Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-32574
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GOLDEN GATE HOMES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 87-0745202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 WALL STREET, 20TH FLOOR, NEW YORK, NEW YORK 10005
(Address of principal executive offices)
(212) 385-0955
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
1
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,837,136 common shares as of May 8,
2011
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2011 DECEMBER 31, 2010
-------------- -----------------
ASSETS
Current assets:
Cash $2,848 $ 1,913
Other Current Assets 6,397 6,397
--------------------------------
Total Assets $9,245 $ 8,310
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $108,973 $ 145,356
Due to related parties 3,578 16,455
--------------------------------
Total liabilities $112,551 $ 161,811
Stockholders' equity (deficit)
Preferred stock, $0.0001 par value,
1,000,000 shares authorized, 0 issued and
outstanding - -
Common stock, $0.0001, 600,000,000 shares
authorized, 3,837,136 shares
outstanding 384 375
Paid-in capital 2,621,697 2,580,956
Deficit accumulated during the
development stage (2,725,387) (2,734,832)
--------------------------------
Total Stockholders' equity (deficit) (103,306) (153,501)
--------------------------------
Total Liabilities and Stockholders'
equity (deficit) $ 9,245 $ 8,310
See notes to unaudited financial statements.
3
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF EXPENSES
(Unaudited)
Period from
May 11,2005
Three Months Ended (inception)
MARCH 31, 2011 MARCH 31, 2010 MARCH 31, 2011
-------------- -------------- --------------
Brokerage and Fee Income $ 22,750 - $ 26,680
Operating Expenses:
General & Administrative $ 6,930 $ 142,044 1,670,270
Impairment of deferred
transaction costs - - 1,844,724
--------------------------------------------------
Operating profit (loss) 15,820 (142,044) (3,488,314)
Other income (expense):
Interest income 21 143 5,663,916
Interest expense - - (77,471)
Gain/(loss) on settlement
of debt (12,313) - 657,343
Gain(loss) on derivative
liabilities - - 203,596
Gain/(loss) on write-off
related party 5,917 - 5,917
Extinguishment of Debt - - (928,182)
--------------------------------------------------
Total Other income (6,375) 143 5,525,119
--------------------------------------------------
Net income (loss) 9,445 (141,901) 2,036,805
Income tax expense (benefit) - - 5,692
Distribution in trust fund
earnings - - (4,756,500)
---------------------------------------------------
Net income (loss) $ 9,445 $ (141,901) $ (2,725,387)
Earnings (loss) per common share
Basic & Diluted $ 0.00 $ (0.04) N/A
Weighted average number of
common shares outstanding
Basic & Diluted 3,776,873 3,648,511 N/A
See notes to unaudited financial statements
4
GOLDEN GATE HOMES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Period from
May 11, 2005
MARCH 31, 2011 MARCH 31, 2010 MARCH 31, 2011
-------------- -------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 9,445 $ (141,901) $ (2,725,387)
Shares issued for services 3,750 - 18,900
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Investment income - - (5,663,530)
Loss(Gain) on derivative liability - - (203,596)
Gain on settlement of debt 12,313 - 5,376)
Gain on write-off of related party
debt (5,917) - (5,917)
Gain on settlement of interest expense - - (711,441)
Impairment of deferred transaction
costs - - 1,828,626
Loss on extinguishment of debt - - 928,182
Change in:
Prepaid expenses and other
current assets - (8,707) (6,397)
Accrued expenses - - 131
Accounts payable and accrued
expenses (14,569) 823 797,778
Due to related party (4,087) - 63,622
-----------------------------------------------
Net cash provided by (used in)
operating activities 935 (149,785) (5,673,653)
CASH FLOWS FROM INVESTING
ACTIVITIES
Deferred transaction costs - - (1,828,626)
Payment to trust account - - (76,532,404)
Disbursements from trust account - - 82,195,934
------------------------------------------------
Net cash provided by investing
activities - - 3,834,904
CASH FLOWS FROM FINANCING
ACTIVITIES
Gross proceeds from public offering - - 79,350,000
Gross proceeds from private placement - - 2,000,004
Proceeds from sale of stock - - 79,546
Proceeds from sale of underwriter
options - - 100
Proceeds from advances from
stockholders - - 1,270,282
Payments on advances from stockholders - - (329,000)
Cash paid for offering costs - - (4,743,110)
Special dividend payment - - (81,190,596)
Adjustment to retained earnings 4,756,499
Proceeds from convertible debt - - 36,257
Contributed Capital - 222,500 611,615
------------------------------------------------
Net cash provided by (used in)
financing activities - 222,500 1,841,597
------------------------------------------------
Net change in cash 935 72,715 2,848
Cash at beginning of period 1,913 10 -
-------------------------------------------------
Cash at end of period $2,848 $ 72,725 $ 2,848
Supplemental disclosures:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes - - 7,228
Non-cash transactions:
Conversion of Shareholder Advances to Notes
Conversion of Notes to common stock - - 928,182
Conversion of Notes to common stock - - 977,539
See notes to unaudited financial statements
5
GOLDEN GATE HOMES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Golden Gate Homes,
Inc. (hereinafter referred to as the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules of the Securities and Exchange Commission ("SEC"), and should be
read in conjunction with the audited financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2010 (the "Form 10-K") filed with the SEC. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented, have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
that would substantially duplicate the disclosures contained in the
audited financial statements for the year ended December 31, 2010 and the period
from May 11, 2005 (inception) to December 31, 2010 as reported in the Form
10-K have been omitted.
NOTE 2 - GOING CONCERN AND LIQUIDATION OF TRUST ACCOUNT
As shown in the accompanying financial statements, the Company has an
accumulated deficit and working capital deficit as of March 31, 2011. These
conditions raise substantial doubt as to its ability to continue as a going
concern.
The Company currently does not have any other binding commitments for, or
readily available sources of, additional financing.
Management believes that, if the Company's operations progress as planned, the
Company will have positive cash flow to partially finance its business.
Management believes it has established relationships with lenders to shorten the
time period for future loan approvals. Moreover, management believes that, if
sales of properties result in sufficient positive cash flow, equity capital
should be available. To conserve on the Company's capital requirements, the
Company may issue shares of its common stock to pay certain expenses.
NOTE 3 - EQUITY
The Company issued 25,000 common shares, valued at $6,250, to an individual for
consulting work performed during the third and fourth quarters, which was
accrued for, and an additional 7,500 shares, valued at $3,750 for consulting
work performed during the first quarter. The value for the additional 7,500
shares issued had been previously reported in the Form 10-K as $5,625, but was
reduced to $3,750 to reflect the stock's value, based on the Company's stock's
trading price, more accurately. The consulting agreement with this individual
was terminated on February 15, 2011. In addition, the Company issued 50,000
shares of its common stock as payment for an outstanding payable of
approximately $24,700. The fair value of the stock was $37,000.
NOTE 4 - RELATED PARTY
At March 31, 2011, the Company had outstanding payables of $1,679 to Steven
Gidumal, the Company's Chairman of the Board and Chief Financial Officer, and
$1,899 to Basil N. Argerson, the Company's Senior Vice President.
NOTE 5 - SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after March 31,
2011 up through the date the Company issued these financial statements. During
the month of April 2011, the Company sold one property totaling approximately
$353,500 in gross revenue and realized approximately $26,880 in gross income
from such sale. The Company provided a rental guarantee for a period of one
year of 7% of the purchase price of the property, and advanced one-half of the
amount of such guarantee to the purchaser. The purchaser has agreed to
reimburse the funds advanced for the rental guarantee from funds received from
the rental of the property over a period of 13.5 months.
As the Company lacked sufficient cash on hand to advance the rental guarantee
prior to the close of escrow, the Company received a bridge loan from Virtus
Capital, LLC, an Orlando, Florida-based hedge fund, for which Steven Gidumal,
the Company's Chairman of the Board and Chief Financial Officer, serves as
President and Portfolio Manager. The bridge loan was paid back after the close
of escrow for this property. For arranging financing and for legal work to
document this transaction, Virtus Capital, LLC was paid a fee of $1,000. The
Company also received a cancellation fee of $5,450 for a property sale that was
cancelled in April.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have based
these forward-looking statements on our current expectations and projections
about future events, and we assume no obligation to update any such
forward-looking statements. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results to be materially different from any future results expressed
or implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "should," "could,
""would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or
the negative of such terms or other similar expressions. Factors that might
cause our future results to differ from those statements include, but are not
limited to, those described in the section entitled "Risk Factors" of the
Form 10-K. The following discussion should be read in conjunction with
our condensed financial statements and related notes thereto included
elsewhere in this report and with the section entitled "Risk Factors" of the
Form 10-K.
GENERAL
The Company has historically been a blank check company. It was formed in 2005
under the name "JK Acquisition Company" (which was subsequently changed to "JK
Acquisition Corp."), to serve as a vehicle for the acquisition, through a
merger, capital stock exchange, asset acquisition or other similar business
combination with a then unidentified operating business. On April 11, 2006, the
Company completed its initial public offering (the "IPO") of equity securities,
raising net proceeds of $76,632,404. On September 6, 2006, the Company,
Multi-Shot, LLC ("Multi-Shot") and various other parties entered into the
Agreement and Plan of Merger (the "Merger Agreement") and related agreements.
Over the course of this transaction, the parties twice amended the terms of the
Merger Agreement and twice extended the transaction. On January 31, 2008, the
Company announced that the special meeting of its stockholders to vote on the
proposed merger with Multi-Shot had been cancelled. The Company determined and
informed Multi-Shot that the proposed merger would not receive the votes of its
stockholders required for approval. The Merger Agreement expired on January 31,
2008, and the proposed merger with Multi-Shot was abandoned. As a result, the
Company's Board of Directors determined it would be in the best interests of the
stockholders to distribute to stockholders holding shares of common stock issued
in the IPO all amounts held in a trust fund (net of applicable taxes)
established by the Company at the consummation of the IPO into which a certain
amount of the net proceeds from the IPO had been deposited.
Because the Company did not consummate a qualifying business combination, the
Company's Board of Directors contemplated alternatives for preserving value for
stockholders. Ultimately, the Board of Directors proposed to amend the
Company's certificate of incorporation to permit the continuance of the Company
as a corporation beyond the time currently specified in the Company's
certificate of incorporation. The Company's stockholders approved this
amendment to the Company's certificate of incorporation. After such approval,
the Board of Directors began seeking a company or companies that the Company
could acquire or with which it could merge.
Before any such action was taken, a change of control of the Company occurred on
December 31, 2009 when GGH, Inc. (formerly Golden Gate Homes, Inc.), a privately
held Delaware corporation ("GGH"), acquired from the Company's two largest
stockholders shares of the Company's common stock representing approximately
96.5% of the outstanding shares of the common stock. GGH purchased the shares
to pursue a business opportunity through the Company, as more fully described
below.
In connection with the transaction described in the preceding paragraph, James
P. Wilson resigned from the Company's Board of Directors on December 31, 2009,
and Steven Gidumal was elected to the Board to fill the newly created vacancy,
to serve along with Keith D. Spickelmier, who subsequently resigned as a
director on March 17, 2010, and was replaced by Tim Wilkens. In addition, on
December 31, 2009, all of the Company's then serving officers resigned, and the
Company elected a new slate of officers. Furthermore, on March 8, 2010, the
Company changed its corporate name to "Golden Gate Homes, Inc." and effected a
1-for-35 reverse split of the Company's common stock to improve the Company's
capital structure.
As a result of the change in control of the Company, the Company adopted a
significant change in its corporate direction. The Company's focus is on
marketing high-quality, distressed residential properties in certain US markets
(with an initial focus on California) to international buyers (primarily from
Asia) through exclusive selling agreements or consignment arrangements. In the
event that the Company is successful in completing a major capital raising
transaction, it will also consider purchasing similar assets for resale to the
same target market.
In October 2009, the Company entered into an exclusive marketing agreement with
Premier Capital, Ltd. ("Premier Capital"). Management believes that Premier
Capital is one of the most reputable international real estate consulting firms
in Asia, and is highly regarded for selling international properties throughout
China and other parts of Asia. Premier Capital was founded in Hong Kong in 1988
and expanded into China in 1997. It has offices in Hong Kong, Beijing,
Shanghai, Guangzhou and Shenzhen, the five Asian cities in which the Company
markets properties. Premier Capital also has offices in Australia, Singapore
and New Zealand.
Premier Capital acts as the Company's agent in Hong Kong and mainland China to
market properties that are approved by Premier Capital and for which the Company
has obtained sales options or agreements ("Approved Properties"). The Company
pays the bulk of the expenses arising in connection with the marketing of
Approved Properties in Hong Kong and China, although Premier Capital bears some
of these expenses as well. For its services, Premier Capital is paid a
customary brokerage fee for Approved Properties sold in Hong Kong and China.
Premier Capital terminated the exclusive marketing agreement with the Company in
April 2011, although it has stated that it will continue to work with the
Company to sell the Company's current inventory as well as future projects. See
"PART II - OTHER INFORMATION - ITEM 5. OTHER INFORMATION." The Company is in
discussions with Premier Capital about entering into an exclusive marketing
agreement for another geographical market in the United States. In addition, the
Company and Premier Capital are currently negotiating a new agreement that the
Company expects will have similar terms to the original agreement, but will
allow Premier Capital to market properties for other entities. The Company will
also seek additional selling agents to market its properties, although there can
be no assurance that the Company will be successful in finding additional
selling agents. Inasmuch as Premier Capital has agreed to continue to work with
the Company, the Company does not believe that the termination of the exclusive
marketing agreement with Premier Capital will have a material adverse effect on
the Company's business, prospects, financial condition and results of
operations.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2011 and 2010
For the three months ended March 31, 2011, we had net income of $9,445, compared
to a net loss of $141,901 for the three months ended March 31, 2010. For the
three months ended March 31, 2011, we incurred $6,930 of general and
administrative expenses as compared to the three months ended March 31, 2010,
when we incurred $142,044 of general and administrative expenses. . This
decrease in expenses in large part is the result of the Company's elimination of
its full-time staff and the closing of its shared office space as it seeks to
conserve cash. Of the $142,044 of general and administrative expenses reflected
on the Company's Statements of Expenses for the three months ended March 31,
2010, $48,457 was expended on the Company's behalf by the entity that holds a
controlling interest in the Company to research and develop the Company's new
business plan prior to its acquisition of such control on December 31, 2009.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's cash position as of March 31, 2011 is $2,848. As of March 31,
2011, the Company has outstanding payables of $112,551. Because of the
Company's current cash position versus its outstanding payables and accruals,
there is substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The future of the Company is dependent
upon the Company's ability to consummate sales of properties and the development
of new business opportunities. Management may need to raise additional funds
via a combination of equity and/or debt offerings. These financial statements
do not include any adjustments that might arise from this uncertainty.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we
do not have any off-balance sheet financing arrangements or liabilities,
guarantee contracts, retained or contingent interests in transferred assets or
any obligation arising out of a material variable interest in an unconsolidated
entity. We do not have any majority-owned subsidiaries.
6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is a broad term for the risk of economic loss due to adverse changes
in the fair value of a financial instrument. These changes may be the result of
various factors, including interest rates, foreign exchange rates, commodity
prices and/or equity prices. We are exposed to market risk from changes in
interest rates and foreign currency exchange rates. Our exposure to interest
rate risk is limited to interest income sensitivity for working capital funds
placed in a money market account. The effect of interest rate changes does not
pose significant market risk to us. Also, we are exposed to foreign currency
exchange rates whereby the strengthening of the US currency could make it more
expensive for our foreign purchasers to buy our US properties. We do not
currently hedge against interest rate or currency risks. The effect of other
changes, such as commodity prices and/or equity prices, does not pose
significant market risk to us.
ITEM 4T. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as of the end of the period
covered by this quarterly report. In the course of this evaluation, our
management considered the material weaknesses in our internal control over
financial reporting discussed below. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that such
disclosure controls and procedures were operating effectively as of March 31,
2011.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial
reporting in connection with the evaluation required by Rule 13a-15(d) under the
Exchange Act that occurred during the period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously
disclosed in the Annual Report on Form 10-K for the year ended December 31,
2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
The Company issued 25,000 shares of its common stock, valued at $6,250, to an
individual for consulting work performed during the third and fourth quarters,
which was accrued for, and an additional 7,500 shares of its common stock,
valued at $3,750 for consulting work performed during the first quarter. The
value for the additional 7,500 shares issued had been previously reported in the
Form 10-K as $5,625, but was reduced to $3,750 to reflect the stock's value,
based on the Company's stock's trading price, more accurately. The consulting
agreement with this individual was terminated on February 15, 2011. In
addition, the Company issued 50,000 shares of its common stock as payment for an
outstanding payable of approximately $24,700. Such shares are exempt from
registration under regulations promulgated by the Securities Exchange Commission
under Section 4(2) of the Securities Act, as amended. The exemption was
available on the basis that there was no general solicitation in connection with
the placement and sales were only made to accredited investors
ITEM 5. OTHER INFORMATION
On April 29, 2011, Premier Capital, the Company's agent for its US properties in
Hong Kong and mainland China, terminated its exclusive marketing agreement with
the Company, although it has stated that it will continue to work with the
Company to sell the Company's current inventory as well as future projects. The
Company and Premier Capital are currently negotiating a new agreement that the
Company expects will have similar terms to the original agreement, but will
allow Premier Capital to market properties for other entities. The Company will
also seek additional selling agents to market its properties, although there can
be no assurance that the Company will be successful in finding additional
selling agents.
ITEM 6. EXHIBITS.
NUMBER DESCRIPTION
31.1 Certificate of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley of 2002
32.1 Certificate of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley of 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLDEN GATE HOMES, INC.
Date: May 18, 2011 By:/s/ Steven Gidumal
-------------------
Steven Gidumal
Chairman of the Board
and Chief Financial Officer
(Principal Financial and Accounting
Officer
