverge from our
mandated practices, and the potential negative publicity relating to any of
these events, could harm our business and reputation.
Our
agreement with our contract manufacturer is terminable at will by either
party. To the extent we are unable to maintain or secure
relationships with quality manufacturers, our business could be
harmed.
The
interests of our third-party manufacturer may diverge from ours, and we may not
have the ability to make it act in a manner consistent with our best
interests.
Our
business relationship with our third-party manufacturer does not allow us to
control its actions in the way that we could if we owned it. Although
we are currently operating under an exclusive manufacturing agreement that
prohibits them from competing with us, this agreement may be terminated at any
time by either party. As a result, we may not be able to prevent our
exclusive manufacturer from engaging in activities or pursuing strategic
objectives that conflict with our interests or strategic
objectives. Our ability to influence or control its business depends
on the nature of our contractual relationship. We are not entitled to
participate in the management of our exclusive manufacturer.
If
we are unable to accurately estimate and control our contract costs and
timelines, then we may incur losses on our contracts, which may result in
decreases in our operating margins and in a significant reduction or elimination
of our profits.
If we do
not control our contract costs, we may be unable to maintain positive operating
margins or experience operating losses. All of our sales are from fixed-price
contracts. Under fixed-price contracts, we receive a fixed price.
Consequently, we realize a profit on fixed-price contracts only if we control
our costs and prevent cost over-runs on the contracts. If we are
unable to estimate and control costs and/or project timelines, we may incur
losses on our contracts, which may result in decreases in our operating margins
and in a significant reduction or elimination of our profits.
We
depend on a small number of customers for the vast majority of our sales. A
reduction in business from any of these customers could cause a significant
decline in our sales and profitability.
The large
majority of our sales are generated from a small number of
customers. Currently, our largest customer in terms of sales is Hang
Lung Properties, which currently accounts for about 50% of our 2010
sales. Our next two largest customers are China Estate Holdings and
Sino Group, which each account for about 20% of our sales. We expect
that we will continue to depend upon a small number of customers for a
significant majority of our sales for the foreseeable future. A reduction
in business from any of these customers could cause a significant decline in our
sales and profitability.
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Our
operations rely on a continuous power supply and the ready availability of
utilities and any shortages or interruptions could disrupt our operations and
increase our expenses.
The
manufacture of our products relies on a continuous and uninterrupted supply of
electric power, water and natural gas, as well as waste and emission discharge
facilities. Any shortage, interruption or discharge curtailment would
significantly disrupt our operations and increase our expenses although we have
backup generators or alternate sources of power to support our production in the
event of a blackout. In addition, our insurance coverage does not
extend to any damage resulting from interruption in our power
supply. Any interruption in our ability to continue operations at our
facilities could damage our reputation, harm our ability to retain existing
customers or obtain new customers and could result in severe loss, any of which
could have a material adverse affect on our business, financial condition and/or
results of operations.
Increases
in energy and fuel costs would have a material adverse effect on our business,
financial conditions and results of operations.
Energy is
a significant cost in our production. Any increase or material
fluctuation in energy and fuel costs could have a material adverse effect on our
business, financial condition and/or results of operations.
We
may not be able to realize our expected production capacity increase to reap the
full economic benefits of our increased sales.
If we
fail to obtain our desired production output levels from our third-party
manufacturer due to insufficient funding, technical difficulties, human or other
resource constraints, or for whatever other reasons, we may not be able to
attain our desired production capacity or obtain the intended economic benefits
of our increased sales, such as economies of scales, in a full or timely manner,
which may adversely affect our business, results of operations and/or financial
conditions.
We may incur substantial
costs as a
result of
warranty and
product
liability
claims
which could have an
adverse
effect on
our results of
operations.
The
development, manufacture, sale and use of our products involve risks of warranty
and product liability claims. We provide a ten-year warranty for all
of our products. Warranty and product liability claims would not be
covered by our insurance. Warranties of such an extended length pose a risk
to us of unanticipated future expenses. In the past, we have
corrected any problems with respect to our products by repairing or replacing
the product in issue with minimal expense. Historically, we have not
recorded any warranty expense as we have incurred minimal expense related to
warranty claims. We may be required to record material expense in the future if
actual costs for these warranties are different from our
assumptions.
Insurance companies in Hong
Kong offer limited business insurance products and offer business limited
liability insurance. While business disruption insurance is available to a
limited extent in Hong Kong, we have determined that the risks of disruption,
cost of such insurance and the
difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. As a result, we do not
have any business liability, disruption or litigation insurance coverage for our operations in
Hong Kong SAR,
Macau SAR or the PRC. Any business disruption or
litigation may result in our incurring substantial costs and the diversion of
resources.
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Our
quarterly operating results are likely to fluctuate, which may affect our stock
price.
Our
quarterly revenues, expenses, operating results and gross profit margins vary
from quarter to quarter. As a result, our operating results may fall below the
expectations of securities analysts and investors in some quarters, which could
result in a decrease in the market price of our common stock. The reasons our
quarterly results may fluctuate include:
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·
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variations
in profit margins attributable to different production
contracts;
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·
|
changes
in the general competitive and economic
conditions;
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·
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delays
in, or uneven timing in the delivery of, customer orders;
and
|
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·
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the
introduction of new products by us or our
competitors.
|
Period to
period comparisons of our results should not be relied on as indications of
future performance.
Our
limited ability to protect our intellectual property, and the possibility that
our technology could inadvertently infringe technology owned by others, may
adversely affect our ability to compete.
We rely
on a combination of patents, trademarks and trade secret laws to protect the
technological know-how and brands that comprise our intellectual
property. A successful challenge to the ownership of our intellectual
property could materially damage our business prospects. Our
competitors may assert that our technologies or products infringe on their
patents or proprietary rights. We may be required to obtain from
others licenses that may not be available on commercially reasonable terms, if
at all. Problems with intellectual property rights could increase the
cost of our products or delay or preclude our new product development and
commercialization. If infringement claims against us are deemed
valid, we may not be able to obtain appropriate licenses on acceptable terms or
at all. Litigation could be costly and time-consuming but may be
necessary to protect our technology license positions or to defend against
infringement claims.
Our
business may be subject to seasonal and cyclical fluctuations in
sales.
We may
experience seasonal fluctuations in our revenue. Moreover, our
revenues are usually slightly higher in the third and fourth quarters due to
seasonal purchases.
RISKS
RELATED TO DOING BUSINESS IN CHINA
Changes in
China's political or economic situation could harm us and our operating
results.
All of
our business operations are currently conducted in Hong Kong, under the
jurisdiction of the Hong Kong SAR, Macau SAR and PRC governments. All
of our products are manufactured by our sole manufacturer in the PRC, and we
sell the majority of our products to customers in the PRC. Accordingly, our
results of operations, financial condition and prospects are subject to a
significant degree to economic, political and legal developments in China.
However, economic reforms adopted by the Chinese government have had a positive
effect on the economic development of the country, but the government could
change these economic reforms or any of the legal systems at any time. This
could either benefit or damage our operations and profitability. Some of the
things that could have this effect are:
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Level
of government involvement in the
economy;
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Control
of foreign exchange;
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·
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Methods
of allocating resources;
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·
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Balance
of payments position;
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International
trade restrictions; and
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International
conflict.
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The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many ways.
For example, state-owned enterprises still constitute a large portion of the
Chinese economy and weak corporate governance and a lack of flexible currency
exchange policy still prevail in China. As a result of these differences, we may
not develop in the same way or at the same rate as might be expected if the
Chinese economy was similar to those of the OECD member countries.
Payments
from our customers in China are denominated in Hong Kong Dollars. The
value of RMB and the Hong Kong Dollar against the U.S. dollar and other
currencies may fluctuate and is affected by, among other things, changes in
political and economic conditions. Although the exchange rate between RMB and
the U.S. dollar has been effectively pegged by the People’s Bank of China since
1994, and the rate between the Hong Kong Dollar has been pegged to the U.S.
dollar since 1983, there can be no assurance that these currencies will remain
pegged to the U.S. dollar, especially in light of the significant international
pressure on the Chinese government to permit the free floatation of the RMB,
which would result in fluctuations in the exchange rate between the RMB and the
U.S. dollar. In addition, a strengthening of the U.S. dollar against
the Hong Kong Dollar, if it occurred, would adversely affect the value of your
investment.
You
may face difficulties in protecting your interests, and your ability to protect
your rights through the U.S. federal courts may be limited because our
subsidiaries are incorporated in non-U.S. jurisdictions, we conduct
substantially all of our operations in Hong Kong, and all of our officers reside
outside the United States.
Although
we are incorporated in Nevada, we conduct substantially all of our operations
through our wholly owned subsidiaries in Hong Kong. All of our
officers reside outside the United States and some or all of the assets of those
persons are located outside of the United States. As a result, it may
be difficult or impossible for you to bring an action against us or against
these individuals in Hong Kong in the event that you believe that your rights
have been violated under U.S. securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of Hong Kong may render
you unable to enforce a judgment against our assets or the assets of our
directors and officers.
The PRC
government exerts substantial influence over the manner in which we must conduct
our business activities.
The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to the construction industry,
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of the jurisdictions in which we
operate may impose new, stricter regulations or interpretations of existing
regulations that would require additional expenditures and efforts on our part
to ensure our compliance with such regulations or
interpretations.
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Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
Future inflation
in China may inhibit our ability to conduct business in
China.
In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. During the past ten years, the rate of inflation
in China has been as high as 20.7% and as low as -2.2%. These factors have led
to the adoption by the Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. High inflation may in the future cause the Chinese
government to impose controls on credit and/or prices, or to take other action,
which could inhibit economic activity in China, and thereby harm the market for
our products and our Company.
We may be exposed
to liabilities under the Foreign Corrupt Practices Act and Chinese
anti-corruption laws, and any determination that we violated these laws could
have a material adverse effect on our business.
We are
subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute, for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and we make many of our sales in
China. PRC also strictly prohibits bribery of government officials. Our
activities in China create the risk of unauthorized payments or offers of
payments by the employees, consultants, sales agents or distributors of our
Company, even though they may not always be subject to our control. It is our
policy to implement safeguards to discourage these practices by our employees.
However, our existing safeguards and any future improvements may prove to be
less than effective, and the employees, consultants, sales agents or
distributors of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA or Chinese anti-corruption laws may result
in severe criminal or civil sanctions, and we may be subject to other
liabilities, which could negatively affect our business, operating results and
financial condition. In addition, the U.S. government may seek to hold our
Company liable for successor liability FCPA violations committed by companies in
which we invest or that we acquire.
The
outbreak of epidemics may have a material adverse effect on our business,
financial condition and results of operations.
Certain
areas of the PRC are susceptible to epidemics. An outbreak of any
epidemics in the PRC, such as Severe Acute Respiratory Syndrome or avian flu,
might result in material disruptions to the operations of the company or demand
for its products, which in turn would adversely affect the Company’s results of
operations and financial condition.
RISKS
RELATED TO THE MARKET FOR OUR STOCK GENERALLY
Our common stock
is quoted on the inter-dealer electronic quotation and trading system maintained
by Pink OTC Markets Inc., which may have an unfavorable impact on our stock
price and liquidity.
Our
common stock is quoted on the inter-dealer electronic quotation and trading
system maintained by Pink OTC Markets Inc. (the “Pink Sheets”), which is a
significantly more limited market than established trading markets such as the
New York Stock Exchange or NASDAQ. The quotation of our shares on the
Pink Sheets may result in a less liquid market available for existing and
potential shareholders to trade shares of our common stock, could depress the
trading price of our common stock and could have a long-term adverse impact on
our ability to raise capital in the future. We plan to list our common stock as
soon as practicable. However, we cannot assure you that we will be able to meet
the initial listing standards of any stock exchange, or that we will be able to
maintain any such listing.
- 24
-
We may be subject
to penny stock regulations and restrictions and you may have difficulty selling
shares of our common stock.
The SEC
has adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Our common
stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or
the Penny Stock Rule. This rule imposes additional sales practice requirements
on broker-dealers that sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. As a
result, this rule may affect the ability of broker-dealers to sell our
securities and may affect the ability of purchasers to sell any of our
securities in the secondary market, thus possibly making it more difficult for
us to raise additional capital.
There can
be no assurance that our common stock will qualify for exemption from the Penny
Stock Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.
Provisions
in our Articles of Incorporation and Bylaws or Nevada law might discourage,
delay or prevent a change of control of us or changes in our management and,
therefore depress the trading price of the common stock.
Nevada
corporate law and our Articles of Incorporation and Bylaws contain provisions
that could discourage, delay or prevent a change in control of our Company or
changes in its management that our stockholders may deem advantageous. These
provisions:
|
·
|
deny
holders of our common stock cumulative voting rights in the election of
directors, meaning that stockholders owning a majority of our outstanding
shares of common stock will be able to elect all of our
directors;
|
|
·
|
require
any stockholder wishing to properly bring a matter before a meeting of
stockholders to comply with specified procedural and advance notice
requirements; and
|
|
·
|
allow
any vacancy on the board of directors, however the vacancy occurs, to be
filled by the directors.
|
- 25
-
We
do not intend to pay dividends for the foreseeable future.
Aurum has
never paid any dividends to its shareholders. Prior to our reverse
acquisition of Greatmat, Greatmat Hong Kong declared and paid an interim
dividend of $115,385 to its shareholder at June 28, 2010. For
the foreseeable future, Aurum intends to retain any further earnings to finance
the development and expansion of our business, and we do not anticipate paying
any cash dividends on our common stock. Accordingly, investors must be prepared
to rely on sales of their common stock after price appreciation to earn an
investment return, which may never occur. Investors seeking cash dividends
should not purchase our common stock. Any determination to pay dividends in the
future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant.
Our
controlling stockholder holds a significant percentage of our outstanding voting
securities, which could hinder our ability to engage in significant corporate
transactions without his approval.
Mr. Chris
Yun Sang SO is the beneficial owner of approximately 75% of our outstanding
voting securities. As a result, he possesses significant influence,
giving him the ability, among other things, to elect a majority of our board of
directors and to authorize or prevent proposed significant corporate
transactions. His ownership and control may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discourage a potential acquirer from
making a tender offer.
If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud.
We are
subject to reporting obligations under the U.S. securities laws. The Securities
and Exchange Commission (“SEC”), as required by Section 404 of the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), adopted rules requiring every
public company to include a management report on such company’s internal
controls over financial reporting in its annual report, which contains
management’s assessment of the effectiveness of the company’s internal controls
over financial reporting. Our management may conclude that our
internal controls over our financial reporting are not effective. Our reporting
obligations as a public company will place a significant strain on our
management, operational, and financial resources and systems for the foreseeable
future. Effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and are
important to help prevent fraud. As a result, our failure to achieve and
maintain effective internal controls over financial reporting could result in
the loss of investor confidence in the reliability of our financial statements,
which in turn could harm our business and negatively impact the trading price of
our stock. Furthermore, we anticipate that we will incur considerable costs and
use significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley
Act.
We
will incur increased costs as a result of being a public company.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. In addition, the Sarbanes-Oxley Act,
as well as new rules subsequently implemented by the SEC, have required changes
in corporate governance practices of public companies. We expect these new rules
and regulations to increase our legal, accounting and financial compliance costs
and to make certain corporate activities more time-consuming and costly. In
addition, we will incur additional costs associated with our public company
reporting requirements. We are currently evaluating and monitoring developments
with respect to these new rules, and we cannot predict or estimate the amount of
additional costs we may incur, or the timing of such costs.
- 26
-
The
following discussion of our Company’s plan of operation, financial condition and
results of operation should be read in conjunction with the consolidated
financial statements and the notes thereto included in this Form
8-K.
Overview
Greatmat
was established in May 2004 and is a leading innovative building material
company that provides customers with customized designs, manufacturing solutions
and technical advice for building projects. In particular, Greatmat
is a supplier of high-quality engineered stone floor and wall surfaces to
commercial construction projects in China, Hong Kong and elsewhere in
Asia. Our principal business consists of the design, research and
development and production of engineered stone for installation in construction
projects. Our company headquarters and main sales office is located
in Hong Kong.
Greatmat
possesses a strong research and development team to help develop new solutions
and innovative designs. We are often sought after by major property
developers who want a unique material appearance for their flooring and exterior
walls, typically in exclusive shopping centers around Asia. The
Company designs, produces, sells and services all of its finished
products. Project after project, the Company keeps coming up with
unique finishing materials for ever-demanding property developers in
Asia. After years in the building material industry, Greatmat has
built a reputation in the region for having one of the highest quality standards
in the field.
In 2005,
Greatmat was awarded a grant from the Hong Kong Innovative Technology Fund for
creating a new environmentally-friendly solution which could be applied to the
walls, flooring and exterior of commercial buildings. In 2009, the
Company was also awarded a Hong Kong Award for Environmental
Excellence. Greatmat has successfully completed numerous signature
projects in Hong Kong, Japan, Singapore and China for blue-chip clients such as
Swire Properties, Sino Group, the Hong Kong Jockey Club, Sun Hung Kei
Properties, Hang Lung Properties, and Shui On Properties, just to name a few. We
maintain a website at http://www.greatmat.com,
which is not incorporated into this Report.
Recent
Developments
Acquisition
of Greatmat Holdings
On
October 30, 2010, we completed a reverse acquisition transaction through a share
exchange with Greatmat Holdings and its sole shareholder, whereby we acquired
100% of the issued and outstanding capital stock of Greatmat Holdings in
exchange for 36,560,700 shares of our Common Stock, which constituted 75.0% of
our issued and outstanding capital stock as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse
acquisition, Greatmat Holdings became our wholly-owned subsidiary and the former
shareholder of Greatmat Holdings became our controlling
stockholder. The share exchange transaction with Greatmat Holdings
and its shareholder, or Share Exchange, was treated as a reverse acquisition,
with Greatmat Holdings as the acquirer and Aurum as the acquired party for
accounting purposes. Unless the context suggests otherwise, when we refer in
this report to business and financial information for periods prior to the
consummation of the reverse acquisition, we are referring to the business and
financial information of Greatmat Holdings and its consolidated
subsidiaries.
Immediately
prior to the Share Exchange, the common stock of Greatmat Holdings was solely
owned by Chris Yun Sang SO, the founder and chief executive officer of
Greatmat.
- 27
-
Upon the
closing of the reverse acquisition, Yau-sing TANG, Aurum’s sole director and
officer, submitted a resignation letter pursuant to which he resigned from all
offices that he held effective immediately and from his position as our director
that will become effective on the tenth day following the mailing by us of an
information statement, or the Information Statement, to our stockholders that
complies with the requirements of Section 14f-1 of the Exchange
Act. In addition, our board of directors on October 30, 2010
increased the size of our board of directors to three directors and appointed
Chris Yun Sang SO, Carol Lai Ping HO and Rick Chun Wah TSE to fill the vacancies
created by such resignation and increase in the size of the board, which
appointments will become effective upon the effectiveness of the resignation of
Yau-sing TANG on the tenth day following the mailing by us of the Information
Statement to our stockholders. In addition, our sole executive
officer Yau-sing TANG was replaced upon the closing of the reverse acquisition
as indicated in more detail below.
As a
result of our acquisition of Greatmat Holdings, we now own all of the issued and
outstanding capital stock of Greatmat Holdings, which in turn owns all of the
issued and outstanding capital stock of Greatmat Limited, Greatmat Hong Kong and
Greatmat China, our operating subsidiaries.
Greatmat
Limited was established in Hong Kong in September 2010. Greatmat Hong
Kong was established in Hong Kong in May 2004. Greatmat China was
established in the British Virgin Islands in December 2008. Greatmat
Holdings was established in the British Virgin Islands in July 2010 to serve as
an intermediate holding company. Greatmat Holdings currently owns
100% of Greatmat Limited, Greatmat Hong Kong and Greatmat
China. Chris Yun Sang SO currently serves as the sole director of
each of Greatmat Holdings, Greatmat Limited and Greatmat Hong Kong, and Greatmat
Holdings currently serves as the sole director of Greatmat China.
Principal Factors Affecting Our
Financial Performance
Our
operating results are primarily affected by the following factors:
|
|
Growth
in the Chinese Economy and Demand for Construction Materials – Our products are produced in
China and we derive the majority of our revenues from sales to projects in
China. Economic conditions in China, therefore, affect
virtually all aspects of our operations, including the demand for our
products, the availability and prices of our raw materials and our other
expenses. China has experienced significant economic growth,
achieving a compound annual growth rate of over 10% in gross domestic
product from 1996 through 2008, with an even greater rate of growth in the
market for construction materials. China is expected to
experience continued growth, even in the face of a global economic
slowdown. However, China has not been entirely immune to the
global economic slowdown and has experienced a slowing of its growth
rate.
|
|
|
Large
Scale Contractor Relationships.
We have contracts
with major construction contractors with respect to major commercial
projects. Our sales efforts focus on large-scale projects and large
customers which place large recurring orders. Our operating
results will greatly depend on our ability to maintain and grow such
relationships and contracts with these major
contractors.
|
|
|
Experienced
Management. We
believe that our management’s technological knowledge and business
relationships gives us the ability to secure major orders, which should
allow us to increase production volumes and
revenues.
|
|
|
Continued
Innovation. We
continuously strive to produce the most technically advanced products for
our customers and our operating results will greatly depend on our ability
to remain at the forefront of technical innovation in our
industry.
|
|
|
Ability to
Finance our Future Expansion. In order to grow at the
pace expected by management, we will require additional capital to support
our long-term growth strategies. If we are unable to obtain additional
capital in future years, we may be unable to proceed with our plans and we
may be forced to curtail our
operations.
|
- 28
-
Taxation
United
States, Macau and Hong Kong
We are
subject to United States federal income tax at a tax rate ranging from 15% to
35%. No provision for income taxes in the United States has been made as we have
no taxable income derived from business effectively connected to the United
States.
Greatmat
Holdings and Greatmat Technology (China) Limited are incorporated in the British
Virgin Islands. As offshore companies, they are exempt from income
taxes according to the Article 242 of the BVI Business Companies Act 2004
(“Exemptions from Tax”), which states that (a) a company (b) all dividends,
interest, rents, royalties, compensations and other amounts paid by company, and
(c) capital gains realized with respect to any shares, debt obligations or other
securities of a company, are exempt from all provisions of the Income Tax
Ordinance. On the other hand, Greatmat Technology (China) Limited has
operating business in Macau and is subject to Macau income tax at a rate of 12%
of income earned from its operations in Macau.
Greatmat
Technology Limited and Greatmat Technology (HK) Limited are incorporated in Hong
Kong. In accordance with the relevant tax laws and regulations of
Hong Kong, a company, irrespective of its residential status, is subject to tax
on all profits (excluding profits arising from the sale of capital assets)
arising in or derived from Hong Kong. No tax is levied on profits
arising abroad, even if they are remitted to Hong Kong. The 2008/2009
and 2009/2010 income tax rate in Hong Kong is 16.5%.
Results
of Operations
Comparison of Six Months
Ended June 30, 2010 and 2009 (Unaudited)
The
following table sets forth key components of our results of operations during
the six month periods ended June 30, 2010 and 2009, both in dollars and as a
percentage of our net sales. The consolidated results for Greatmat Holdings
Limited and its three subsidiaries were as followings:
Six Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2010
|
June 30, 2009
|
|||||||||||||||
% of Net
|
% of Net
|
|||||||||||||||
Amount
|
Sales
|
Amount
|
Sales
|
|||||||||||||
Net
revenues
|
$
|
4,789,722
|
100
|
%
|
$
|
2,678,509
|
100%
|
|||||||||
Cost
of sales
|
2,442,652
|
51
|
%
|
1,599,374
|
60%
|
|||||||||||
Gross
profit
|
2,347,070
|
49
|
%
|
1,079,135
|
40%
|
|||||||||||
General
and administrative expenses
|
377,077
|
8
|
%
|
447,364
|
17%
|
|||||||||||
Operating
income
|
1,969,993
|
41
|
%
|
631,771
|
24%
|
|||||||||||
Interest
expense
|
17,077
|
0
|
%
|
12,242
|
0%
|
|||||||||||
Income
Before Income Taxes
|
1,952,916
|
41
|
%
|
619,529
|
23%
|
|||||||||||
Income
taxes
|
243,339
|
5
|
%
|
74,733
|
3%
|
|||||||||||
Net
income
|
$
|
1,709,577
|
36
|
%
|
$
|
544,796
|
20%
|
Net
Sales and Cost of Sales
Our net
sales sharply increased to $4,789,722 in the six months ended June 30, 2010 from
$2,678,509 in the same period in 2009. Our cost of sales increased to
$2,442,652 in the six months ended June 30, 2010 from $1,599,374 in the same
period in 2009. The cost of goods sold per sales ratio decreased from
60% to 51% from 2009 to 2010. The increase in net revenues was mainly due to the
rapid growth in our scale and output from sales in China while cost of sales
increased in a smaller percentage owing to higher fixed costs and a smaller
variable cost structure.
- 29
-
Gross
Profit and Gross Margin
Our gross
profit increased to $2,347,070 in the six months ended June 30, 2010 from
$1,079,135 in the same period in 2009. Gross profit as a percentage of net
revenue was 49% and 40% for the six months ended June 30, 2010 and 2009,
respectively. The continuous large increase in gross margins from 2009 to 2010
was primarily due to improved economies of scale as fixed costs did not
increases significantly while variable costs increased less on a percentage
basis than our revenue as we continuously improved our cost controls
mechanism.
General
and Administrative Expenses
Our
general and administration expenses decreased to $377,077 in the six months
ended June 30, 2010 from $447,364 in the same period in 2009. This decrease was
mainly due to improved cost controls.
Interest
Expenses
Interest
expenses increased to $17,077 in the six months ended June 30, 2010 from $12,242
in the same period in 2009. This increase was mainly due to an increase in our
bank borrowings.
Income
before Income Taxes
Our
income before income taxes increased to $1,952,916 in the six months ended June
30, 2010 from $619,529 in the same period in 2009. This change was mainly due to
the increase in sales based on increased orders in 2010.
Income
Taxes
The
Greatmat operating companies were currently operating in Hong Kong SAR and Macau
SAR. The current corporate income tax rate for Hong Kong SAR was 16.5% while
Macau SAR’s corporate income tax rate was 12%. Income taxes increased as a
result of increased income.
Comparison of Three Months
Ended March 31, 2010 and 2009 (Unaudited)
The
following table sets forth key components of our results of operations during
the three month periods ended March 31, 2010 and 2009, both in dollars and as a
percentage of our net sales. The consolidated results for Greatmat Holdings
Limited and its three subsidiaries were as followings:
Three Months Ended
|
Three Months Ended
|
|||||||||||||||
March 31, 2010
|
March 31, 2009
|
|||||||||||||||
% of Net
|
% of Net
|
|||||||||||||||
Amount
|
Sales
|
Amount
|
Sales
|
|||||||||||||
Net
revenues
|
$
|
2,461,889
|
100
|
%
|
$
|
1,505,741
|
100%
|
|||||||||
Cost
of sales
|
1,071,955
|
44
|
%
|
857,269
|
57%
|
|||||||||||
Gross
profit
|
1,389,934
|
56
|
%
|
648,472
|
43%
|
|||||||||||
General
and administrative expenses
|
199,956
|
8
|
%
|
218,799
|
15%
|
|||||||||||
Operating
income
|
1,189,978
|
48
|
%
|
429,673
|
29%
|
|||||||||||
Interest
expense
|
8,241
|
0
|
%
|
5,130
|
0%
|
|||||||||||
Income
Before Income Taxes
|
1,181,737
|
48
|
%
|
424,543
|
28%
|
|||||||||||
Income
taxes
|
148,335
|
6
|
%
|
53,018
|
4%
|
|||||||||||
Net
income
|
$
|
1,033,402
|
42
|
%
|
$
|
371,525
|
25%
|
- 30
-
Net
Sales and Cost of Sales
Our net
sales sharply increased to $2,461,889 in the three months ended March 31, 2010
from $1,505,741 in the same period in 2009. Our cost of sales
increased to $1,071,955 in the three months ended June 30, 2010 from $857,269 in
the same period in 2009. The cost of goods sold per sales ratio
decreased from 57% to 44% from 2009 to 2010. The increase in net revenues was
mainly due to the rapid growth in our scale and output from sales in China while
cost of sales increased in a smaller percentage owing to higher fixed costs and
a smaller variable cost structure.
Gross
Profit and Gross Margin
Our gross
profit increased to $1,389,934 in the three months ended March 31, 2010 from
$648,472 in the same period in 2009. Gross profit as a percentage of net revenue
was 56% and 43% for the three months ended March 31, 2010 and 2009,
respectively. The continuous large increase in gross margins from 2009 to 2010
was primarily due to improved economies of scale as fixed costs did not
increases significantly while variable costs increased less on a percentage
basis than our revenue as we continuously improved our cost controls
mechanism.
General
and Administrative Expenses
Our
general and administration expenses decreased to $199,956 in the three months
ended March 31, 2010 from $218,799 in the same period in 2009. This decrease was
mainly due to improved cost controls.
Interest
Expenses
Interest
expenses increased to $8,241 in the three months ended March 31, 2010 from
$5,130 in the same period in 2009. This increase was mainly due to an increase
in our bank borrowings.
Income
before Income Taxes
Our
income before income taxes increased to $1,181,737 in the three months ended
March 31, 2010 from $424,543 in the same period in 2009. This change was mainly
due to the increase in sales based on increased orders in 2010.
Income
Taxes
The
Greatmat operating companies were currently operating in Hong Kong SAR and Macau
SAR. The current corporate income tax rate for Hong Kong SAR was 16.5% while
Macau SAR’s corporate income tax rate was 12%. Income taxes increased as a
result of increased income.
Comparison of Twelve Months
Ended December 31, 2009 and December 31, 2008
The
following table sets forth key components of our results of operations during
the twelve month periods ended December 31, 2009 and 2008, both in dollars and
as a percentage of our net sales. As the reverse acquisition of Greatmat Limited
and its subsidiaries was entered into after December 31, 2009 and during the
periods indicated Greatmat Limited and its three subsidiaries were the only
entity in our combined business that had operations, the results of operations
below reflect only that of Greatmat.
- 31
-
Twelve Months Ended
|
Twelve Months Ended
|
|||||||||||||||
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
% of Net
|
% of Net
|
|||||||||||||||
Amount
|
Sales
|
Amount
|
Sales
|
|||||||||||||
Net
revenues
|
$
|
5,660,186
|
100
|
%
|
$
|
1,965,403
|
100
|
%
|
||||||||
Cost
of sales
|
3,179,824
|
56
|
%
|
1,483,812
|
75
|
%
|
||||||||||
Gross
profit
|
2,480,362
|
44
|
%
|
481,591
|
25
|
%
|
||||||||||
General
and administrative expenses
|
875,082
|
15
|
%
|
315,923
|
16
|
%
|
||||||||||
Operating
income
|
1,605,280
|
28
|
%
|
165,668
|
8
|
%
|
||||||||||
Other
income
|
-
|
0
|
%
|
3,969
|
0
|
%
|
||||||||||
Interest
expenses
|
24,868
|
0
|
%
|
18,024
|
1
|
%
|
||||||||||
Income
before income taxes
|
1,580,412
|
28
|
%
|
151,613
|
8
|
%
|
||||||||||
Income
taxes
|
193,724
|
3
|
%
|
23,042
|
1
|
%
|
||||||||||
Net
income
|
$
|
1,386,688
|
25
|
%
|
$
|
128,571
|
7
|
%
|
Net Sales.
Our net sales increased to $5,660,186 in the twelve months ended December 31,
2009 from $1,965,403 in the same period in 2008, representing a 188% increase
year-on-year. This increase was mainly due to the operation of
Greatmat China in Macau SAR from 2009 onwards.
Cost of
Sales. Our
cost of sales increased to $3,179,824 in the twelve months ended December 31,
2009 from $1,483,812 in the same period in 2008. The cost of goods
sold per sales ratio decreased from 75% to 56% from 2008 to 2009, mainly due to
the fixed cost increase in a smaller ratio than the variable cost.
Gross Profit and
Gross Margin.
Our gross profit increased to $2,480,362 in the twelve months ended
December 31, 2009 from $481,591 in the same period in 2008. Gross profit as a
percentage of net revenue was 44% and 25% for the twelve months ended December
31, 2009 and 2008, respectively. The large increase in gross margins from 2008
to 2009 was primarily due to improved economies of scale as fixed costs did not
increase significantly while variable costs increased less on a percentage basis
than our revenues as we improved our cost controls.
General and
Administrative Expenses. Our general and administration expenses grew to
$875,082 in the twelve months ended December 31, 2009 from $315,923 in the same
period in 2008. This increase was mainly due to our rapid growth as these costs
are proportional to sales.
Other
Income. Other income decreased to $0 in the twelve months ended December
31, 2009 from $3,969 in the same period in 2008.
Interest
Expenses. Interest expenses increased to $24,868 in the twelve months
ended December 31, 2009 from $18,024 in the same period in 2008. This increase
was mainly due to an increase in our bank borrowings.
Income Before
Income Taxes. Our income before income taxes increased to $1,580,412 in
the twelve months ended December 31, 2009 from $151,613 in the same period in
2008. This increase was mainly due to the increase of net revenues.
Income
Taxes. The Greatmat operating companies were currently operating in Hong
Kong SAR and Macau SAR. The current corporate income tax rate for Hong Kong SAR
was 16.5% while Macau SAR’s corporate income tax rate was 12%. Income taxes
increased as a result of increased income.
- 32
-
Liquidity
and Capital Resources
As
of June 30, 2010, we had cash and cash equivalents of $65,333, primarily
consisting of cash on hand and demand deposits. The following table provides
detailed information about our net cash flow for all financial statement periods
presented in this report. To date, we have financed our operations primarily
through cash flows from operations and equity contributions by our
shareholders.
The
following table sets forth a summary of our cash flows for the periods
indicated:
Cash
Flow
(Amounts
in U.S. dollars)
Six Months Ended
June 31,
|
Twelve Months Ended
December 31,
|
|||||||||||||||
2010
|
2009
|
2009
|
2008
|
|||||||||||||
Net
cash provided by (used in) operating activities
|
$
|
185,120
|
$
|
1,944,292
|
$
|
2,051,777
|
$
|
(405,676
|
)
|
|||||||
Net
cash provided by (used in) investing activities
|
-
|
(1,988,887
|
)
|
(1,988,888
|
)
|
(23,725
|
)
|
|||||||||
Net
cash provided by (used in) financing activities
|
(267,021
|
)
|
114,443
|
23,620
|
373,404
|
|||||||||||
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(81,901
|
)
|
69,848
|
86,509
|
(55,997
|
)
|
||||||||||
Cash
and Cash Equivalent at Beginning of the Period
|
147,234
|
60,725
|
60,725
|
116,722
|
||||||||||||
Cash
and Cash Equivalent at End of the Period
|
65,333
|
130,573
|
147,234
|
60,725
|
Operating
activities
Net cash
provided by operating activities was $185,120 for the six months ended June 30,
2010, as compared to $1,944,292 for the same period in 2009. The change is
attributable to the $1,709,577 increase in net income for the current period,
the decrease of $2,157,276 in accounts receivables, increases of $11,309 in
prepaid expenses; increases of $1,008,956 in accounts payable, decreases of
$3,879 in accrued expenses and increase of $226,269 in income tax payable, and
was offset by decreases of $819,196 in amount due to a director.
Net cash
provided by operating activities was $2,051,777 for the twelve months ended
December 31, 2009, as compared to net cash used in operating activities of
$405,676 for the same period in 2008. The change is attributable to the decrease
of $1,208,482 in accounts receivable, increase of $831,105 in net amount due to
a director, increase of $113,462 in advances to suppliers and other assets,
increase of $47,595 in accrued expenses, increase of $432,631 in accounts
payable, increases of $170,682 in income tax payable and other liabilities, and
was offset by a decrease of $175,432 in bill payables.
Investing
activities
Net cash
used in investing activities for the six months ended June 30, 2010 was $0 as
compared to $1,988,887 during the same period of 2009. The change is
attributable to our having no investing activities in the first half of
2010.
Net cash
used in investing activities for the twelve months ended December 31, 2009 was
$1,988,888, as compared to $23,725 net cash used in investing activities during
the same period of 2008. The change is attributable to the increase in
acquisition of property, plant and equipment.
- 33
-
Financing
activities
Net cash
used in financing activities for the six months ended June 30, 2010 was
$267,021, as compared to net cash provided by financing activities of $114,443
in the same period of 2009. The change is attributable to the net decrease in
bank borrowings and paid out dividends of $115,385 during the six months ended
June 30, 2010.
Net cash
provided by financing activities for the twelve months ended December 31, 2009
was $23,620, as compared to net cash provided by financing activities of
$373,404 in the same period of 2008. The change is attributable to the net
increase in bank borrowings.
We
believe that our cash on hand and cash flow from operations will meet our
present cash needs unless we expand our current scale of production to another
level in a short period of time, in which case we may require additional cash
resources to fund our additional capital expenditures and working capital
requirements related to such growth. We may, however, in the future, require
additional cash resources due to changed business conditions, implementation of
our strategy to ramp up our production facilities and increase machinery and
equipment, or acquisitions we may decide to pursue. If our own financial
resources are insufficient to satisfy our capital requirements, we may seek to
sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity securities could result in dilution to
our stockholders. The incurrence of indebtedness would result in increased debt
service obligations and could require us to agree to operating and financial
covenants that would restrict our operations. Financing may not be available in
amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us, or at all, could limit our ability to
expand our business operations and could harm our overall business
prospects.
Inflation
Inflation
and changing prices have not had a material effect on our business and we do not
expect that inflation or changing prices will materially affect our business in
the foreseeable future. However, our management closely monitors any price
changes in our industry and continually strives to maintain effective cost
controls in our operations. The Chinese government is currently
trying to curb the rate of inflation. However, it is quite possible
that prices for our products may increase faster than our expenses, resulting in
a net benefit to our earnings from the impact of inflation.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.
Significant Accounting
Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including
the notes thereto, and related disclosures of commitments and contingencies, if
any. We have identified certain accounting policies that are
significant to the preparation of our financial statements. These accounting
policies are important for an understanding of our financial condition and
results of operation. Critical accounting policies are those that are
most important to the portrayal of our financial conditions and results of
operations and require management’s difficult, subjective, or complex judgment,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain and may change in subsequent
periods. Certain accounting estimates are particularly sensitive
because of their significance to financial statements and because of the
possibility that future events affecting the estimate may differ significantly
from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and
judgments used in the preparation of our financial statements:
- 34
-
Business
Combination
The
Company records mergers and acquisitions in according to ASC 805 “Business
Combinations”. Under the acquisition method of accounting, the legal entity,
acquiring entity, acquirer and acquiree are properly identified. The acquisition
date is determined. The identifiable assets acquired, the liabilities assumed
and the noncontrolling interest are identified. The goodwill or a gain from a
bargain purchase is recognized.
In the
reverse acquisition, the acquiring entity was the entity with a controlling
financial interest which was the acquirer; the legal entity issued the equity
securities was determined to be the acquired entity, which was the
acquiree. According to ASC 805, the Company is the legal entity
issuing the equity securities and it is the accounting acquiree, The Greatmat
group is the acquiring entity with a controlling financial interest and is the
accounting acquirer.
Revenue
Recognition
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred to the customer pursuant to PRC law, Macau law and Hong
Kong law, including factors such as when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, sales
and value-added tax laws have been complied with and collectability is
probable.
Earnings per
Share
The
Company reports earnings per share in accordance with ASC 260-10 (formerly SFAS
No. 128 – “Earnings per Share”). Basic earnings per share are computed using the
weighted average number of common stock outstanding during the
year/period. Diluted earnings per share are computed using the
weighted average number of common and potentially dilutive common stock
outstanding during the year/period. At June 30, 2010 and 2009, the
Company had no common stock equivalents that were anti-dilutive and excluded
from the earnings per share computation.
Foreign Currency Translation
and Other Comprehensive Income
The
Company has adopted ASC 830-10 (formerly SFAS No. 52, “Foreign Currency
Translation”). Monetary assets and liabilities denominated in foreign
currencies are translated into United States dollars at rates of exchange in
effect at the balance sheet date. Gains or losses are included in
income statement for the year/period. Non-monetary assets, liabilities and items
recorded in income arising from transactions denominated in foreign currencies
are translated at rates of exchange in effect at the date of the transaction. As
the Company's functional currency is the U.S. dollar, and all translation gains
and losses are transactional, and the Company has no assets with values recorded
in foreign currency, there is no recognition of other comprehensive income in
the financial statements.
Use of Estimates and
Assumptions
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income
taxes
The
Company utilizes ASC 740-10 (formerly SFAS No. 109, "Accounting for Income
Taxes,") which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred income
taxes are recognized for tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
- 35
-
The
Company accounts for income taxes using an asset and liability approach which
allows for the recognition and measurement of deferred tax assets based upon the
likelihood of realization of tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
The
Company records a valuation allowance for deferred tax assets, if any, based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its deferred
tax assets will not be realized. If the Company is able to utilize more of its
deferred tax assets than the net amount previously recorded when unanticipated
events occur, an adjustment to deferred tax assets would increase the Company’s
net income. The Company does not have any significant deferred tax assets or
liabilities in the United States of America.
The
Company adopted the provisions of ASC 740-10 (formerly FIN 48, “Accounting for
Uncertainty in Income Taxes”) and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC 740-10 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. We may
from time to time be assessed interest or penalties by major tax jurisdictions.
In the event we receive an assessment for interest and/or penalties, it will be
classified in the financial statements as tax expense.
Fair values of financial
instruments
ASC
825-10 (formerly SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments,") requires that the Company disclose estimated fair values of
financial instruments. The Company's financial instruments primarily consist of
cash, accrued liabilities and amount due to a director.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented on the balance
sheet. This is attributed to the short maturities of the instruments and to the
interest rates on the borrowings approximating those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.
- 36
-
Recent
Accounting Pronouncements
In June
2009, the FASB established the FASB Accounting Standards Codification TM (ASC)
as the single source of authoritative U.S generally accepted accounting
principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The ASC superseded all previously
existing non-SEC accounting and reporting standards, and any prior sources of
U.S. GAAP not included in the ASC or grandfathered are not authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by the
FASB through Accounting Standards Updates (ASUs). The ASC did no change current
U.S. GAAP but changes the approach by referencing authoritative literature by
topic (each a “Topic”) rather than by type of standard. The ASC has been
effective for the Company effective July 1, 2009. Adoption of the ASC did not
have a material impact on the Company’s Audited Financial Statements, but
references in the Company’s Notes to Audited Financial Statements to former FASB
positions, statements, interpretations, opinions, bulletins or other
pronouncements are now presented as references to the corresponding Topic in the
ASC.
During
2008, the Company adopted FASB ASC 820-10 (formerly FSP
FAS 157-2, "Effective Date of FASB Statement 157"), which deferred the
provisions of previously issued fair value guidance for non-financial assets and
liabilities to the first fiscal period beginning after November 15, 2008.
Deferred nonfinancial assets and liabilities include items such as goodwill and
other non-amortizable intangibles. Effective January 1, 2009, the Company
adopted the fair value guidance for nonfinancial assets and liabilities. The
adoption of FASB ASC 820-10 did not have a material impact on the Company’s
Audited Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160,
"Non-controlling Interests in Consolidated Financial Statements — an amendment
of ARB No. 51"), which amends previously issued guidance to establish accounting
and reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as minority interest,
is an ownership interest in the consolidated entity that should be reported as
equity. Among other requirements, this Statement requires that the consolidated
net income attributable to the parent and the non-controlling interest be
clearly identified and presented on the face of the consolidated income
statement. The adoption of the provisions in this ASC did not have a
material impact on the Company’s Audited Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 805-10, (formerly SFAS 141R,
"Business Combinations"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in an
acquiree and the goodwill acquired. The Company will apply ASC 805-10 to
any business combinations subsequent to adoption.
Effective
January 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS 141R-1,
"Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies"), which amends ASC 805-10 to require
that an acquirer recognize at fair value, at the acquisition date, an asset
acquired or a liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value of
such an asset acquired or liability assumed cannot be determined, the acquirer
should apply the provisions of ASC Topic 450, Contingences, to determine whether
the contingency should be recognized at the acquisition date or after such date.
The adoption of ASC 805-20 did not have a material impact on the Company’s
Audited Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FASB Staff
Position (“FSP”) No. FAS 107-1 and Accounting Principles Board 28-1, "Interim
Disclosures about Fair Value of Financial Instruments"), which amends previous
guidance to require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. The adoption of FASB ASC 825-10-65 did not have a material
impact on the Company’s Audited Financial Statements.
- 37
-
Effective
July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and
FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments").
Under ASC 320-10-65, an other-than-temporary impairment must be recognized if
the Company has the intent to sell the debt security or the Company is more
likely than not will be required to sell the debt security before its
anticipated recovery. In addition, ASC 320-10-65 requires impairments related to
credit loss, which is the difference between the present value of the cash flows
expected to be collected and the amortized cost basis for each security, to be
recognized in earnings while impairments related to all other factors to be
recognized in other comprehensive income. The adoption of ASC 320-10-65 did not
have a material impact on the Company’s Audited Financial
Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4,
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly"), which provides guidance on how to determine the fair value of assets
and liabilities when the volume and level of activity for the asset or liability
has significantly decreased when compared with normal market activity for the
asset or liability as well as guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not
have a material impact on the Company’s Audited Financial
Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 855-10 (formerly SFAS 165,
“Subsequent Events”), which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. Adoption of ASC
855-10 did not have a material impact on the Company’s Audited Financial
Statements.
In
August, 2009, the FASB issued ASC Update No. 2009-05 (“Update 2009-05”) to
provide guidance on measuring the fair value of liabilities under FASB ASC 820
(formerly SFAS 157, "Fair Value Measurements"). The Company adopted
Update 2009-05 in the first quarter of 2010. It is expected the
adoption of this Update will have no material effect on the Company’s Financial
Statements.
In
October 2009, the FASB concurrently issued the following ASC
Updates:
ASU No.
2009-14 - Software (Topic 985): Certain Revenue Arrangements That Include
Software Elements (formerly EITF Issue No. 09-3). This standard removes tangible
products from the scope of software revenue recognition guidance and also
provides guidance on determining whether software deliverables in an arrangement
that includes a tangible product, such as embedded software, are within the
scope of the software revenue guidance.
ASU No.
2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (formerly EITF Issue No. 08-1). This standard modifies
the revenue recognition guidance for arrangements that involve the delivery of
multiple elements, such as product, software, services or support, to a customer
at different times as part of a single revenue generating
transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the individual
deliverables should be separated and how to allocate the revenue in the
arrangement among those separate deliverables. The standard also expands the
disclosure requirements for multiple deliverable revenue
arrangements.
These
Accounting Standards Updates should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application
permitted. Alternatively, an entity can elect to adopt these
standards on a retrospective basis, but both these standards must be adopted in
the same period using the same transition method. The Company expects
to apply this standard on a prospective basis for revenue arrangements entered
into or materially modified beginning January 1, 2011. It is expected
the adoption of this Statement will have no material effect on the Company’s
Financial Statements.
- 38
-
ASC
Update (“ASU”) No. 2010-01, Equity (Topic 505): Accounting for
Distributions to Shareholders with Components of Stock and Cash. This
update clarifies that the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in the aggregate
is considered a share issuance that is reflected in earnings per share
prospectively and is not a stock dividend. This ASU codified the consensus
reached in EITF Issue No. 09-E “Accounting for Stock Dividends, Including
Distributions to Shareholders with Components of Stock and Cash”. ASU 2010-01 is
effective for interim and annual periods ending on or after December 15, 2009,
and should be applied on a retrospective basis. The adoption of this update did
not have any material impact on the Company’s financial statements.
ASC
Updated (“ASU”) No. 2010-02, Consolidation (Topics 810) –
Accounting and Reporting for Decreases in Ownership of a Subsidiary - A Scope
Clarification. This update provides guidance for
non-controlling interests and changes in ownership interests of a subsidiary. An
entity is required to deconsolidate a subsidiary when the entity ceases to have
a controlling financial interest in the subsidiary. Upon deconsolidation of a
subsidiary, an entity recognizes a gain or loss on the transaction and measures
any retained investment in the subsidiary at fair value. The gain or loss
includes any gain or loss associated with the difference between the fair value
of the retained investment in the subsidiary and its carrying amount at the date
the subsidiary is deconsolidated. In contrast, an entity is required to account
for a decrease in its ownership interest of a subsidiary that does not result in
a change of control of the subsidiary as an equity transaction. The
adoption of this update did not have any material impact on the Company’s
financial statements.
ASC
Update (“ASU”) No. 2010-13, Compensation – Stock Compensation
(Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades. This update is to codify the consensus reached in EITF Issue No.
09-J, “Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades.”
The amendments to the Codification clarify that an employee share-based payment
award with an exercise price denominated in the currency of a market in which a
substantial portion of the entity’s equity shares trades should not be
considered to contain a condition that is not a market, performance, or services
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The adoption of this update did not have
any material impact on the Company’s financial statements.
ASC
Update (“ASU”) No. 2010-21, Accounting for Technical Amendments
to Various SEC Rules and Schedules. This update amends various SEC
paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final
Rule, “Technical Amendments to Rules Forms, Schedules and Codification of
Financial Reporting Policies”. The adoption of this update did not have any
material impact on the Company’s financial statements.
ASC
Update (“ASU”) No. 2010-22, Accounting for Various Topics.
This update amends various SEC paragraphs in the FASB Accounting
Standards Codification based on external comments received and the issuance of
Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds portion of
certain SAB topics. SAB 112 was issued to bring existing SEC guidance into
conformity with ASC 805 “Business Combination” and ASC 810 “Consolidation”. The
adoption of this update did not have any material impact on the Company’s
financial statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s financial statements
upon adoption.
- 39
-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding beneficial ownership of our
common stock as of October 30, 2010 by (i) each person or group who is known by
us to beneficially own more than 5% of our common stock; (ii) each director;
(iii) our chief executive officer and each other executive officer whose cash
compensation for the most recent fiscal year exceeded $100,000 and (iv) all such
executive officers and directors as a group. Unless otherwise
specified, the address of each of the persons set forth below is in care of the
Company, Room 2102-03, 21/F, Kingsfield Centre 18-20 Shell Street, North Point,
Hong Kong. Except as indicated in the footnotes to this table, the
persons named in the table to our knowledge have sole voting and investment
power with respect to all shares of securities shown as beneficially owned by
them. The information in this table is as of October 30, 2010, based
upon 48,747,600 shares of common stock outstanding.
Name and Address of Beneficial
Owner
|
Office, If Any
|
Amount
and Nature
of
Beneficial
Ownership
|
Percent
Common
Stock
|
|||||||
Chris
Yun Sang SO
|
Chief
Executive Officer
|
36,560,700 | 75.0 | % | ||||||
Yau-sing
TANG
|
Director
and former Chief Executive Officer
|
8,583,162 |
(1)
|
17.6 | % | |||||
All
officers and directors as a group (two persons named
above)
|
45,143,862 | 92.6 | % | |||||||
Wellkey
Holdings Limited
Box
933 Abbott Building
Road
Town
Tortola,
British Virgin Islands
|
8,583,162 | 17.6 | % |
(1) All of
such shares are indirectly owned by Yau-sing TANG through his 100% owned company
called Wellkey Holdings Limited, a company incorporated under the laws of the
British Virgin Islands.
Changes
in Control
The
Company does not have any change of control or retirement arrangements with its
executive officers.
- 40
-
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors
and Executive Officers
The
following sets forth information about our directors and executive officers as
of the date of this report:
NAME
|
|
AGE
|
|
POSITION
|
Chris
Yun Sang SO
|
44
|
Chief
Executive Officer, President and Chief Financial
Officer
|
||
Carol
Lai Ping HO
|
37
|
General
Manager, Secretary and Treasurer
|
||
Rick
Chun Wah TSE
|
33
|
Marketing
Director
|
||
Yau-sing
TANG
|
48
|
Director
|
Chris Yun
Sang SO has been the Chief Executive Officer, President and Chief Financial
Officer of Aurum since October 2010 and has been the founder, Chairman and Chief
Executive Officer of Greatmat Hong Kong since May 2004. Mr. So holds a
Master of Science Degree in Management from International American University
and a post-graduate Diploma in Management Studies from South China Polytechnic
Institute. Prior to founding Greatmat, Mr. So had over 20 years of
business and management experience in the Hong Kong and Chinese building
materials industry. Under his leadership, in 2005 Greatmat was awarded a
grant from the Hong Kong Innovative Technology Fund for the creation of
innovative construction materials. Under his leadership, in 2009 Greatmat
was granted a Hong Kong Award for Environmental Excellence.
Carol Lai
Ping HO has been the General Manager, Secretary and Treasurer of Aurum
since October 2010 and has been the General Manager of Greatmat since July
2004. Ms. Ho formerly worked for the Hong Kong Polytechnic University and
Oliver’s Super Sandwiches Management Limited and has over 10 years of experience
in management and accounting. Ms. Ho graduated from the University of Hong
Kong with a BA (Honour) degree in Management Studies.
Rick Chun
Wah TSE has been the Marketing Director of Aurum since October 2010 and has
been the Marketing Director of Greatmat since May 2004. Mr. Tse obtained
his Diploma in Business Management from the Hong Kong Management Association and
has over ten years of experience in sales, product research and development and
management.
Yau-sing
TANG has been a director of Aurum since October 2009, and was the President,
Chief Executive Officer, Chief Financial Officer, Treasurer and Corporate
Secretary of Aurum from July 2009 until October 2010. Since October 2008,
Mr. Tang has been the chief financial officer of China Agritech, Inc. (CAGC), a
company listed on the NASDAQ Global Market. Since August 2010, Mr. Tang
has served as a director of China North East Petroleum Holdings Limited (NEP), a
company listed on the American Stock Exchange. From March 2008 to
September 2008, Mr. Tang was the director of AGCA CPA Limited, a CPA firm in
Hong Kong. From August 2006 to March 2008, Mr. Tang was the financial
controller of Carpenter Tan Holdings Ltd., a company listed on the Main Board of
The Stock Exchange of Hong Kong Limited. From January 2006 to July 2006,
Mr. Tang was the founder and managing director of AGCA CPA Limited. From
April 2003 to December 2005, Mr. Tang was the executive director and chief
financial officer of China Cable and Communication, Inc., a company quoted on
the Pink Sheets. Mr. Tang received his Bachelor of Social Sciences
(Honors) degree from the University of Hong Kong in 1986. Mr. Tang is a
fellow of the Association of Chartered Certified Accountants in the United
Kingdom and the Hong Kong Institute of Certified Public Accountants. Mr.
Tang is also a member of the Institute of Chartered Accountants in England and
Wales and the Taxation Institute of Hong Kong.
Family
Relationships
There is
no family relationship among any of our officers or directors.
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To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past ten years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws. Except as set forth in our discussion below in
“Certain Relationships and Related Transactions, and Director Independence –
Transactions with Related Persons,” none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.
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EXECUTIVE
COMPENSATION
Summary
Compensation Table — Fiscal Years Ended December 31, 2009 and 2008
The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the named persons for services
rendered in all capacities during the noted periods. No other executive officer
received total annual salary and bonus compensation in excess of
$100,000.
Name and Principal Position
|
Year
|
Salary
($)
|
All Other
Compensation
($)
|
Total
($)
|
||||||||||
Chris
Yun Sang SO, CEO of Greatmat Hong Kong
|
2009(1)
|
64,103 | 3,077 | 67,180 | ||||||||||
2008(1)
|
41,667 | 3,077 | 44,744 | |||||||||||
Yau-sing
TANG, former CEO of Aurum
|
2010(2)
|
0 | 0 | 0 | ||||||||||
2009(2)
|
0 | 0 | 0 |
(1)
|
Represents
compensation paid by Greatmat Hong Kong for the years ended December 31,
2009 and 2008.
|
(2)
|
Represents
compensation paid by Aurum for the years ended July 31, 2010 and
2009.
|
On
October 30, 2010, we acquired Greatmat Holdings in a reverse acquisition
transaction that was structured as a share exchange and in connection with that
transaction, Mr. Chris Yun Sang SO became our CEO. Prior to the effective
date of the reverse acquisition, Yau-sing TANG served as CEO of Aurum. Mr. Chris
Yun Sang SO has served as the Chairman and CEO of Greatmat Hong Kong since its
founding in 2004. The compensation shown in this table includes the
amounts Mr. So received from Greatmat Hong Kong prior to the consummation of the
reverse acquisition. In addition, Mr. So received an interim dividend from
Greatmat Hong Kong in the amount of $115,385 (HK$900,000) on June 28, 2010 by
reason of his being the sole shareholder of Greatmat Hong Kong at such
time.
Amounts
shown in the “All Other Compensation” column represent contributions by Greatmat
Hong Kong to the Hong Kong Mandatory Provident Fund, a mandatory, fully funded
defined contribution scheme operated by the government of the Hong Kong
SAR. Greatmat is required to contribute a specified percentage of payroll
costs to the retirement benefit scheme to fund the benefits. The only
funding obligation of Greatmat with respect to the retirement benefit plan is to
make the specified contributions.
Summary of Employment Agreements and
Material Terms
We do not
have any employment agreements with any of our executive officers or
directors.
We have
not provided retirement benefits (other than contributions to the Hong Kong
Mandatory Provident Fund, a government mandated defined contribution scheme in
which all of our employees in Hong Kong participate) or severance or change of
control benefits to our named executive officers.
Outstanding Equity Awards at Fiscal
Year End
For the
year ended December 31, 2009, no director or executive officer has received
compensation from us pursuant to any compensatory or benefit plan (other than
contributions to the Hong Kong Mandatory Provident Fund, a government mandated
defined contribution scheme in which all of our employees in Hong Kong
participate). There is no plan or understanding, express or implied, to pay any
compensation to any director or executive officer pursuant to any compensatory
or benefit plan, although we anticipate that we may in the future compensate our
officers and directors for services to us with stock or options to purchase
stock, in lieu of cash.
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Compensation of
Directors
No member
of our board of directors received any compensation for his services as a
director during the year ended July 31, 2010 and currently no compensation
arrangements are in place for the compensation of directors.
Transactions
with Related Persons
The
following includes a summary of transactions since the beginning of the 2008
year, or any currently proposed transaction, in which we were or are to be a
participant and the amount involved exceeded or exceeds the lesser of $120,000
or one percent of the average of our total assets at year end for the last two
completed fiscal years, and in which any related person had or will have a
direct or indirect material interest (other than compensation described under
“Executive Compensation”). We believe the terms obtained or consideration that
we paid or received, as applicable, in connection with the transactions
described below were comparable to terms available or the amounts that would be
paid or received, as applicable, in arm’s-length transactions.
In July
2009, Patrick Mohammed, Aurum's former director, sole officer and majority
shareholder, waived a debt owed to him by Aurum of $66,610 in connection with a
change in control of the Company.
During
the year ended July 31, 2010, Yau-sing TANG, Aurum’s sole officer and director,
advanced funds to the Company totaling $24,017 as at July 31, 2010. As of
October 1, 2010, the amount due to Mr. Tang totaled $33,269. As of the date of
this report, this debt has been cancelled in full. The amounts due to Mr.
Tang were non-interest bearing and repayable on demand. Mr. Tang agreed to
waive this debt in the amount of $33,269 in exchange for 3,326,900 shares of
Aurum’s common stock, which shares were issued prior to the Share Exchange on
October 27, 2010.
During
the year ended December 31, 2009, Chris Yun Sang SO, Greatmat’s CEO and
director, advanced funds to Greatmat totaling $828,269 as at December 31,
2009. As of June 30, 2010, the amount due to Mr. So totaled $9,073. The
amounts due to Mr. So were non-interest bearing and repayable on
demand.
Chris Yun
Sang SO, Greatmat’s CEO and director, formerly owned a separate company known as
Greatmat Engineering. This company was separate from Greatmat and engaged in the
installation of Greatmat flooring for construction projects. Greatmat
Engineering was sold to Mr. So’s wife on March 8, 2010, is no longer owned by
Mr. So and no longer uses the Greatmat name. All loans between Greatmat
Engineering and Greatmat were non-interest bearing and repayable on demand and
have been settled as of December 31, 2009 and June 30, 2010.
Insider
Transactions Policies and Procedures
The
Company does not currently have an insider transaction policy.
Director
Independence
We
currently do not have any independent directors as the term “independent” is
defined by the rules of the American Stock Exchange.
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From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may harm our business. We are currently not aware of any
such legal proceedings or claims that we believe will have a material adverse
affect on our business, financial condition or operating results.
MARKET
PRICE AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock is currently quoted on the inter-dealer electronic quotation and
trading system maintained by Pink OTC Markets Inc. under the ticker symbol
“ARMX”. The Company’s common stock has not had any trading history and
therefore we cannot present high and low bid prices. .
Holders
On
October 30, 2010, there were approximately 17 holders of record of our common
stock.
Dividends
In the
past, Aurum has not distributed earnings to shareholders. Any future
decisions regarding dividends will be made by our board of directors. We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors has complete discretion on whether to
pay dividends. Even if our board of directors decides to pay dividends, the
form, frequency and amount will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions and other factors that the board of directors may deem
relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
have in effect any compensation plans under which our equity securities are
authorized for issuance and we do not have any outstanding stock
options.
RECENT
SALES OF UNREGISTERED SECURITIES
On July
16, 2008, Aurum issued 500,000 restricted shares of common stock to Patrick
Mohammed, its former President, in consideration of services rendered valued at
$500. The foregoing 500,000 shares constituted more than 5% of Aurum’s total
outstanding shares at the time of issuance. The shares were sold pursuant to the
exemption from registration contained in Regulation S of the Securities Act of
1933 in that the transaction took place outside the United States and Mr.
Mohammed was not a U.S. person as defined in Regulation S.
On
October 27, 2010, Aurum issued 3,326,900 shares of its common stock to Wellkey
Holdings Limited, an entity owned by Yau-sing Tang, Aurum’s sole officer and
director at such time. The total consideration for the 3,326,900 shares of
Aurum’s common stock was the cancellation of Aurum’s indebtedness of $33,269
owed to Mr. Tang prior to such issuance. The issuance of Aurum’s shares to
Wellkey Holdings Limited was made pursuant to Regulation S under the Securities
Act.
On
October 30, 2010, Aurum issued 36,560,700 shares of its Common Stock to Chris
Yun Sang SO, the sole shareholder of Greatmat Holdings Limited, a British Virgin
Islands limited company. The total consideration for the 36,560,700 shares
of Aurum’s Common Stock was one share of Greatmat Holdings Limited, which is all
the issued and outstanding capital stock of Greatmat Holdings Limited. The
number of our shares issued to the shareholder of Greatmat Holdings Limited was
determined based on an arm’s-length negotiation. The issuance of Aurum’s shares
to the shareholder of Greatmat Holdings Limited was made pursuant to Regulation
S under the Securities Act.
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Aurum
issued securities in reliance upon Regulation S under the Securities Act.
Each shareholder who received the securities in such instance was not a United
States person as defined in Regulation S. In addition, the Company did not
conduct any selling efforts directed at the United States in connection with the
offering. All shares of common stock issued pursuant to Regulation S
included a restrictive legend indicating that the shares are being issued
pursuant to Regulation S under the Securities Act and are deemed to be
“restricted securities.” As a result, such recipients of the shares
will not be able to resell the shares unless in accordance with Regulation S,
pursuant to a registration statement, or upon reliance of an applicable
exemption from registration under the Securities Act.
DESCRIPTION
OF SECURITIES
Common
Stock
We are
authorized to issue up to 50,000,000 shares of common stock, par value $0.001
per share. Each outstanding share of common stock entitles the holder thereof to
one vote per share on all matters. Our bylaws provide that any vacancy occurring
in the board of directors may be filled by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the board of directors or
by a sole remaining director. Shareholders do not have preemptive rights
to purchase shares in any future issuance of our common stock.
The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. Our board of
directors has never declared a dividend and does not anticipate declaring a
dividend in the foreseeable future. Should we decide in the future to pay
dividends, as a holding company, our ability to do so and meet other obligations
depends upon the receipt of dividends or other payments from our operating
subsidiaries and other holdings and investments. In addition, our operating
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to us, including as a result of restrictive covenants in
loan agreements, restrictions on the conversion of local currency into U.S.
dollars or other hard currency and other regulatory restrictions. In the event
of our liquidation, dissolution or winding up, holders of our common stock are
entitled to receive, ratably, the net assets available to shareholders after
payment of all creditors.
As of
October 30, 2010, we had a total of 48,747,600 shares of common stock
outstanding.
Anti-takeover Effects of Our Articles
of Incorporation and By-laws
Our
Articles of Incorporation and Bylaws contain certain provisions that may have
anti-takeover effects, making it more difficult for or preventing a third party
from acquiring control of the Company or changing its board of directors and
management. According to our Bylaws and Articles of Incorporation, the holders
of the Company’s common stock do not have cumulative voting rights in the
election of our directors. The combination of the present ownership by a few
stockholders of a significant portion of the Company’s issued and outstanding
common stock and lack of cumulative voting makes it more difficult for other
stockholders to replace the Company’s board of directors or for a third party to
obtain control of the Company by replacing its board of directors.
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Anti-takeover
Effects of Nevada Law
Business
Combinations
The
“business combination” provisions of Sections 78.411 to 78.444, inclusive, of
the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least
200 stockholders from engaging in various “combination” transactions with any
interested stockholder:
|
•
|
for
a period of three years after the date of the transaction in which the
person became an interested stockholder, unless the transaction is
approved by the board of directors prior to the date the interested
stockholder obtained such status;
or
|
|
•
|
after
the expiration of the three-year period,
unless:
|
|
•
|
the
transaction is approved by the board of directors or a majority of the
voting power held by disinterested stockholders,
or
|
|
•
|
if
the consideration to be paid by the interested stockholder is at least
equal to the highest of: (a) the highest price per share paid by the
interested stockholder within the three years immediately preceding the
date of the announcement of the combination or in the transaction in which
it became an interested stockholder, whichever is higher, (b) the market
value per share of common stock on the date of announcement of the
combination and the date the interested stockholder acquired the shares,
whichever is higher, or (c) for holders of preferred stock, the highest
liquidation value of the preferred stock, if it is
higher.
|
A
“combination” is defined to include mergers or consolidations or any sale, lease
exchange, mortgage, pledge, transfer or other disposition, in one transaction or
a series of transactions, with an “interested stockholder” having: (a) an
aggregate market value equal to 5% or more of the aggregate market value of the
assets of the corporation, (b) an aggregate market value equal to 5% or more of
the aggregate market value of all outstanding shares of the corporation, or (c)
10% or more of the earning power or net income of the corporation.
In
general, an “interested stockholder” is a person who, together with affiliates
and associates, owns (or within three years, did own) 10% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts and, accordingly, may discourage
attempts to acquire our company even though such a transaction may offer our
stockholders the opportunity to sell their stock at a price above the
prevailing market price.
The
“control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS,
which apply only to Nevada corporations with at least 200 stockholders,
including at least 100 stockholders of record who are Nevada residents, and
which conduct business directly or indirectly in Nevada, prohibit an acquiror,
under certain circumstances, from voting its shares of a target corporation's
stock after crossing certain ownership threshold percentages, unless the
acquiror obtains approval of the target corporation's disinterested
stockholders. The statute specifies three thresholds: one-fifth or more
but less than one-third, one-third but less than a majority, and a majority or
more, of the outstanding voting power. Once an acquiror crosses one of the
above thresholds, those shares in an offer or acquisition and acquired within 90
days thereof become “control shares” and such control shares are deprived of the
right to vote until disinterested stockholders restore the right.
These provisions also provide that if control shares are accorded
full voting rights and the acquiring person has acquired a majority or more of
all voting power, all other stockholders who do not vote in favor of authorizing
voting rights to the control shares are entitled to demand payment for the
fair value of their shares in accordance with statutory procedures established
for dissenters' rights.
Although
we are not currently subject to these “control share” provisions since we do not
conduct business directly or indirectly in Nevada and have less than 100
stockholders of record who are Nevada residents, there can be no assurance that
in the future such provisions will not apply to us.
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Our
independent stock transfer agent is Empire Stock Transfer Inc. Their
mailing address is 1859 Whitney Mesa Dr., Henderson, NV 89014, and their phone
number is (702) 974-1444.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
current Bylaws of the Company provide that the Company shall indemnify its
directors and officers as permitted under Nevada law.
The
Company is permitted by the Bylaws to purchase and maintain insurance and make
other financial arrangements on behalf of its officers and directors against any
liability and expense incurred in such capacity, whether or not the Company
would have the power to indemnify such person against such
liability.
The
Company is incorporated under the laws of the State of Nevada. Section 78.7502
of the Nevada Revised Statutes provides that a Nevada corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys’ fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
Section
78.7502 further provides a Nevada corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section
78.751 of the Nevada Revised Statutes provides that discretionary
indemnification under Section 78.7502 unless ordered by a court or advanced
pursuant to subsection 2 of section 78.751, may be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made by:
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By
the stockholders;
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●
|
By
the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or
proceeding;
|
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●
|
If
a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
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●
|
If
a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
|
The
Articles of Incorporation, the Bylaws or an agreement made by the corporation
may provide that the expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
The
indemnification and advancement of expenses authorized in or ordered by a court
pursuant to NRS Section 78.751:
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●
|
does
not exclude any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to section
78.7502 or for the advancement of expenses made pursuant to subsection 2
of section 78.751, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law
and was material to the cause of action;
and
|
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●
|
continues
for a person who has ceased to be a director, officer, employee or agent
and inures to the benefit of the heirs, executors and administrators of
such a person.
|
At the
present time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of ours in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding, which may result in a claim for such indemnification.
- 49
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ITEM
3.02
UNREGISTERED
SALES OF EQUITY SECURITIES
On
October 30, 2010, we issued 36,560,700 shares of our Common Stock to Chris Yun
Sang SO, the sole shareholder of Greatmat Holdings Limited, a British Virgin
Islands limited company. The total consideration for the 36,560,700 shares
of our Common Stock was one share of Greatmat Holdings Limited, which is all the
issued and outstanding capital stock of Greatmat Holdings Limited. The
number of our shares issued to the shareholder of Greatmat Holdings Limited was
determined based on an arm’s-length negotiation. The issuance of our shares to
the shareholder of Greatmat Holdings Limited was made pursuant to Regulation S
under the Securities Act.
We issued
securities in reliance upon Regulation S under the Securities Act. Each
shareholder who received the securities in such instance was not a United States
person as defined in Regulation S. In addition, the Company did not
conduct any selling efforts directed at the United States in connection with the
offering. All shares of common stock issued pursuant to Regulation S
included a restrictive legend indicating that the shares are being issued
pursuant to Regulation S under the Securities Act and are deemed to be
“restricted securities.” As a result, such recipients of the shares
will not be able to resell the shares unless in accordance with Regulation S,
pursuant to a registration statement, or upon reliance of an applicable
exemption from registration under the Securities Act.
ITEM
5.01
CHANGES
IN CONTROL OF REGISTRANT
Reference
is made to the disclosure set forth under Item 2.01 of this report, which
disclosure is incorporated herein by reference.
As a
result of the closing of the reverse acquisition with Greatmat Holdings Limited,
immediately after the Share Exchange the former shareholder of Greatmat Holdings
Limited owned 75.0% of the total outstanding shares of our common stock and
75.0% of the total voting power of all our outstanding voting
securities.
ITEM
5.02.
DEPARTURE
OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN
OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
Upon the
closing of the reverse acquisition, Yau-sing TANG, our sole director and
officer, submitted a resignation letter pursuant to which he resigned from all
offices that he held effective immediately and from his position as our director
that will become effective on the tenth day following the mailing by us of an
information statement, or the Information Statement, to our stockholders that
complies with the requirements of Section 14f-1 of the Exchange Act. In
addition, our board of directors on October 30, 2010 increased the size of our
board of directors to three directors and appointed Chris Yun Sang SO, Carol Lai
Ping HO and Rick Chun Wah TSE to fill the vacancies created by such resignation
and increase in the size of the board, which appointments will become effective
upon the effectiveness of the resignation of Yau-sing TANG on the tenth day
following the mailing by us of the Information Statement to our
stockholders. In addition, our sole executive officer Yau-sing TANG was
replaced by Chris Yun Sang SO, Carol Lai Ping HO and Rick Chun Wah TSE upon the
closing of the reverse acquisition as indicated in more detail
above.
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ITEM
5.03
AMENDMENT
TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR
Amendments
to Bylaws
On
October 30, 2010, the Board of Directors of Aurum approved two changes to
Aurum’s Bylaws. The Bylaws of the Company, as amended by such changes, are
attached as Exhibit 3.2 to this current report and are incorporated by reference
into this Item 5.03.
The first
change consisted of replacing ARTICLE II, Section 8 of the Bylaws, which
pertains to actions by shareholders without a meeting, with a similar provision
that allows shareholders of Aurum to take action by written consent of
stockholders holding at least a majority of the voting power of the corporation
unless a different proportion would be required for such a vote at a
meeting. This is a technical amendment to the bylaws intended to clarify
what was a somewhat ambiguously drafted provision that written consents could be
taken by “a majority of the shareholders of the Corporation.”
The
second change to the Bylaws approved by Aurum’s Board of Directors was the
addition of a new ARTICLE XIII - INDEMNIFICATION to the Bylaws which provides,
among other things, that the Company shall indemnify its officers and directors,
and may indemnify its employees and agents, as allowed by Nevada law. The
new ARTICLE XIII also provides that the Company may advance expenses incurred by
its officers and directors in defending actions against them upon receipt of an
undertaking by such officer or director to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the
Company.
Change
of Fiscal Year
The
year-end for Greatmat Limited is December 31. On October 30, 2010, the
Board of Directors of Aurum approved changing the fiscal year-end of Aurum from
July 31 to December 31 as a result of the reverse acquisition of Greatmat
Limited.
ITEM
5.06.
CHANGE
IN SHELL COMPANY STATUS
Prior to
the closing of the reverse acquisition, Aurum Explorations, Inc. was a “shell
company” as defined in Rule 12b-2 of the Exchange Act. As described in
Item 2.01 above, which is incorporated by reference into this Item 5.06,
Aurum Explorations, Inc. ceased being a shell company upon completion of
the reverse acquisition on October 30, 2010.
ITEM
9.01
FINANCIAL
STATEMENTS AND EXHIBITS
(a) Financial
Statements of Business Acquired
Filed
herewith are audited consolidated financial statements of Greatmat Holdings
Limited and subsidiaries for the fiscal years ended December 31, 2009 and 2008
and unaudited consolidated financial statements of Greatmat Holdings Limited and
subsidiaries for the six months ended June 30, 2010 and 2009.
(b)
Pro Forma
Financial Information
Filed
herewith is the unaudited pro forma condensed combined financial information of
the Company and its subsidiaries.
(d) Exhibits
- 51
-
Exhibit No.
|
Description
|
|
2.1*
|
Share
Exchange Agreement, dated as of October 30, 2010, among Aurum
Explorations, Inc., Greatmat Holdings Limited, Chris Yun Sang SO and
Yau-sing TANG.
|
|
3.1
|
Articles
of Incorporation of Aurum Explorations, Inc. filed as an Exhibit to
Aurum’s Annual Report on Form 10-K on October 6, 2010, and incorporated
herein by reference.
|
|
3.2*
|
Bylaws
of Aurum Explorations, Inc.
|
|
10.1*
|
Manufacturing
Agreement, dated July 20, 2005, between Greatmat Technology (HK) Limited
and Yunfu Changyi Stone Factory.
|
|
10.2
|
|
Stock
Purchase Agreement between Aurum Explorations, Inc. and Yau-sing Tang,
dated October 27, 2010, filed as an Exhibit to Aurum’s Current Report on
Form 8-K filed on November 2, 2010, and incorporated herein by
reference.
|
21*
|
Subsidiaries
of the Company.
|
*Filed
herewith.
- 52
-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
November 3, 2010
|
Aurum Explorations, Inc.
|
|
(Registrant)
|
|
/s/ Chris Yun Sang SO
|
|
*Signature
|
|
Chief Executive Officer
|
|
Title
|
- 53
-
GREATMAT
HOLDINGS LIMITED AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US dollars)
GREATMAT
HOLDINGS LIMITED AND SUBSIDIARIES
CONTENTS
|
|
PAGES
|
INDEPENDENT
AUDITOR’S REPORT
|
2
|
|
PRO
FORMA CONSOLIDATED BALANCE SHEETS
|
3 –
4
|
|
PRO
FORMA CONSOLIDATED STATEMENTS OF INCOME
|
5
|
|
PRO
FORMA CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
6
|
|
PRO
FORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
|
7
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
8 –
20
|
1
ALBERT
WONG & CO.
|
CERTIFIED
PUBLIC ACCOUNTANTS
|
7th
Floor, Nan Dao Commercial Building
|
359-361
Queen’s Road Central
|
Hong
Kong
|
Tel
: 2851 7954
|
Fax:
2545 4086
|
ALBERT
WONG
|
B.Soc.,
Sc., ACA., LL.B.,
CPA(Practising)
|
The board
of directors and shareholders of
Greatmat
Holdings Limited and Subsidiaries
Independent Auditor’s
Report
We have
audited the accompanying proforma consolidated balance sheets of Greatmat
Holdings Limited and subsidiaries as of December 31, 2009 and 2008 and the
related proforma consolidated statements of income, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 proforma consolidated financial position of Greatmat
Holdings Limited and Subsidiaries as of December 31, 2009 and 2008 and the
results of its operations, changes in its stockholders’ equity, and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Hong
Kong, China
|
Albert
Wong & Co
|
August
31, 2010
|
Certified
Public Accountants
|
2
GREATMAT
HOLDINGS LIMITED
PRO FORMA CONSOLIDATED BALANCE
SHEETS
AS
AT DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
Note
|
2009
|
2008
|
|||||||||
ASSETS
|
|||||||||||
Current
assets
|
|||||||||||
Cash
and cash equivalents
|
$ | 147,234 | $ | 60,725 | |||||||
Account
receivables
|
1,928,770 | 720,288 | |||||||||
Deposits,
prepayments and other receivables
|
3
|
18,331 | 120,382 | ||||||||
Receivables
from related company
|
5
|
- | 59,481 | ||||||||
Total
current assets
|
$ | 2,094,335 | $ | 960,876 | |||||||
Property,
plant and equipment, net
|
4
|
1,595,992 | 28,238 | ||||||||
TOTAL
ASSETS
|
$ | 3,690,327 | $ | 989,114 | |||||||
LIABILITIES
AND
|
|||||||||||
STOCKHOLDERS’
EQUITY
|
|||||||||||
Current
liabilities
|
|||||||||||
Accounts
payable and accrued charges
|
6
|
496,510 | 16,284 | ||||||||
Amount
due to a director
|
8
|
828,269 | 12,840 | ||||||||
Bills
payable
|
- | 175,432 | |||||||||
Secured
bank loan-current portion
|
7
|
115,044 | 26,849 | ||||||||
Income
tax payable
|
193,724 | 23,042 | |||||||||
Total
current liabilities
|
$ | 1,633,547 | $ | 254,447 | |||||||
Secured
bank loan-non-current portion
|
7
|
545,507 | 610,083 | ||||||||
TOTAL
LIABILITIES
|
$ | 2,179,054 | $ | 864,530 | |||||||
Commitments
and contingencies
|
11
|
$ | - | $ | - |
See
accompanying notes to consolidated financial statements
3
GREATMAT
HOLDINGS LIMITED
PRO FORMA CONSOLIDATED BALANCE SHEETS
(Continued)
AS
AT DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2009
|
2008
|
|||||||
STOCKHOLDERS’
EQUITY
|
||||||||
- | - | |||||||
Paid-in
capital
|
1 | - | ||||||
Retained
earnings
|
1,511,272 | 124,584 | ||||||
$ | 1,511,273 | $ | 124,584 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 3,690,327 | $ | 989,114 |
See
accompanying notes to consolidated financial statements
4
GREATMAT
HOLDINGS LIMITED
PRO FORMA CONSOLIDATED STATEMENTS OF
INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
Note
|
2009
|
2008
|
|||||||||
Net
revenues
|
$ | 5,660,186 | $ | 1,965,403 | |||||||
Cost
of sales
|
(3,179,824 | ) | (1,483,812 | ) | |||||||
Gross
profit
|
$ | 2,480,362 | $ | 481,591 | |||||||
Operating
expenses:
|
|||||||||||
General
and administrative
|
(875,082 | ) | (315,923 | ) | |||||||
Operating
income
|
$ | 1,605,280 | $ | 165,668 | |||||||
Other
income
|
- | 3,969 | |||||||||
Interest
expenses
|
(24,868 | ) | (18,024 | ) | |||||||
Income
before income taxes
|
$ | 1,580,412 | $ | 151,613 | |||||||
Income
taxes
|
10
|
(193,724 | ) | (23,042 | ) | ||||||
Net
income
|
$ | 1,386,688 | $ | 128,571 | |||||||
Dividend
paid
|
- | (64,103 | ) | ||||||||
Net
income after dividends
|
1,386,688 | 68,468 | |||||||||
Earnings
per share:
|
|||||||||||
-Basic
and diluted
|
9
|
$ | 1,386,688 | 68,468 | |||||||
Weighted
average number of common stock
|
|||||||||||
-Basic
and diluted
|
1 | 1 |
See
accompanying notes to consolidated financial statements
5
GREATMAT
HOLDINGS LIMITED
PRO FORMA CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
Common stock
|
Retained
|
|||||||||||||||
No. of shares
|
Amount
|
earnings
|
Total
|
|||||||||||||
Balance,
January 1, 2008
|
- | - | 60,116 | 60,116 | ||||||||||||
Net
income
|
- | - | 128,571 | 128,571 | ||||||||||||
Dividends
|
- | - | (64,103 | ) | (64,103 | ) | ||||||||||
Balance,
December 31, 2008
|
- | - | 124,584 | 124,584 | ||||||||||||
Balance,
January 1, 2009
|
- | - | 124,584 | 124,585 | ||||||||||||
Additional
Capital
|
1 | 1 | - | - | ||||||||||||
Net
income
|
- | - | 1,386,688 | 1,386,688 | ||||||||||||
Balance,
December 31, 2009
|
1 | 1 | 1,511,272 | 1,511,273 |
See
accompanying notes to consolidated financial statements
6
GREATMAT
HOLDINGS LIMITED
PRO FORMA CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 1,386,688 | $ | 128,571 | ||||
Depreciation
|
421,134 | 13,850 | ||||||
Gain
on disposal of property, plant and equipment
|
- | (3,969 | ) | |||||
Accounts
receivables
|
(1,208,482 | ) | (646,662 | ) | ||||
Amount
due from a director
|
(944,147 | ) | 117,321 | |||||
Advances
to suppliers
|
113,462 | (113,462 | ) | |||||
Bill
receivables
|
- | 9,563 | ||||||
Deposits
and prepaid expenses
|
(11,411 | ) | - | |||||
Receivables
from a related company
|
59,481 | (20,311 | ) | |||||
Accounts
payables
|
432,631 | - | ||||||
Bill
payables
|
(175,432 | ) | 100,639 | |||||
Accruals
|
47,595 | (19,687 | ) | |||||
Income taxes
payable
|
170,682 | 15,631 | ||||||
Amount
due to a director
|
1,759,576 | 12,840 | ||||||
Net
cash provided /used by operating activities
|
$ | 2,051,777 | $ | (405,676 | ) | |||
Cash
flows from investing activities
|
||||||||
Purchase
of property, plant and equipment
|
$ | (1,988,888 | ) | $ | (32,181 | ) | ||
Sales
proceeds of property, plant and equipment
|
- | 8,456 | ||||||
Net
cash used in investing activities
|
$ | (1,988,888 | ) | $ | (23,725 | ) | ||
Cash
flows from financing activities
|
||||||||
Proceeds
from stock issuance
|
1 | - | ||||||
Bank
borrowings
|
128,205 | 469,231 | ||||||
Bank
repayments
|
(104,586 | ) | (13,148 | ) | ||||
Dividend
paid
|
- | (64,103 | ) | |||||
Finance
lease
|
- | (18,576 | ) | |||||
Net
cash provided by financing activities
|
$ | 23,620 | $ | 373,404 | ||||
2009
|
2008
|
|||||||
Net
cash and cash equivalents sourced
|
$ | 86,509 | $ | (55,997 | ) | |||
Cash
and cash equivalents–beginning of year
|
60,725 | 116,722 | ||||||
Cash
and cash equivalents–end of year
|
$ | 147,234 | $ | 60,725 |
See
accompanying notes to consolidated financial statements
7
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
1. ORGANIZATION
AND PRINCIPAL ACTIVITIES
Greatmat
Holdings Limited (the “Company”) was incorporated on July 15, 2010 in the
British Virgin Islands. The principal activity of the Company is investment
holding. Details of the Company’s subsidiaries (which together with the Company
are collectively referred to as the “Group”) and their principal activities as
of December 31, 2009 and 2008 are stated at Note 2(b).
Inherent
in the Company’s business are various risks and uncertainties, including a
limited history of operations. The Company’s success will depend on
the acceptance of the Company’s products and services and its ability to
generate related revenue. These financial statements are presented in proforma
format as if the Company were already set-up on January 1, 2008 owing to the
fact that the actual date of incorporation of the Company was July 15, 2010,
after the cut-off date of these financial statements.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(a)
|
Method
of accounting
|
The Group
maintains its general ledger and journals with the accrual method of accounting
for financial reporting purposes. The financial statements and notes
are representations of management. Accounting policies adopted by the
Group conform to generally accepted accounting principles in the United States
of America (“US GAAP”) and have been consistently applied in the presentation of
these financial statements.
(b)
|
Principles
of consolidation
|
The
consolidated financial statements include the accounts of Greatmat Holdings
Limited (the Company) and its three subsidiaries, constituting the group. The
consolidated financial statements are presented in US Dollars. All significant
inter-company transactions have been eliminated in consolidation. The
consolidated financial statements are prepared in accordance with US
GAAP.
Subsidiaries
The
Company consolidates its three wholly owned subsidiaries, Greatmat Technology
(China) Limited, Greatmat Technology (HK) Limited, and Greatmat Technology
Limited, because it controls those entities through its 100% voting interest in
them. The following sets forth information about the wholly owned
subsidiaries:
8
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Principles
of consolidation (continued)
Name of Subsidiary
|
Place & date of
Incorporation
|
Equity Interest
Attributable to
the Company
(%)
|
Issued Capital
|
|||||
Greatmat
Technology (China) Limited
(formerly
known as Smart Chance Group Limited)
|
BVI/
December 8, 2008
|
100 | US$ | 1 | ||||
Greatmat
Technology (HK) Limited
|
HK/May
19, 2004
|
100 | HK$ | 10,000 | ||||
Greatmat
Technology Limited
|
HK/September
27, 2010
|
100 | HK$ | 1 |
(c)
|
Use
of estimates
|
The
financial statements are prepared in conformity with US GAAP and require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made; however,
actual results could differ materially from those estimates.
(d)
|
Economic
and political risks
|
The
Group’s operations are conducted in the PRC and Hong Kong and Macau.
Accordingly, the Group’s business, financial condition and results of operations
may be influenced by the political, economic and legal environment in the PRC
and Hong Kong and Macau, and by the general state of the PRC and Hong Kong and
Macau economy.
The
Group’s operations in the PRC, Hong Kong and Macau are subject to special
considerations and significant risks not typically associated with companies in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Group’s results may be adversely affected by changes in the
political and social conditions in the PRC, Hong Kong SAR, and Macau SAR and by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates
and methods of taxation, among other things.
9
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e)
|
Property,
plant and equipment
|
Property,
plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful
lives, using the straight-line method. Estimated useful lives of the plant and
equipment are as follows:
Motor
vehicle
|
3
years
|
Furniture
and office equipment
|
5
years
|
Leasehold
improvement
|
5
years
|
Plant
and machinery
|
5
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.
(f)
|
Accounting
for the impairment of long-lived
assets
|
The Group
periodically evaluates the carrying value of long-lived assets to be held and
used, including intangible assets subject to amortization, when events and
circumstances warrant such a review, pursuant to the guidelines established in
FASB ASC 360. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognised based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
During
the reporting periods, there was no impairment loss.
(g)
|
Trade
receivables
|
|
Trade
receivables are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An allowance for doubtful
accounts is maintained for all customers based on a variety of factors,
including the length of time the receivables are past due, significant
one-time events and historical experience. Bad debts are written off as
incurred. During the reporting years, there were no bad
debts.
|
10
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h)
|
Foreign
currency translation
|
The
accompanying financial statements are presented in United States dollars. The
functional currency of the Group members is the HK$ for the Hong Kong
incorporated companies Greatmat Technology (HK) Limited and Greatmat Technology
Limited, and the US$ for the BVI incorporated company Greatmat Technology
(China) Limited.
The Hong
Kong Monetary Authority has pegged the Hong Kong dollar to the United States
dollar at a rate of 7.8 with fluctuation from 7.75 to 7.85. This pegging system
has resulted in the HKD and USD exchange rate remaining in a relatively stable
range in the current moment. The risk of exchange from HKD to USD is so low that
the discrepancy is small and immaterial. So it is reasonable that 1:7.8 is
adopted to translate into United States dollars from Hong Kong dollars for all
the financial statements.
(i)
|
Cash
and cash equivalents
|
The Group
considers all highly liquid investments purchased with original maturities of
twelve months or less to be cash equivalents. The Group maintains bank accounts
in Hong Kong. The Group does not maintain any bank accounts in the United States
of America. The cash located outside the United States is not
restricted as to usage.
(j)
|
Revenue
recognition
|
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred to the customer pursuant to PRC law, Macau law and Hong
Kong law, including factors such as when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, sales
and value-added tax laws have been complied with and collectability is
probable.
(k)
|
Leases
|
The Group
did not have leases which met the criteria of a capital lease. Leases which do
not qualify as capital leases are classified as operating leases. Operating
lease rental payment included in administrative expenses for the years ended
December 31, 2009 and 2008 were $25,371 and $24,699, respectively.
(l)
|
Advertising
|
The Group
expensed all advertising costs as incurred. Advertising expenses
included in the administrative and other operating expenses for the years ended
December 31, 2009 and 2008 were $6,635 and nil, respectively.
11
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m)
|
Income
taxes
|
The
Company uses the accrual method of accounting to determine and report its
taxable income and tax credits in the year in which they are available. Income
tax liabilities are computed according to the Hong Kong SAR tax laws and Macau
SAR tax laws which are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due. The deferred taxes
are not provided.
The
Company did not have any interest and penalties recognized in the income
statements for the periods ended December 31, 2009 and 2008 or balance sheet as
of December 31, 2009 and 2008. The Company did not have uncertainty tax
positions or events leading to uncertainty tax position within the next 12
months. The Company’s 2004/05, 2005/06, 2006/07, 2007/08, 2008/09, 2009/10 Hong
Kong Income Tax filings are subject to Hong Kong Inland Revenue Department
examination. The Company’s 2009/10 Macau Income Tax filling is
subject to Macau Financial Services Bureau examination.
(n)
|
Retirement
benefit plans
|
|
The
employees of the Group are members of the Mandatory Provident Fund Schemes
operated by the government of the Hong Kong SAR. The Group is
required to contribute a specified percentage of payroll costs to the
retirement benefit scheme to fund the benefits. The only
funding obligation of the Group with respect to the retirement benefit
plan is to make the specified
contributions.
|
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statements of income as
incurred. The retirement benefit funding included in the administrative expenses
for the years ended December 31, 2009 and 2008 were $6,635 and $10,045,
respectively.
(o)
|
Cash
and concentration of risk
|
Cash
includes cash on hand and demand deposits in accounts maintained within Hong
Kong. Total cash in these banks at December 31, 2009 and 2008
amounted to $147,234 and $60,725 respectively, of which no deposits are covered
by the United States Federal Deposit Insurance Corporation. The Group
has not experienced any losses in such accounts and believes it is not exposed
to any risk on its cash in bank accounts.
12
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p)
|
Recent
accounting pronouncements
|
ASC 105,
Generally Accepted Accounting Principles (“ASC 105”) (formerly Statement of
Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162) reorganized by topic existing accounting
and reporting guidance issued by the Financial Accounting Standards Board
(“FASB”) into a single source of authoritative generally accepted accounting
principles (“GAAP”) to be applied by nongovernmental entities. All guidance
contained in the Accounting Standards Codification (“ASC”) carries an equal
level of authority. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Accordingly, all other
accounting literature will be deemed “non-authoritative”. ASC 105 is effective
on a prospective basis for financial statements issued for interim and annual
periods ending after September 15, 2009. The implementation of this guidance
changed the Company’s references to GAAP authoritative guidance but did not
impact the Company’s financial position or results of operations.
ASC 805,
Business Combinations (“ASC 805”) (formerly included under Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations)
contains guidance that was issued by the FASB in December 2007. It requires the
acquiring entity in a business combination to recognize all assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value, with
certain exceptions.
Additionally,
the guidance requires changes to the accounting treatment of acquisition related
items, including, among other items, transaction costs, contingent
consideration, restructuring costs, indemnification assets and tax benefits. ASC
805 also provides for a substantial number of new disclosure requirements. ASC
805 also contains guidance that was formerly issued as FSP FAS 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies which was intended to provide additional guidance
clarifying application issues regarding initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. ASC 805 was effective for
business combinations initiated on or after the first annual reporting period
beginning after December 15, 2008. Implementing this guidance did not have an
effect on the Company’s financial position or results of operations; however it
will likely have an impact on the Company’s accounting for future business
combinations, but the effect is dependent upon acquisitions, if any, that are
made in the future.
13
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p)
|
Recent
accounting pronouncements
(Continued)
|
ASC 855,
Subsequent Events (“ASC 855”) (formerly Statement of Financial Accounting
Standards No. 165, Subsequent Events) includes guidance that was issued by the
FASB in May 2009, and is consistent with current auditing standards in defining
a subsequent event. Additionally, the guidance provides for disclosure regarding
the existence and timing of a company’s evaluation of its subsequent events. ASC
855 defines two types of subsequent events, “recognized” and “non-recognized”.
Recognized subsequent events provide additional evidence about conditions that
existed at the date of the balance sheet and are required to be reflected in the
financial statements. Non-recognized subsequent events provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
that date and, therefore; are not required to be reflected in the financial
statements. However, certain non-recognized subsequent events may require
disclosure to prevent the financial statements from being misleading. This
guidance was effective prospectively for interim or annual financial periods
ending after June 15, 2009. The effect of implementing this guidance was not
material to the Company’s financial position or results of
operations.
In August
2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820): Measuring Liabilities at Fair Value (“ASC Update No.
2009-05”). This update amends ASC 820, Fair Value Measurements and Disclosures
and provides further guidance on measuring the fair value of a liability. The
guidance establishes the types of valuation techniques to be used to value a
liability when a quoted market price in an active market for the identical
liability is not available, such as the use of an identical or similar liability
when traded as an asset. The guidance also further clarifies that a quoted price
in an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
both Level 1 fair value measurements. If adjustments are required to be applied
to the quoted price, it results in a level 2 or 3 fair value measurement. The
guidance provided in the update is effective for the first reporting period
(including interim periods) beginning after issuance. The effect of implementing
of ASC Update No. 2009-05 was not material to the Company’s financial position
or results of operations.
14
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p)
|
Recent
accounting pronouncements
(Continued)
|
In
September 2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements
and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net
Asset Value per Share (or Its Equivalent) (“ASC Update No. 2009-12”). This
update sets forth guidance on using the net asset value per share provided by an
investee to estimate the fair value of an alternative investment. Specifically,
the update permits a reporting entity to measure the fair value of this type of
investment on the basis of the net asset value per share of the investment (or
its equivalent) if all or substantially all of the underlying investments used
in the calculation of the net asset value is consistent with ASC 820. The update
also requires additional disclosures by each major category of investment,
including, but not limited to, fair value of underlying investments in the major
category, significant investment strategies, redemption restrictions, and
unfunded commitments related to investments in the major category. The
amendments in this update are effective for interim and annual periods ending
after December 15, 2009 with early application permitted. The effect of
implementing of ASC Update No. 2009-12 was not material to the Company’s
financial position or results of operations.
In
January 2010, the Financial Accounting Standards Board (“FASB”) issued an
accounting standard update, Fair Value Measurements and Disclosures (Topic 820),
Improving Disclosures about Fair Value Measurements. The Update would affect all
entities that are required to make disclosures about recurring and nonrecurring
fair value measurements. The Board concluded that users will benefit from
improved disclosures in this Update and that the benefits of the increased
transparency in financial reporting will outweigh the costs of complying with
the new requirements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 30, 2010, and for interim periods within those fiscal
years.
15
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p)
|
Recent
accounting pronouncements
(Continued)
|
In
January 2010, the Financial Accounting Standards Board (“FASB”)
issued an accounting standard update to address implementation issues related to
the changes in ownership provisions in the Consolidation—Overall Subtopic
(Subtopic 810-10) of the FASB Accounting Standards Codification™, originally
issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. Subtopic 810-10 establishes the accounting and reporting
guidance for noncontrolling interests and changes in ownership interests of a
subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, an entity recognizes a gain or loss on the
transaction and measures any retained investment in the subsidiary at fair
value. The gain or loss includes any gain or loss associated with the difference
between the fair value of the retained investment in the subsidiary and its
carrying amount at the date the subsidiary is deconsolidated. In contrast, an
entity is required to account for a decrease in its ownership interest of a
subsidiary that does not result in a change of control of the subsidiary as an
equity transaction.
3. DEPOSITS,
PREPAYMENTS AND OTHER RECEIVABLES
Deposits,
prepayments and other receivables are summarized as follow:
2009
|
2008
|
|||||||
Rent
deposit
|
$ | 6,920 | $ | 6,920 | ||||
Advance
to suppliers
|
- | 113,462 | ||||||
Prepaid
tax
|
11,309 | - | ||||||
Other
prepayments
|
102 | - | ||||||
$ | 18,331 | $ | 120,382 |
16
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
4. PROPERTY,
PLANT AND EQUIPMENT, NET
Details
of property, plant and equipment are as follows:
2009
|
2008
|
|||||||
At
cost
|
||||||||
Motor
vehicle
|
$ | 142,390 | $ | 32,181 | ||||
Furniture
and office equipment
|
16,921 | 16,921 | ||||||
Leasehold
improvement
|
4,057 | 4,057 | ||||||
Plant
and machinery
|
a | 1,878,678 | - | |||||
$ | 2,042,046 | $ | 53,159 | |||||
Less:
accumulated depreciation
|
(446,054 | ) | (24,921 | ) | ||||
$ | 1,595,992 | $ | 28,238 |
Depreciation
expense included in the general administration expenses for the years ended
December 31, 2009 and 2008 were $421,134 and $13,850 respectively.
5. RECEIVABLES
FROM A RELATED COMPANY
Details
of receivables from a related company as follows:
Name
of company
|
Common shareholder
|
2009
|
2008
|
||||||
Greatmat
Engineering Limited
|
Chris
Yun Sang SO
|
$ | - | $ | 59,481 |
Amount
due from a related company is unsecured, interest-free, and repayable on
demand.
6.
ACCOUNTS PAYABLE AND ACCRUED CHARGES
2009
|
2008
|
|||||||
Trade payables
|
$ | 432,631 | $ | - | ||||
Accrued
audit fee
|
60,000 | - | ||||||
Other
accrued expenses
|
3,879 | 16,284 | ||||||
$ | 496,510 | $ | 16,284 |
17
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
7. BANK
LOANS
2009
|
2008
|
|||||||
Bank loan
|
||||||||
$469,231
(a)
|
$ | 388,807 | $ | 464,741 | ||||
-China
Construction Bank (Asia) Corporation Limited
|
||||||||
-interest
rate: 2.75% per annum below the prime rate
|
||||||||
-fully
repayable in September 2028
|
||||||||
$192,308
(b)
|
163,011 | 172,191 | ||||||
-DBS
Bank (Hong Kong) Limited
|
||||||||
-interest
rate: 2.25% per annum below Prime Rate
|
||||||||
-fully
repayable in February 2010
|
||||||||
$128,205
(c)
|
108,733 | - | ||||||
-China
Construction Bank (Asia) Corporation Limited
|
||||||||
-interest
rate: 2% per annum above the prime rate
|
||||||||
-fully
repayable in June 2012
|
||||||||
Less:
Current portion
|
$ | (115,044 | ) | $ | (26,849 | ) | ||
Non-current
portion
|
$ | 545,507 | $ | 610,083 |
(a):
|
The
bank loan is secured by the director’s
property.
|
(b):
|
The
bank loan is secured by the director’s
property.
|
(c):
|
The
bank loan is secured by a floating charge over the director’s
property and from the Government of the Hong Kong Special
Administrative Region (as represented by the Director of Trade &
Industry) for HKD 700,000 (US$89,744) under the Special Loan Guarantee
Scheme.
|
8. AMOUNT
DUE TO A DIRECTOR
Amount
due to a director is unsecured, interest-free, and repayable on
demand.
18
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
9.
EARNINGS PER SHARE
The
calculation of the basic earnings per share attributable to the common stock
holders is based on the following data:
2009
|
2008
|
|||||||
Net
income:
|
||||||||
Net
income for the purpose of basic
|
||||||||
and
dilutive earnings per share
|
$ | 1,386,688 | $ | 68,468 | ||||
Number
of shares:
|
||||||||
Weighted
average number of common
|
||||||||
stock
for the purpose of basic and
|
||||||||
dilutive
earnings per share
|
1 | 1 |
10. INCOME
TAXES
(a)
|
The
Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in, or derived from, the tax jurisdiction in which
they operate.
|
Greatmat
Holdings Limited, incorporated under the International Business Companies Act of
the British Virgin Islands, is exempted from payment of the British Virgin
Islands income taxes.
Greatmat
Technology (HK) Limited and Greatmat Technology Limited, the Company’s
subsidiaries incorporated in Hong Kong, are subject to Hong Kong profits tax at
a rate of 16.5%.
Greatmat
Technology (China) Limited, the Company’s subsidiary incorporated in British
Virgin Islands, is subject to Macau profits tax at a rate of 12%.
19
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated
in US Dollars)
10. INCOME
TAXES (Continued)
Profits
tax has been provided on the estimated assessable profits for the
year:
2009
|
2008
|
|||||||
Hong
Kong profits tax provision
|
$ | 37,093 | $ | 23,042 | ||||
Macau
profits tax provision
|
156,631 | - | ||||||
Tax
charge
|
$ | 193,724 | $ | 23,042 |
(b)
|
No
deferred tax has been provided as there are no material temporary
differences arising during the years ended December 31, 2009 and
2008.
|
11. COMMITMENTS
AND CONTINGENCIES
At
December 31, 2009 and 2008, the company had total minimum lease commitments
under non-cancellable operating lease in respect of office premises which fall
due as follow:
2009
|
2008
|
|||||||
Land
and buildings:
|
||||||||
-
No later than one year
|
$ | 24,791 | $ | 9,936 | ||||
-
Later than one year and not later than five years
|
10,329 | - | ||||||
$ | 35,120 | $ | 9,936 |
12. SUBSEQUENT
EVENTS
The
Company has evaluated all other subsequent events through August 31, 2010, the
date these consolidated financial statements were issued, and determined that
there were no other subsequent events or transactions that require recognition
or disclosures in the financial statements.
20
GREATMAT
HOLDINGS LIMITED AND SUBSIDIARIES
PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US dollars)
GREATMAT
HOLDINGS LIMITED AND SUBSIDIARIES
CONTENTS
|
PAGES
|
|
PROFORMA
CONSOLIDATED BALANCE SHEETS
|
2 – 3 | |
PROFORMA
CONSOLIDATED STATEMENTS OF INCOME
|
4 - 5 | |
PROFORMA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
6 | |
PROFORMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
7 – 8 | |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
9 – 21 |
1
GREATMAT
HOLDINGS LIMITED
|
PROFORMA
CONSOLIDATED BALANCE SHEETS
|
AS
AT JUNE 30, 2010 AND DECEMBER 31, 2009
|
(Stated
in US Dollars)
|
June
30, 2010
|
December
31, 2009
|
||||||||
Note
|
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
|||||||||
Current
assets
|
|||||||||
Cash
and cash equivalents
|
$ | 65,333 | $ | 147,234 | |||||
Account
receivables
|
4,086,047 | 1,928,770 | |||||||
Deposits,
prepayments and other receivables
|
3
|
7,022 | 18,331 | ||||||
Total
current assets
|
$ | 4,158,402 | $ | 2,094,335 | |||||
Property,
plant and equipment, net
|
4
|
1,386,632 | 1,595,992 | ||||||
TOTAL
ASSETS
|
$ | 5,545,034 | $ | 3,690,327 | |||||
LIABILITIES
AND
|
|||||||||
STOCKHOLDERS’
EQUITY
|
|||||||||
Current
liabilities
|
|||||||||
Accounts
payable and accrued charges
|
6
|
1,501,587 | 496,510 | ||||||
Amount
due to a director
|
8
|
9,073 | 828,269 | ||||||
Secured
bank loan-current portion
|
7
|
135,187 | 115,044 | ||||||
Income
tax payable
|
419,994 | 193,724 | |||||||
Total
current liabilities
|
$ | 2,065,841 | $ | 1,633,547 | |||||
Secured
bank loan-non-current portion
|
7
|
373,728 | 545,507 | ||||||
TOTAL
LIABILITIES
|
$ | 2,439,569 | $ | 2,179,054 | |||||
Commitments
and contingencies
|
11
|
$ | - | $ | - |
See
accompanying notes to consolidated financial statements
2
GREATMAT
HOLDINGS LIMITED
|
PROFORMA
CONSOLIDATED BALANCE SHEETS (Continued)
|
AS
AT JUNE 30, 2010 AND DECEMBER 31, 2009
|
(Stated
in US Dollars)
|
June
30, 2010
|
December
31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
STOCKHOLDERS’
EQUITY
|
||||||||
- | ||||||||
Paid-in
capital
|
1 | 1 | ||||||
Retained
earnings
|
3,105,464 | 1,511,272 | ||||||
$ | 3,105,465 | $ | 1,511,273 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
$ | 5,545,034 | $ | 3,690,327 |
See
accompanying notes to consolidated financial statements
3
GREATMAT
HOLDINGS LIMITED
PROFORMA
CONSOLIDATED STATEMENTS OF INCOME
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
For
the six months ended June 30
|
|||||||||
Note
|
2010
|
2009
|
|||||||
Net
revenues
|
$ | 4,789,722 | $ | 2,678,509 | |||||
Cost
of sales
|
(2,442,652 | ) | (1,599,374 | ) | |||||
Gross
profit
|
$ | 2,347,070 | $ | 1,079,135 | |||||
Operating
expenses:
|
|||||||||
General
and administrative
|
(377,077 | ) | (447,364 | ) | |||||
Operating
income
|
$ | 1,969,993 | $ | 631,771 | |||||
Interest
expenses
|
(17,077 | ) | (12,242 | ) | |||||
Income
before income taxes
|
$ | 1,952,916 | $ | 619,529 | |||||
Income
taxes
|
10
|
(243,339 | ) | (74,733 | ) | ||||
Net
income
|
$ | 1,709,577 | $ | 544,796 | |||||
Earnings
per share:
|
|||||||||
-Basic
and diluted
|
9
|
$ | 1,709,577 | 544,796 | |||||
Weighted
average number of common stock
|
|||||||||
-Basic
and diluted
|
1 | 1 |
See
accompanying notes to consolidated financial statements
4
GREATMAT
HOLDINGS LIMITED
PROFORMA
CONSOLIDATED STATEMENTS OF INCOME
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
For
the three months ended June 30
|
|||||||||
Note
|
2010
|
2009
|
|||||||
Net
revenues
|
$ | 2,461,889 | $ | 1,505,741 | |||||
Cost
of sales
|
(1,071,955 | ) | (857,269 | ) | |||||
Gross
profit
|
$ | 1,389,934 | $ | 648,472 | |||||
Operating
expenses:
|
|||||||||
General
and administrative
|
(199,956 | ) | (218,799 | ) | |||||
Operating
income
|
$ | 1,189,978 | $ | 429,673 | |||||
Interest
expenses
|
(8,241 | ) | (5,130 | ) | |||||
Income
before income taxes
|
$ | 1,181,737 | $ | 424,543 | |||||
Income
taxes
|
10
|
(148,335 | ) | (53,018 | ) | ||||
Net
income
|
$ | 1,033,402 | $ | 371,525 | |||||
Earnings
per share:
|
|||||||||
-Basic
and diluted
|
9
|
$ | 1,033,402 | 371,525 | |||||
Weighted
average number of common stock
|
|||||||||
-Basic
and diluted
|
1 | 1 |
See
accompanying notes to consolidated financial statements
5
GREATMAT
HOLDINGS LIMITED
PROFORMA
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009
AND
SIX MONTHS ENDED JUNE 30, 2010
(Stated
in US Dollars)(Unaudited)
Common
stock
|
Retained
|
|||||||||||||||
No.
of shares
|
Amount
|
earnings
|
Total
|
|||||||||||||
Balance,
January 1, 2009
|
- | - | 124,584 | 124,585 | ||||||||||||
Additional
Capital
|
1 | 1 | - | 1 | ||||||||||||
Net
income
|
- | - | 1,386,688 | 1,386,688 | ||||||||||||
Balance,
December 31, 2009
|
1 | 1 | 1,511,272 | 1,511,273 | ||||||||||||
Balance,
January 1, 2010
|
1 | 1 | 1,511,272 | 1,511,273 | ||||||||||||
Net
income
|
- | - | 1,709,577 | 1,709,577 | ||||||||||||
Dividend
- Interim
|
(115,385 | ) | (115,385 | ) | ||||||||||||
Balance,
June 30, 2010
|
1 | 1 | 3,105,464 | 3,105,465 |
See
accompanying notes to consolidated financial statements
6
GREATMAT
HOLDINGS LIMITED
PROFORMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
For
the six months ended June 30
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 1,709,577 | $ | 544,796 | ||||
Depreciation
|
209,360 | 210,567 | ||||||
Accounts
receivables
|
(2,157,276 | ) | (270,009 | ) | ||||
Advances
to suppliers
|
- | 113,462 | ||||||
Bill
receivables
|
- | - | ||||||
Deposits
and prepaid expenses
|
11,309 | - | ||||||
Receivables
from a related company
|
- | 1,206 | ||||||
Accounts
payables
|
1,008,956 | 134,671 | ||||||
Bill
payables
|
- | (175,432 | ) | |||||
Accruals
|
(3,879 | ) | 24,461 | |||||
Income taxes
payable
|
226,269 | 51,691 | ||||||
Amount
due to a director
|
(819,196 | ) | 1,308,879 | |||||
Net
cash provided /used by operating activities
|
$ | 185,120 | $ | 1,944,292 | ||||
Cash
flows from investing activities
|
||||||||
Purchase
of property, plant and equipment
|
$ | - | $ | (1,988,887 | ) | |||
Sales
proceeds of property, plant and equipment
|
||||||||
Net
cash used in investing activities
|
$ | - | $ | (1,988,887 | ) | |||
Cash
flows from financing activities
|
||||||||
Proceeds
from stock issuance
|
- | 1 | ||||||
Bank
borrowings
|
269,231 | 128,205 | ||||||
Bank
repayments
|
(420,867 | ) | (13,763 | ) | ||||
Dividends
paid
|
(115,385 | ) | - | |||||
Net
cash provided by financing activities
|
$ | (267,021 | ) | $ | 114,443 |
See
accompanying notes to consolidated financial statements
7
GREATMAT
HOLDINGS LIMITED
PROFORMA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
For
the six months ended June 30
|
||||||||
2010
|
2009
|
|||||||
Net
cash and cash equivalents sourced
|
$ | (81,901 | ) | $ | 69,848 | |||
Cash
and cash equivalents–beginning of period
|
147,234 | 60,725 | ||||||
Cash
and cash equivalents–end of period
|
$ | 65,333 | $ | 130,573 |
See
accompanying notes to consolidated financial statements
8
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
Greatmat
Holdings Limited (the “Company”) was incorporated on July 15, 2010 in the
British Virgin Islands. The principal activity of the Company is investment
holding. Details of the Company’s subsidiaries (which together with the Company
are collectively referred to as the “Group”) and their principal activities as
of June 30, 2010 and December 31, 2009 are stated at Note 2(b).
Inherent
in the Company’s business are various risks and uncertainties, including a
limited history of operations. The Company’s success will depend on
the acceptance of the Company’s products and services and its ability to
generate related revenue. These financial statements are presented in
proforma format as if the Company were already set-up on January 1, 2008 owing
to the fact that the actual date of incorporation of the Company was July 15,
2010, after the cut-off date of these financial statements.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Method
of accounting
|
The Group
maintains its general ledger and journals with the accrual method of accounting
for financial reporting purposes. The financial statements and notes
are representations of management. Accounting policies adopted by the
Group conform to generally accepted accounting principles in the United States
of America (“US GAAP”) and have been consistently applied in the presentation of
these financial statements.
(b)
|
Principles
of consolidation
|
The
consolidated financial statements include the accounts of Greatmat Holdings
Limited (the Company) and its three subsidiaries, constituting the group. The
consolidated financial statements are presented in US Dollars. All significant
inter-company transactions have been eliminated in consolidation. The
consolidated financial statements are prepared in accordance with US
GAAP.
9
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(b)
|
Principles
of consolidation (continued)
|
Subsidiaries
The
Company consolidates its three wholly owned subsidiaries, Greatmat Technology
(China) Limited, Greatmat Technology (HK) Limited and Greatmat Technology
Limited, because it controls those entities through its 100% voting interest in
them. The following sets forth information about the wholly owned
subsidiaries:
Name
of Subsidiary
|
Place
& date of
Incorporation
|
Equity
Interest
Attributable
to the
Company
(%)
|
Issued
Capital
|
||||||
Amended
at May 3, 2010
Greatmat
Technology (China) Limited
(formerly
known as Smart Chance Group Limited)
|
BVI/
December 8, 2008
|
100 |
US$
|
1
|
|||||
Greatmat
Technology (HK) Limited
|
HK/May
19, 2004
|
100 |
HK$
|
10,000
|
|||||
Greatmat
Technology Limited
|
HK/September
27, 2010
|
100 |
HK$
|
1
|
10
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(c)
|
Use
of estimates
|
The
financial statements are prepared in conformity with US GAAP, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made; however
actual results could differ materially from those estimates.
(d)
|
Economic
and political risks
|
The
Group’s operations are conducted in the PRC and Hong Kong and Macau.
Accordingly, the Group’s business, financial condition and results of operations
may be influenced by the political, economic and legal environment in the PRC
and Hong Kong and Macau, and by the general state of the PRC and Hong Kong and
Macau economy.
The
Group’s operations in the PRC, Hong Kong and Macau are subject to special
considerations and significant risks not typically associated with companies in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Group’s results may be adversely affected by changes in the
political and social conditions in the PRC, Hong Kong SAR, and Macau SAR and by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates
and methods of taxation, among other things.
(e)
|
Property,
plant and equipment
|
Property,
plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful
lives, using the straight-line method. Estimated useful lives of the plant and
equipment are as follows:
Motor
vehicle
|
3
years
|
Furniture
and office equipment
|
5
years
|
Leasehold
improvement
|
5
years
|
Plant
and machinery
|
5
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.
11
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(f)
|
Accounting
for the impairment of long-lived
assets
|
The Group
periodically evaluates the carrying value of long-lived assets to be held and
used, including intangible assets subject to amortization, when events and
circumstances warrant such a review, pursuant to the guidelines established in
FASB ASC 360. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognised based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
During
the reporting periods, there was no impairment loss.
(g)
|
Trade
receivables
|
Trade
receivables are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An allowance for doubtful accounts is
maintained for all customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical
experience. Bad debts are written off as incurred. During the
reporting periods, there were no bad debts.
(h)
|
Foreign
currency translation
|
The
accompanying financial statements are presented in United States dollars. The
functional currency of the Group members is the HK$ for the Hong Kong
incorporated companies Greatmat Technology (HK) Limited and Greatmat Technology
Limited, and the US$ for the BVI incorporated company Greatmat Technology
(China) Limited.
The Hong
Kong Monetary Authority has pegged the Hong Kong dollar to the United States
dollar at a rate of 7.8 with fluctuation from 7.75 to 7.85. This pegging system
has resulted in the HKD and USD exchange rate remaining in a relatively stable
range in the current moment. The risk of exchange from HKD to USD is so low that
the discrepancy is small and immaterial. So it is reasonable that 1:7.8 is
adopted to translate into United States dollars from Hong Kong dollars for all
the financial statements.
(i)
|
Cash
and cash equivalents
|
The Group
considers all highly liquid investments purchased with original maturities of
twelve months or less to be cash equivalents. The Group maintains bank accounts
in Hong Kong. The Group does not maintain any bank accounts in the United States
of America. The cash located outside the United States is not
restricted as to usage.
12
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(j)
|
Revenue
recognition
|
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred to the customer pursuant to PRC law, Macau Law and Hong
Kong law, including factors such as when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, sales
and value-added tax laws have been complied with and collectability is
probable.
(k)
|
Leases
|
The Group
did not have leases which met the criteria of a capital lease. Leases which do
not qualify as capital leases are classified as operating leases. Operating
lease rental payment included in administrative expenses for the six months
ended June 30, 2010 and 2009 were $12,928 and $12,548,
respectively.
(l)
|
Advertising
|
The Group
expensed all advertising costs as incurred. Advertising expenses
included in the administrative and other operating expenses for the six months
ended June 30, 2010 and 2009 were nil and $6,635, respectively.
(m)
|
Income
taxes
|
The
Company uses the accrual method of accounting to determine and report its
taxable income and tax credits in the year in which they are available. Income
tax liabilities are computed according to the Hong Kong SAR tax laws and Macau
SAR tax laws which are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due. The deferred taxes
are not provided.
The
Company did not have any interest and penalties recognized in the income
statements for the six months ended June 30, 2010 and 2009 or balance sheet as
of June 30, 2010 and December 31, 2009. The Company did not have uncertainty tax
positions or events leading to uncertainty tax positions within the next 12
months. The Company’s 2004/05, 2005/06, 2006/07, 2007/08, 2008/09, 2009/10 Hong
Kong Income Tax filings are subject to Hong Kong Inland Revenue Department
examination. The Company’s 2009/10 Macau Income Tax filling is
subject to Macau Financial Services Bureau examination.
13
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(n)
|
Retirement
benefit plans
|
|
The
employees of the Group are members of the Mandatory Provident Fund Schemes
operated by the government of the Hong Kong SAR. The Group is
required to contribute a specified percentage of payroll costs to the
retirement benefit scheme to fund the benefits. The only
funding obligation of the Group with respect to the retirement benefit
plan is to make the specified
contributions.
|
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statements of income as
incurred. The retirement benefit funding included in the administrative expenses
for the six months ended June 30, 2010 and 2009 were $4,423 and $2,676,
respectively.
(o)
|
Cash
and concentration of risk
|
Cash
includes cash on hand and demand deposits in accounts maintained within Hong
Kong. Total cash in these banks at June 30, 2010 and December 31,
2009 amounted to $65,333 and $147,234, respectively, of which no deposits are
covered by the United States Federal Deposit Insurance
Corporation. The Group has not experienced any losses in such
accounts and believes it is not exposed to any risk on its cash in bank
accounts.
(p)
|
Recent
accounting pronouncements
|
ASC 105,
Generally Accepted Accounting Principles (“ASC 105”) (formerly Statement of
Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162) reorganized by topic existing accounting
and reporting guidance issued by the Financial Accounting Standards Board
(“FASB”) into a single source of authoritative generally accepted accounting
principles (“GAAP”) to be applied by nongovernmental entities. All guidance
contained in the Accounting Standards Codification (“ASC”) carries an equal
level of authority. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Accordingly, all other
accounting literature will be deemed “non-authoritative”. ASC 105 is effective
on a prospective basis for financial statements issued for interim and annual
periods ending after September 15, 2009. The implementation of this guidance
changed the Company’s references to GAAP authoritative guidance but did not
impact the Company’s financial position or results of operations.
14
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(p)
|
Recent
accounting pronouncements
(Continued)
|
ASC 805,
Business Combinations (“ASC 805”) (formerly included under Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations)
contains guidance that was issued by the FASB in December 2007. It requires the
acquiring entity in a business combination to recognize all assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value, with
certain exceptions. Additionally, the guidance requires changes to the
accounting treatment of acquisition related items, including, among other items,
transaction costs, contingent consideration, restructuring costs,
indemnification assets and tax benefits. ASC 805 also provides for a substantial
number of new disclosure requirements. ASC 805 also contains guidance that was
formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies
which was intended to provide additional guidance clarifying application issues
regarding initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. ASC 805 was effective for business combinations
initiated on or after the first annual reporting period beginning after December
15, 2008. Implementing this guidance did not have an effect on the Company’s
financial position or results of operations; however it will likely have an
impact on the Company’s accounting for future business combinations, but the
effect is dependent upon acquisitions, if any, that are made in the
future.
ASC 855,
Subsequent Events (“ASC 855”) (formerly Statement of Financial Accounting
Standards No. 165, Subsequent Events) includes guidance that was issued by the
FASB in May 2009, and is consistent with current auditing standards in defining
a subsequent event. Additionally, the guidance provides for disclosure regarding
the existence and timing of a company’s evaluation of its subsequent events. ASC
855 defines two types of subsequent events, “recognized” and “non-recognized”.
Recognized subsequent events provide additional evidence about conditions that
existed at the date of the balance sheet and are required to be reflected in the
financial statements. Non-recognized subsequent events provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
that date and, therefore; are not required to be reflected in the financial
statements. However, certain non-recognized subsequent events may require
disclosure to prevent the financial statements from being misleading. This
guidance was effective prospectively for interim or annual financial periods
ending after June 15, 2009. The effect of implementing this guidance was not
material to the Company’s financial position or results of
operations.
15
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(p)
|
Recent
accounting pronouncements
(Continued)
|
In August
2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820): Measuring Liabilities at Fair Value (“ASC Update No.
2009-05”). This update amends ASC 820, Fair Value Measurements and Disclosures
and provides further guidance on measuring the fair value of a liability. The
guidance establishes the types of valuation techniques to be used to value a
liability when a quoted market price in an active market for the identical
liability is not available, such as the use of an identical or similar liability
when traded as an asset. The guidance also further clarifies that a quoted price
in an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
both Level 1 fair value measurements. If adjustments are required to be applied
to the quoted price, it results in a level 2 or 3 fair value measurement. The
guidance provided in the update is effective for the first reporting period
(including interim periods) beginning after issuance. The effect of implementing
of ASC Update No. 2009-05 was not material to the Company’s financial position
or results of operations.
In
September 2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements
and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net
Asset Value per Share (or Its Equivalent) (“ASC Update No. 2009-12”). This
update sets forth guidance on using the net asset value per share provided by an
investee to estimate the fair value of an alternative investment. Specifically,
the update permits a reporting entity to measure the fair value of this type of
investment on the basis of the net asset value per share of the investment (or
its equivalent) if all or substantially all of the underlying investments used
in the calculation of the net asset value is consistent with ASC 820. The update
also requires additional disclosures by each major category of investment,
including, but not limited to, fair value of underlying investments in the major
category, significant investment strategies, redemption restrictions, and
unfunded commitments related to investments in the major category. The
amendments in this update are effective for interim and annual periods ending
after December 15, 2009 with early application permitted. The effect of
implementing of ASC Update No. 2009-12 was not material to the Company’s
financial position or results of operations.
16
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
(p)
|
Recent
accounting pronouncements
(Continued)
|
In
January 2010, the Financial Accounting Standards Board (“FASB”) issued an
accounting standard update, Fair Value Measurements and Disclosures (Topic 820),
Improving Disclosures about Fair Value Measurements. The Update would affect all
entities that are required to make disclosures about recurring and nonrecurring
fair value measurements. The Board concluded that users will benefit from
improved disclosures in this Update and that the benefits of the increased
transparency in financial reporting will outweigh the costs of complying with
the new requirements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 30, 2010, and for interim periods within those fiscal
years.
In
January 2010, the Financial Accounting Standards Board (“FASB”)
issued an accounting standard update to address implementation issues related to
the changes in ownership provisions in the Consolidation—Overall Subtopic
(Subtopic 810-10) of the FASB Accounting Standards Codification™, originally
issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. Subtopic 810-10 establishes the accounting and reporting
guidance for noncontrolling interests and changes in ownership interests of a
subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, an entity recognizes a gain or loss on the
transaction and measures any retained investment in the subsidiary at fair
value. The gain or loss includes any gain or loss associated with the difference
between the fair value of the retained investment in the subsidiary and its
carrying amount at the date the subsidiary is deconsolidated. In contrast, an
entity is required to account for a decrease in its ownership interest of a
subsidiary that does not result in a change of control of the subsidiary as an
equity transaction.
17
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
3.
|
DEPOSITS,
PREPAYMENTS AND OTHER RECEIVABLES
|
Deposits,
prepayments and other receivables are summarized as follow:
June 30, 2010
|
December 31, 2009
|
|||||||
Rent
deposit
|
$ | 6,920 | $ | 6,920 | ||||
Prepaid
tax
|
- | 11,309 | ||||||
Other
prepayments
|
102 | 102 | ||||||
$ | 7,022 | $ | 18,331 |
4.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
Details
of property, plant and equipment are as follows:
June 30, 2010
|
December 31, 2009
|
|||||||
At
cost
|
||||||||
Motor
vehicle
|
$ | 142,390 | $ | 142,390 | ||||
Furniture
and office equipment
|
16,921 | 16,921 | ||||||
Leasehold
improvement
|
4,057 | 4,057 | ||||||
Plant
and machinery
|
1,878,678 | 1,878,678 | ||||||
$ | 2,042,046 | $ | 2,042,046 | |||||
Less:
accumulated depreciation
|
(655,414 | ) | (446,054 | ) | ||||
$ | 1,386,632 | $ | 1,595,992 |
Depreciation
expense included in the general administration expenses for the six months ended
June 30, 2010 and 2009 were $209,360 and $210,567, respectively.
5.
DIVIDENDS
On June
28, 2010, the board of directors of Greatmat Technology (HK) Limited declared a
cash dividend of $115,385 (HK$900,000) per share, payable on June 28, 2010, to
shareholders of record on June 28, 2010. This dividend distribution did not
violate any covenants associated with the company’s existing
loans.
18
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
6.
|
ACCOUNTS
PAYABLE AND ACCRUED CHARGES
|
June 30, 2010
|
December 31, 2009
|
|||||||
Trade payables
|
$ | 1,441,587 | $ | 432,631 | ||||
Accrued
audit fee
|
60,000 | 60,000 | ||||||
Other
accrued expenses
|
- | 3,879 | ||||||
$ | 1,501,587 | $ | 496,510 |
7.
|
BANK
LOAN
|
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Bank loan
|
||||||||
$469,231
(a)
|
$ | 185,944 | $ | 388,807 | ||||
-China
Construction Bank (Asia) Corporation Limited
|
||||||||
-interest
rate: 2.75% per annum below the prime rate
|
||||||||
-fully
repayable in September 2028
|
||||||||
$192,308
(b)
|
- | 163,011 | ||||||
-DBS
Bank (Hong Kong) Limited
|
||||||||
-interest
rate: 2.25% per annum below Prime Rate
|
||||||||
-fully
repayable in February 2010
|
||||||||
$128,205
(c)
|
74,240 | 108,733 | ||||||
-China
Construction Bank (Asia) Corporation Limited
|
||||||||
-interest
rate: 2% per annum above the prime rate
|
||||||||
-fully
repayable in June 2012
|
||||||||
$269,231
(d)
|
248,731 | - | ||||||
-Wing
Hang Bank Limited
|
||||||||
-interest
rate: 4.75%
|
||||||||
-fully
repayable in February 2016
|
||||||||
Less:
Current portion
|
$ | (135,187 | ) | $ | (115,044 | ) | ||
Non-current
portion
|
$ | 373,728 | $ | 545,507 |
19
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
7.
|
BANK
LOAN (Continued)
|
(a):
|
The
bank loan is secured by the director’s
property.
|
(b):
|
The
bank loan is secured by the director’s property. The loan was
paid off on February 3, 2010.
|
(c):
|
The
bank loan is secured by a floating charge over the director’s
property and from the Government of the Hong Kong Special
Administrative Region (as represented by the Director of Trade &
Industry) for HKD 700,000 (US$89,744) under the Special Loan Guarantee
Scheme.
|
(d)
|
The
bank loan is secured by the director’s property under the Special Loan
Guarantee Scheme.
|
8.
|
AMOUNT
DUE TO A DIRECTOR
|
Amount
due to a director is unsecured, interest-free, and repayable on
demand.
9.
|
EARNINGS
PER SHARE
|
The
calculation of the basic earnings per share attributable to the common stock
holders is based on the following data:
June 30, 2010
|
December 31, 2009
|
|||||||
Net
income:
|
||||||||
Net
income for the purpose of basic and dilutive earnings per
share
|
$ | 1,709,577 | $ | 1,386,688 | ||||
Number
of shares:
|
||||||||
Weighted
average number of common stock for the purpose of basic and dilutive
earnings per share
|
1 | 1 |
10.
|
INCOME
TAXES
|
(a)
|
The
Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in, or derived from, the tax jurisdiction in which
they operate.
|
Greatmat
Holdings Limited, incorporated under the International Business Companies
Act of the British Virgin Islands, is exempted from payment of the British
Virgin Islands income taxes.
Greatmat
Technology (HK) Limited and Greatmat Technology Limited, the Company’s
subsidiaries incorporated in Hong Kong, are subject to Hong Kong profits
tax at a rate of 16.5%.
|
20
GREATMAT
HOLDINGS LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated
in US Dollars)(Unaudited)
10.
|
INCOME
TAXES (Continued)
|
Greatmat
Technology (China) Limited, the Company’s subsidiary incorporated in British
Virgin Islands, is subject to Macau profits tax at a rate of 12%.
Profits
tax has been provided on the estimated assessable profits for the year:
June 30, 2010
|
December 31, 2009
|
|||||||
Hong
Kong profits tax provision
|
$ | 45,651 | $ | 37,093 | ||||
Macau
profits tax provision
|
197,687 | 156,631 | ||||||
Tax
charge
|
$ | 243,338 | $ | 193,724 |
(b)
|
No
deferred tax has been provided as there are no material temporary
differences arising during the six months ended June 30, 2010 and the year
ended December 31, 2009.
|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
At June
30, 2010 and December 31, 2009, the company had total minimum lease commitments
under non-cancellable operating lease in respect of office premises which fall
due as follow:
June 30, 2010
|
December 31,2009
|
|||||||
Land
and buildings:
|
||||||||
-
No later than one year
|
$ | 24,791 | $ | 24,791 | ||||
-
Later than one year and not later than five years
|
- | 10,329 | ||||||
$ | 24,791 | $ | 35,120 |
12.
|
SUBSEQUENT
EVENTS
|
The
Company has evaluated all other subsequent events through October 20, 2010, the
date these consolidated financial statements were issued, and determined that
there were no other subsequent events or transactions that require recognition
or disclosures in the financial statements.
21
AURUM
EXPLORATIONS, INC.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30,
2010
Aurum
|
Greatmat
|
Adjustments
|
Notes
|
Pro
Forma
|
||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets
|
||||||||||||||||||||
Cash
& cash equivalents
|
$ | - | $ | 65,333 | $ | 65,333 | ||||||||||||||
Accounts
receivable
|
- | 4,086,047 | 4,086,047 | |||||||||||||||||
Other
receivables
|
- | 7,022 | 7,022 | |||||||||||||||||
Advance
to suppliers
|
- | - | ||||||||||||||||||
- | - | |||||||||||||||||||
- | ||||||||||||||||||||
Total
current assets
|
- | 4,158,402 | 4,158,402 | |||||||||||||||||
Property,
plant and equipment, net
|
- | 1,386,632 | 1,386,632 | |||||||||||||||||
Total
Assets
|
$ | - | $ | 5,545,034 | $ | 5,545,034 | ||||||||||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||
Accounts
payable
|
$ | 9,252 | $ | 1,501,587 | (9,252 | ) |
a
|
$ | 1,051,587 | |||||||||||
Amount
due to a director
|
24,017 | 9,073 | (24,017 | ) |
a
|
9,073 | ||||||||||||||
Secured
bank loans-current portion
|
135,187 | 135,187 | ||||||||||||||||||
Total
current liabilities
|
2,065,841 | 2,065,841 | ||||||||||||||||||
Secured bank loan- non-current
|
373,728 | 373,728 | ||||||||||||||||||
Total
Liabilities
|
33,269 | 2,439,569 | (33,269 | ) |
a
|
2,439,569 | ||||||||||||||
Shareholders'
equity
|
||||||||||||||||||||
Common
stock, $0.0001 par value; 50,000,000 shares authorized; 8,860,000 issued
and outstanding at June 30, 2010
|
8,860 | 8,860 | ||||||||||||||||||
Paid-in-capital
|
- | 1 | (1 | ) |
b
|
— | ||||||||||||||
Additional
paid-in capital
|
138,262 | - | (147,121 | ) |
a,b
|
(8,859 | ) | |||||||||||||
Accumulated
other comprehensive income
|
- | - | ||||||||||||||||||
Retained
earnings (Accumulated deficits)
|
(180,391 | ) | 3,105,464 | 180,391 |
a,b
|
3,105,464 | ||||||||||||||
Total
shareholders' equity
|
(33,269 | ) | 3,105,465 | 33,269 | 3,105,465 | |||||||||||||||
Total
Liabilities and Shareholders' Equity
|
$ | - | $ | 5,545,034 | $ | 5,545,034 |
1
AURUM
EXPLORATIONS, INC.UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED
STATEMENT OF INCOME
FOR THE
SIX MONTHS ENDED JUNE 30, 2010
Aurum
|
Greatmat
|
Adjustments
|
Notes
|
Pro Forma
|
|||||||||||||
Revenues
|
$ | - | $ | 4,789,722 | $ | 4,789,722 | |||||||||||
Cost
of revenue
|
- | (2,442,652 | ) | (2,442,652 | ) | ||||||||||||
Gross
profit
|
- | 2,347,070 | 2,347,070 | ||||||||||||||
General
and administrative expenses
|
(24,484 | ) | (377,077 | ) | (401,561 | ) | |||||||||||
Income
(Loss) from operations
|
(24,484 | ) | 1,969,993 | 1,945,509 | |||||||||||||
Non-operating
income (expenses):
|
|||||||||||||||||
Interest
income
|
- | - | |||||||||||||||
Other
income
|
- | - | |||||||||||||||
Interest
expenses
|
- | (17,077 | ) | (17,077 | ) | ||||||||||||
Total
non-operating income (expenses)
|
- | (17,077 | ) | (17,077 | ) | ||||||||||||
Income
(Loss) before income taxes
|
(24,484 | ) | 1,952,916 | 1,928,432 | |||||||||||||
Provision
for income taxes
|
(243,339 | ) | (243,339 | ) | |||||||||||||
Net
income (loss)
|
(24,484 | ) | 1,709,577 | 1,685,093 | |||||||||||||
Other
comprehensive item
|
|||||||||||||||||
Foreign
currency translation income
|
- | - | |||||||||||||||
Comprehensive
income (loss)
|
$ | - | - | $ | |||||||||||||
Weighted
average number of common shares outstanding
|
8,860,000 | 1 | (1 | ) |
a,b
|
8,860,000 | |||||||||||
Basic
and diluted net loss per common share
|
$ | (0.003 | ) | 1,709,577 | 1,709,577 |
a,b
|
$ | 0.1902 |
2
AURUM
EXPLORATIONS, INC.
INTRODUCTION
TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
On
October 30, 2010, Aurum Explorations, Inc. (the “Company” or “Aurum’) acquired
all of the outstanding capital stock of Greatmat Holdings Limited ("Greatmat")
in a share exchange transaction (the “Share Exchange”). Greatmat is a
holding company whose only assets are comprised of 100% of a limited liability
company organized under the laws of the BVI and 100% of two limited liability
companies organized under the laws of Hong Kong SAR. Greatmat’s
operations are conducted in Hong Kong SAR and Macau SAR through its operating
subsidiaries, and in China through contractual arrangements with suppliers and
contractors located in China.
Immediately
prior to the Share Exchange, Aurum had 12,186,900 shares of common stock issued
and outstanding. In connection with the Share Exchange, the Company
issued 36,560,700 shares of its common stock in exchange for all the shares of
the capital stock of Greatmat. Upon completion of the Share Exchange,
the prior shareholder of Greatmat owned approximately 75% of the common stock of
the Aurum.
Anticipated
Accounting Treatment of the Acquisition Transaction
For
accounting purposes, the transaction is being accounted for as a reverse merger,
since the stockholder of Greatmat will own a majority of the issued and
outstanding shares of common stock of the Company, and the director and
executive officer of Greatmat became the director and executive officer of the
Company. This acquisition is being accounted for at historical cost in a manner
similar to that in pooling of interests method since the former stockholders of
Greatmat acquired a majority of the outstanding shares of the Company. The
historical financial statements will be those of Greatmat.
The
accompanying unaudited pro forma condensed consolidated balance sheet has been
presented with consolidated subsidiaries at June 30, 2010 and the unaudited
pro forma condensed consolidated statement of income for the six months period
ended June 30, 2010 has been presented as if the acquisition had
occurred.
3
AURUM
EXPLORATIONS, INC.
INTRODUCTION
TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
You are
being provided this information to aid in your analysis of the financial aspects
of the Share Exchange. This information has been derived from the unaudited
financial statements of Greatmat as of and for the six months period ended
June 30, 2010 and the audited financial statements of Aurum for the
respective periods. The pro forma adjustments are based on available information
and assumptions that are believed to be reasonable. The unaudited pro forma
condensed financial information does not represent the results of operations
that would have occurred had such transactions been consummated on the dates
indicated or the financial position for any future date or period. Greatmat and
Aurum do not assume any responsibility for the accuracy or completeness of the
information provided by the other party. This information should be read in
conjunction with the companies’ respective historical financial statements and
notes included thereto.
4
AURUM
EXPLORATIONS, INC.
NOTES
TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
following unaudited pro forma adjustments are included in the accompanying
unaudited pro forma condensed consolidated balance sheet as of June 30, 2010 and
the unaudited pro forma condensed consolidated statement of income for the six
month period ended June 30, 2010 to reflect the acquisition of
Greatmat by the Company:
|
a.
|
To
record the payment of the Company’s liabilities prior to
closing;
|
|
b.
|
These
adjustments reflect the recapitalization as a result of the transactions
related to the share exchange.
|
5