Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements, other than historical facts, contained in this Quarterly Report on Form 10-Q, including statements of potential acquisitions and our strategies, plans and objectives, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we believe that our forward looking statements are based on reasonable assumptions, we caution that such statements are subject to a wide range of risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are important factors that could cause actual results to differ materially from the forward looking statements, including, but not limited to; the time management devotes to identifying a target business; management’s ability to consummate a business combination; the financial condition of the target company with which we may enter a business combination; the effect of existing and future laws; governmental regulations; the political and economic climate of the United States; and conditions in the capital markets. We undertake no duty to update or revise these forward-looking statements.
When used in this Form 10-Q, the words, “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons.
General Background of the Registrant
China Grand Resorts, Inc. (“we,” “us,” “our” or the “Company”) was incorporated in the State of Nevada on September 21, 1989 under the name Fulton Ventures, Inc. On September 19, 2002, we changed our name to Asia Premium Television Group, Inc. to more accurately reflect our business at the time. Effective November 16, 2009, we changed our name to China Grand Resorts, Inc. to more accurately reflect its new business efforts. Commencing in 2002, we acquired and sold a series of subsidiary entities that were incorporated in various foreign jurisdictions, including the People’s Republic of China, or PRC, Macau, Hong Kong and the British Virgin Islands. Through 2009, these subsidiaries engaged in a variety of businesses, including, principally, marketing, brand management, advertising, media planning, public relations and direct marketing services to clients in the PRC.
The Company discontinued filing periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after it filed a quarterly report on Form 10-Q for the period ended June 30, 2014 (the “June 2014 10-Q”) on August 14, 2014. As reported in the Company’s annual report on Form 10-K for the year ended September 20, 2013 (the last periodic report filed under the Exchange Act with which the Company furnished audited financial statements) and the June 2014 10-Q, the Company was engaged, through its subsidiaries, in the provision of mobile phone based services in the PRC through Sun New Media Transaction Services Ltd., a Hong Kong corporation, and real estate investment in the PRC through Key Proper Holdings Limited, a British Virgin Islands corporation.
Since the filing of the June 2014 10-Q, current management is not aware of any contact between the Company and incumbent management as of the filing of the June 2014 10-Q, which we refer to as “former management,” nor does current management have any knowledge or information relating to the business operations conducted by the Company or its subsidiaries as of that date, other than as reported in the periodic reports it filed with the SEC. Current management does not have in its possession any records of the Company prior to its taking operational control of the Company in April 2016, other than documents filed with or furnished to the SEC.
On April 4, 2016, Bryan Glass was appointed to serve as the custodian of the Company pursuant to an order of the District Court of Clark County Nevada and was authorized to take any action on behalf of the Company for the benefit of the Company and otherwise to reinstate the Company’s corporate existence in Nevada and convene a shareholders’ meeting to elect directors of the Company.
On April 5, 2016, the Company entered into a consulting agreement with Mr. Glass under which he agreed to take all the steps reasonably necessary, beyond reinstatement of the corporation in Nevada and holding a shareholders meeting, to create an operating entity, in consideration for which services the Company issued to Mr. Glass 30 million shares of common stock.
The Company held a shareholders meeting on May 4, 2016 at which Mr. Glass was elected as the sole director of the Company and the shareholders adopted and approved Amended and Restated Articles of Incorporation After Issuance of Stock. As of the date hereof, Mr. Glass, who we refer to as management, serves as our only director and officer.
Business Objectives of the Registrant
As of the date of this report, we have no current operations. Management has determined to direct our efforts and limited resources to pursue potential new business opportunities through a combination with an operating or development stage company or an acquisition of assets. We do not intend to limit ourselves to a particular industry and we have not established any particular criteria upon which we shall consider and proceed with a business opportunity. We expect to utilize our capital stock, debt or a combination of capital stock and debt, in effecting a business transaction. It may be expected that entering into a business transaction will involve the issuance of restricted shares of capital stock. The issuance of additional shares of our capital stock:
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may significantly reduce the equity interest of our existing stockholders;
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will likely cause a change in control if a substantial number of our shares of capital stock are issued, and most likely will also result in the resignation or removal of our present officer and director; and
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may adversely affect the prevailing market price for our common stock.
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Similarly, if we issued debt securities, it could result in:
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default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations;
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acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenants were breached without a waiver or renegotiations of such covenants;
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our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
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Based on our current business activities, we are a “shell company” as defined under the Exchange Act because we have no operations and nominal assets consisting solely of cash and/or cash equivalents. We are also a “blank check” company as defined under the Exchange Act because we are a development stage company that is issuing a “penny stock” (as defined under the Exchange Act) and have no specific business plan or purpose other than to merge with an unidentified company or companies. Our status as a blank check company and a shell company will impact our company and shareholders in many ways, including:
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the application of Rule 419 to any public offering of securities we may undertake, which could make closing such an offering more difficult than if we were not subject to such rule;
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the application of the “penny stock” rules to shares of our common stock, which provide for enhanced disclosures by broker-dealers to persons desiring to purchase our stock in the open market, which may diminish demand for our stock in the open market;
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limitations on the availability of Rule 144 to our shareholders who hold restricted stock, which may render raising capital in private transactions more difficult; and
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limitations on the availability of Form S-8 to register shares of common stock issuable to our employees and consultants.
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Further, the Company’s financial condition, including current liabilities as of $44,012 at June 30, 2018 and $1,594,945 at September 30, 2017 may be a significant impediment to identifying and consummating a business transaction.
Our management has broad discretion with respect to identifying and selecting a prospective business opportunity. We have not established any specific attributes or criteria (financial or otherwise) for a business opportunity and we may enter into a business combination with a development stage company, a distressed company or a foreign company engaged in any industry or we may purchase raw assets. Our management has never served in any capacity as management of a development stage public company that has consummated a business transaction such as that contemplated by us. Accordingly, our management may not successfully identify a prospective business opportunity or conclude a business transaction. In addition, our management engages in other business activities and is not obligated to devote any specific number of hours to our matters. Management intends to devote only as much time as it deems necessary to our affairs.
We anticipate that the selection of an appropriate business opportunity will be complex and extremely risky and we cannot assure you that we will be successful in concluding a transaction or if we do, that we will be successful thereafter. Our lack of financial and personnel resources may negatively impact our ability to consummate an attractive transaction or cause us to discontinue operations before we enter such a transaction.
We cannot assure you that we will be successful in concluding a business transaction. We will not realize any revenues or generate any income unless and until we successfully merge with or acquire an operating business that is generating revenues and otherwise is operating profitably. Moreover, we can offer no guarantee that we will achieve long-term or immediate short-term earnings from any business transaction.
Any entity with which we enter into a business transaction will be subject to numerous risks in connection with its operations. To the extent we affect a business transaction with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of such companies. If we consummate a business transaction with a foreign entity, we will be subject to all of the risks attendant to foreign operations. Although our management will endeavor to evaluate the risks inherent in a particular opportunity, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Our management anticipates that our Company likely will affect only one business transaction, due primarily to our limited financial resources and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us because it will not permit us to offset potential losses from one venture against potential gains from another.
Our common stock has been subject to quotation on the pink sheets under the symbol “CGND.” There is currently no active trading market in our shares nor do we believe that any active trading market has existed for the last 3 years. There can be no assurance that there will be an active trading market for our securities following the date hereof. In the event that an active trading market commences, there can be no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.
Write Off of Debt
During the period 2009 through June 2014, the Company obtained loans to fund its operations from Beijing Hua Hei Hengye Investment Limited (“Hua Hui”) and Redrock Capital Venture Limited (“Redrock”) (together, the “Related Party Loans”). Both Hua Hui and Redrock were affiliates (as defined under the Exchange Act) of the Company during the time the Related Party Loans were made to the Company. In the case of Hua Hui, it was an affiliate by virtue of its ownership of 84.8% of the outstanding shares of common stock and the fact that the chief executive officer of the Company also was the chief executive officer and the sole shareholder of Hua Hui. In the case of Redrock, it was an affiliate by virtue of its ownership of 5.8% of the outstanding shares of common stock. (The percentages of common stock held by these stockholders is as was reported in the Company’s Annual Report on Form 10-K for the period ended September 30, 2013, the last 10-K filed by former management (the “2013 10-K”).)
The Related Party Loans have been disclosed in the periodic reports that the Company files with the SEC under the Exchange Act since the date the Company incurred the debt and have been carried as liabilities on the Company’s balance sheets in such periodic reports (the “Periodic Reports”). Current management of the Company is not aware of any written agreements or instruments evidencing the Related Party Loans and no such agreements or instruments have been filed as exhibits to any of the Periodic Reports. Moreover, since the date current management assumed control of the Company in April 2016, the Company has not received any written or oral demand for payment of the Related Party Loans.
At June 30, 2018, the Company was indebted under the Related Party Loans in the aggregate amount of $1,598,106, including accrued interest, of which the Company was indebted to Hua Hui in the amount of $1,497,825, including accrued interest, and was indebted to Redrock in the sum of $100,281, including accrued interest, as reported in the Company’s quarterly report on Form 10-Q it filed with the SEC for the period then ended.
The Company has determined to write off the Related Party Loans on the basis that the statute of limitations with respect to the Related Party Loans has expired and the lenders are barred from pursuing a claim against us for repayment of the amount loaned. Under the Nevada Revised Statutes, an action upon a contract, obligation or liability not founded upon an instrument in writing may only be commenced within four years of the date that the action accrues. Since all credit comprising the Related Party Loans was extended to the Company prior to June 30, 2014, as disclosed in the Periodic Reports, the four-year period in which to bring a claim for payment such debt expired as of June 30, 2018.
Accordingly, commencing as of the period ended June 30, 2018, the Company has written off the Related Party Loans and removed the sum of $1,598,106 from the balance sheet in the Company’s financial statements for the period then ended and will not report the amounts due under the Related Party Loans as outstanding liabilities in any future period. The amounts were written off against additional paid in capital—per ASC Section 470-50-40. ASC Section 470-50-40 (Debt Modification and Extinguishments), considers Related Party Transactions to be capital transactions and the extinguishment of the debt is in effect a capital transaction and it is not a gain or loss recognition event and should be excluded from the determination of net income.
Results of Operations
Results of Operations for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017
During the three months ended June 30, 2018, the Company did not generate any revenue, incurred expenses of $2,226, including $726 of professional fees, and suffered a net loss of $2,226, as compared to the three months ended June 30, 2017 in which the Company did not generate any revenue, incurred expenses of $13,889, including $1,715 of professional fees, and $12,174 of interest expense, and suffered a net loss of $13,889.
Results of Operations for the nine months ended June 30, 2018 as compared to the nine months ended June 30, 2017
During the nine months ended June 30, 2018, the Company did not generate any revenue, incurred operating expenses of $67,782, including $39,433 of professional fees in connection with the preparation of reports and financial statements required to be filed with the SEC; $4,000 of selling, general and administrative expenses; and $24,348 of interest expense, and suffered a net loss of $67,782, as compared to the nine months ended June 30, 2017, the Company did not generate any revenue, incurred operating expenses of $39,322, including $2,800 of professional fees, and $36,522 of interest expense, and suffered a net loss of $39,322.
Liquidity and Capital Resources
At June 30, 2018, the Company had no assets and total current liabilities of $44,012, after giving effect to the write off of the Related Party equal to $$1,598,106, as described above. At September 30, 2017, the Company had no assets and total liabilities of $1,594,945, comprising $1,573,758 of loans payable to parties related to prior management (including interest accrued thereon) and $21,187 of other payables.
Prior to June 2014, the Company funded its operations from the proceeds of loans received from a party related to prior management. The Company has no present sources of capital or liquidity.
We do not expect to engage in any substantive activities unless and until such time as we enter into a business transaction, if ever. We are dependent upon interim funding provided by current management to pay the cost associated with being a public company, among other fees and expenses. Our current management has agreed orally to provide funding as may be required to pay for accounting fees and other administrative expenses of the Company until the Company enters into a business combination. The Company would be unable to continue as a going concern without interim financing provided by management. If we require additional financing, we cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all. The Company depends upon services provided by management to fulfill its filing obligations under the Exchange Act. At present, the Company has no financial resources to pay for such services and may be required to issue stock in lieu of cash or, in the alternative, issue debt instruments evidencing financial obligations if and when they arise. Any funds advanced by management will be advanced as loans that will bear interest at the rate of 8% per year and which shall mature on the closing of a business transaction.
During the next twelve months, we anticipate incurring costs related to:
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maintaining our corporate existence such as annual fees due to the State of Nevada;
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filing periodic reports under the Exchange Act including filing, accounting and legal fees;
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investigating and analyzing business opportunities and possibly consummating a business transaction.
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These costs are difficult to quantify given the multitude of variables associated with such activities. Our ongoing expenses will result in continued net operating losses that will increase until we can consummate a business combination with a profitable operating company, if ever. We estimate that these costs will be in the range of to six to eight thousand dollars per year, and that we will be able to meet these costs as necessary through the extension of credit advanced to us by management.
Going Concern
Our negative working capital, continuing operating losses, failure to generate revenues and lack of operating capital create substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to obtain capital from our affiliates to fund our operations, generate cash from the sale of its securities and attain future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.