ITEM 1. BUSINESS
OVERVIEW.
The focus of Golden Gates Homes, Inc (the “Company”) is on marketing high-quality, distressed residential properties in certain US markets (currently in California and Florida) 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 of property listings as well as future projects. The Company is in discussions with Premier Capital about entering into an exclusive marketing agreement for Florida, which will be based on project and property location, and expects to complete such an agreement prior to initiating a sales program in Florida. 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.
Industry Background
The Company’s management believes that the recession in the United States economy that began in December 2007 and continued into 2011 created opportunities in the current real estate market. CNNMoney.com has reported that this recession, which is frequently referred to as “the Great Recession,” is generally regarded as “the worst economic downturn since the Great Depression.” Since 2009, there has been a tangible improvement in housing prices in many formerly depressed markets, and signs of increase in house prices were generally noticed in most markets in the country.
The improving prices, in conjunction with the continuing low interest rates available in the market, make this an attractive period to market U.S. real estate to foreign buyers.
With the gradual resurgence of the United States economy and easing of capital restraints, the Company believes that properties acquired during this period should experience a natural appreciation in value as demand improves. The Company feels that the forward looking U.S. stock market and upward price movements in some areas of the country indicate the real estate market may have bottomed and a gradual climb into a stronger market cycle may be expected, although there can be no assurance of this.
The Company’s management believes that real estate developers, as well as banks and lending institutions, are still reluctant owners and forced sellers of properties. Banks are facing situations where state and local approvals have expired, documentation for projects are lost or non-existent, and permits have expired or need to be secured. According to a March 2011 report by the National Association of Realtors (“NAR”), it was estimated that 5.3 million homes were in limbo between foreclosure and the sales market. A recent January 2013 report by CoreLogic a California based research firm put the shadow inventory at under 3 million homes. Generally shadow inventory properties are sold as distressed sales. The growing shadow inventories are attributed to the recent disruptions to foreclosure time lines. The Company continues to see Florida, in particular, as a market of opportunity going forward.
Strategy
The Company’s strategy is to distinguish itself and create a unique value proposition. Key components of the Company’s strategy include:
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Use the background of the Company’s management in real estate and distressed situations to grow the Company’s business.
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Take advantage of the significant downturn in the residential property markets in selected areas of the United States to capture large discounts on properties to provide a strong value proposition to its overseas buyers. In situations where the Company seeks to control or acquire properties for resale, it strives to do so at significant discounts to appraised value. Where projects or specific properties have stalled or become unsellable for various reasons related to the lack or expiration of governmental approvals, lack of adequate documentation, the bankruptcy of the developer or cross-collateralization problems, or other similar issues, the Company’s management has ample background to resolve such complex situations and add value for the benefit of all parties involved.
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Use a rigid selection acquisition criteria regarding properties to be marketed.
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Establish a growing list of sellers who want to access the Company’s overseas distribution network, to facilitate their domestic sales process.
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Use a sales and marketing distribution network within China for properties marketed and sold through the Company’s marketing partner, Premier Capital, a real estate brokerage firm based in Hong Kong that is one of the largest sellers of international properties in China. This approach attracts new buyers (particularly land­ownership desirous Chinese citizens) for United States properties to compensate in part for the lack of buyers currently in the market for these properties.
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Provide property management expertise to support an expanding number of units.
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Provide one-stop acquisition and management services to Chinese and other international buyers, including facilitating their access to US and Chinese lenders.
Property Selection
The Company’s management makes all decisions in identifying and selecting prospective target properties. The Company uses a rigorous selection process to bring value to its buyer-clients. In searching for and evaluating prospective target properties, the Company uses the following practices:
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A focus on residential properties, which in many instances may be suitable to being rented by their overseas owners to third-parties;
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Identification of foreclosed and REO properties by working directly with banks and leading brokers;
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A focus on well-built, new or redeveloped construction near or in major cities;
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Monitoring of market forecasts to determine which real estate markets will recover/appreciate sooner while still appealing to the Company’s overseas clients;
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Evaluation of macro factors such as comparable sales, rental demand, interest rates, location, occupancy, county and regional population and job growth factors;
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Pre-approval of properties (where possible) by property lenders so approvals of financing for buyers move more quickly; and
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Confirmation of projects’ marketability with Premier Capital.
The Company has established general attributes and criteria for prospective target properties. In evaluating a prospective target property, the Company’s management considers, among other factors, the following:
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The location, quality and perceived desirability and price/value of the project;
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Management’s understanding of re-sale and other conditions of the particular location and market;
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Management’s assessment of the attractiveness of the timing of the consignment or acquisition;
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Management’s assessment of the financial attractiveness of a particular target relative to other available targets, and its potential for upside appreciation and return on investment;
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For potential acquisition targets, capital requirements and management’s assessment of the ability to finance a particular target;
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Macro-economic trends;
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Environmental risks;
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Physical condition of the target;
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Management’s assessment of the ability to manage a particular target and, for potential acquisitions, its ability to redevelop and improve the target; and
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The overall profit expectation and the return on capital expectation of the project or target.
When considering commercial properties in the future, the Company’s management will also consider the following:
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Occupancy in the target vs. surrounding market;
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Building design obsolescence;
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Job growth forecasts;
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Tenant profile; and
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Lease rollover and potential for rent appreciation
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular property will be based, to the extent relevant, on the above factors as well as other considerations believed relevant by the Company’s management in effecting a consignment transaction or acquisition consistent with the Company’s business objective. In evaluating a prospective target, the Company conducts an extensive due diligence review that encompasses, among other things, physical inspection of the property or assets, a review of environmental, zoning, permitted use and title issues, and a review of all relevant financial and other information that is made available to the Company. This due diligence review is conducted either by the Company’s management or by unaffiliated third parties the Company may engage.
To the extent the Company acquires financially poor assets or properties, the Company may be affected by numerous risks inherent in the business and operations of such properties or assets. Although the Company’s management will endeavor to evaluate the risks inherent in a particular property acquisition, the Company can make no assurances that it will properly ascertain or assess all significant risk factors.
Marketing
As a communist (i.e., “communal”) country, all land in China is property of the State. Home residents lease their homes under land leases, but no Chinese citizen ‘‘owns’’ the land under his or her home. Among the expanding upper-middle and wealthy classes in China, overseas home ownership had been unattainable under prior Chinese law, but that has changed in recent years. The government is now allowing its citizens to invest overseas, including purchasing overseas residential properties. Executives of more than 100,000 state-owned enterprises are being encouraged to travel internationally to invest their capital. The Company introduces Chinese buyers to U.S. residential properties where they currently have no access. The Company provides “one-stop” shopping to the “retail” buyer that wants to own one or more properties. The Company, as an assistance to its overseas buyers: (i) performs the property due diligence, (ii) assists in arranging the bank financing, (iii) manages, through independent third parties, the buyer’s property (finds tenants, collects rents, pays bills from owner account, etc.), and (iv) sends quarterly statements to the property buyer/owner.
The Company markets properties to residents of five leading Asian cities: Hong Kong, Shanghai, Beijing, Guangzhou and Shenzhen, which have a total population of more than 75 million people. The table below sets forth the respective populations of these five cities.
Populations of the Five Leading Cities of China (1)
(1) Source: Wikipedia, January 2013
The first table set forth after this paragraph reflects the comparable affordability of a California home to a Chinese citizen. The column “Yuan Index to Buy Home” compares the purchase price that a Chinese national would have been required to pay in 2005, the base year, for the average California home (based on the then average price of such home and the then dollar/yuan exchange rate) compared to what the Chinese citizen would have been required to pay in each of the years listed in the table on a 100-point scale. The table reveals that by 2012, Chinese citizens would have been required to pay only 49.4% of the price they would have been required to spend in order to buy the average California home in 2005. The second table set forth after this paragraph reflects the comparable affordability of a Florida home to a Chinese citizen. For Florida, Chinese citizens would have been required to pay only 41.4% of the average Florida home price using 2005 Chinese Yuan. Management believes that this development greatly increases the attractiveness of California and Florida properties to Chinese citizens.
Affordability of California Home in Chinese Yuan
Index uses 2005 as the base year = 100. Note 2005 was the last year before the Yuan began to float.
For years 2004 through 2011, exchange rate as of June of each year, per Bloomberg.
Avg. CA Home Price from “California Realtors”’ website.
Affordability of Florida Home in Chinese Yuan
Avg. FLA Home Price from “Zillow Home Index.”
Index uses 2005 as the base year = 100. Note 2005 was the last year before the Yuan began to float.
For years 2005 and 2011, exchange rate as of June of each year, per Bloomberg.
Strategic Partner and Marketing Agreement
In October 2009, the Company entered into an exclusive marketing agreement with Premier Capital. Premier Capital was founded in Hong Kong in 1988 and expanded into China in 1997. It has Chinese offices in Hong Kong, Beijing, Shanghai, Guangzhou and Shenzhen, the five Asian cities 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 for purposes of marketing Approved Properties optioned or purchased by the Company in Hong Kong and mainland China. 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. The Company is in discussions with Premier Capital about entering into an exclusive marketing agreement for Florida, which will be based on project and property location, and expects to complete such an agreement prior to initiating a sales program in Florida. 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.
Operations
General
The Company primarily markets high-quality, distressed residential properties in exclusive US markets (currently in California and Florida) to international buyers (primarily from China and other parts of Asia) through exclusive selling agreements or consignment arrangements. In the event that the Company is successful in completing a capital raising transaction, it will also consider purchasing similar assets for resale to the same target market.
Activities
The Company commenced its initial plan of operation in the spring of 2010. In April 2010, the Company entered into two option agreements with a real estate developer of two housing developments in Northern California, which provided the Company the exclusive rights to sell an aggregate of 20 homes. In June 2010, the Company entered into an option agreement with a real estate developer of a condominium project in downtown Los Angeles, California, which provided the Company the exclusive rights to sell 25 condominium units. The Company marketed these properties to Chinese buyers in the five cities listed in the table above in two separate trips to China, during which executives of the Company issued press releases, were interviewed by leading Chinese news agencies, and held exhibitions with Premier Capital to present detailed information regarding the consigned properties directly to prospective purchasers. To date, the Company has closed 12 sales as of the date of this filing in the first quarter of fiscal 2013. See “ITEM 7. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CHANGES IN FINANCIAL CONDITION-Liquidity and Capital Resources”. The Company is out of contract with these developers, although the developer in Northern California is continuing to allow the Company to offer certain remaining properties in its housing developments for sale to the Company’s international clients.
The Company’s business objectives are to establish a meaningful number of sales of residential properties to international buyers (primarily from China and other parts of Asia) by obtaining exclusive rights to sell specific U.S. properties. These selling rights may come in the form of exclusive selling agreements or consignment agreements. The use of each of these various selling strategies will depend on the willingness of sellers to engage with the Company on the exclusive sale of properties, the Company’s ability to complete such sales to its international buyer client base, and the access and availability of capital to the Company. Management believes that an adequate number of properties are available to be marketed overseas, such that this will not be a limiting factor. At the present time, the Company has two properties under contract for sale, and the developer in Northern California only has two remaining properties that could be subject for sale. The Company is seeking to enter into additional selling agreements and consignment arrangements for residential properties that will have lower sales prices than those it has previously sold to minimize the need for prospective international purchasers to obtain financing. The Company has identified certain properties that fit its criteria, but has not entered into any definitive agreements. There can be no assurances that the Company will enter into any such agreements. Absent new agreements, the Company will be unable to generate future revenues beyond the income derived from asset management fees.
EMPLOYEES.
The Company currently has two part-time employees.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Statements in this Annual Report under the captions "BUSINESS" and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", as well as oral statements that may be made by us or by our officers, directors or employees acting on our behalf, that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from the historical results or from any results expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the risk factors set forth below. We do not intend to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
OUR EXTREMELY LIMITED HISTORY MAKES AN EVALUATION OF US AND OUR FUTURE EXTREMELY DIFFICULT, AND PROFITS ARE NOT ASSURED.
To date, we have established a very limited track record of selling United States properties internationally. In view of our extremely limited operating history, you may have difficulty in evaluating us and our business and prospects. You must consider our business and prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development.
We cannot provide any assurance that we will be profitable in any given period or at all. You must consider our business, financial history and prospects in light of the risks and difficulties we face as an early stage company with a limited operating history. In particular, our management may have less experience in implementing our business plan and strategy compared to our competitors, including our strategy to establish our operations and build our brand name. In addition, we may face challenges in planning and forecasting accurately as a result of our limited historical data and inexperience in implementing and evaluating our business strategies. Our inability to successfully address these risks, difficulties and challenges as a result of our inexperience and limited operating history may have a negative impact on our ability to implement our strategic initiatives, which may have a material adverse effect on our business, prospects, financial condition and results of operations.
WE HAVE CERTAIN CAPITAL NEEDS, AND THE PROCUREMENT OF FINANCING TO MEET THESE NEEDS IS UNCERTAIN.
We currently have not generated much revenue. Moreover, the Company’s cash position as of December 31, 2012 is $34,854. The Company has outstanding payables and other current liabilities of $15,899 as of December 31, 2012. The future of the Company is dependent upon the Company’s ability to consummate sales of properties, the development of new business opportunities and our ability to raise new capital. We have reduced our monthly expenses by shrinking our work force, ending our payment for office rent and eliminating duplicative expenses. We plan to finance our operations for the next 12 months through cash flow from property sales, possible private placements of debt and equity, possible bank borrowings and possible joint venture arrangements. If our revenues do not materialize for whatever reason, we may have limited ability to expend the capital necessary to undertake or complete consignment or acquisition programs, and may be forced to cease operations.
OUR DIRECTOR AND OFFICERS WILL ALLOCATE THEIR TIME TO OTHER BUSINESSES, THEREBY CAUSING CONFLICTS OF INTEREST IN THEIR DETERMINATION AS TO HOW MUCH TIME TO DEVOTE TO OUR AFFAIRS, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR ABILITY TO GROW OUR BUSINESS.
Our director and officers are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. This could have a negative effect on our ability to grow our business. We do not currently have any full-time employees. Our executive officers are engaged in several other business endeavors and are not obligated to contribute any specific number of hours to our affairs, although we expect Steven Gidumal to devote substantial time to our business during the process of conducting due diligence and marketing properties for developments for which we have signed option or consignment agreements. If our executive officers' or director’s other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to grow our business. We cannot assure you that these conflicts will be resolved in our favor.
WE MAY NOT BE ABLE TO ARRANGE FINANCING FOR OUR OVERSEAS BUYERS.
Due to the changes in the bank lending market as a result of Dodd-Frank, bank financing remains difficult to secure for our clients. Consequently, we market our homes to buyers who are able to purchase their homes for cash. The Company is seeking to enter into additional selling agreements and consignment arrangements for residential properties that will have lower sales prices than those it has previously sold to minimize the need for prospective international purchasers to obtain financing. The Company has identified certain properties that fit its criteria, but has not entered into any definitive agreements. There can be no assurances that the Company will enter into any such agreements.
WE DEPEND ON CERTAIN KEY PERSONNEL.
We substantially depend upon the efforts and skills of Steven Gidumal, the sole director and the Chairman, Chief Executive Officer and Chief Financial Officer of the Company. The loss of Mr. Gidumal's services, or his inability to devote sufficient attention to our operations, could materially and adversely affect our operations. We currently do not maintain key man life insurance on Mr. Gidumal.
OUR CURRENT MANAGEMENT RESOURCES MAY NOT BE SUFFICIENT FOR THE FUTURE, AND WE HAVE NO ASSURANCE THAT WE CAN ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
There can be no assurance that the current level of management is sufficient to perform all responsibilities necessary or beneficial for management to perform. Our success in attracting additional qualified personnel will depend on many factors, including our ability to provide them with competitive compensation arrangements, equity participation and other benefits. There is no assurance that (if we need to) we will be successful in attracting highly qualified individuals in key management positions.
LIMITATIONS ON CLAIMS AGAINST OUR DIRECTOR AND OFFICERS, AND OUR OBLIGATION TO INDEMNIFY THEM, COULD PREVENT OUR RECOVERY FOR LOSSES CAUSED BY THEM.
The corporation law of Delaware allows a Delaware corporation to limit the liability of its directors to the corporation and its stockholders to a certain extent, and our Third Amended and Restated Certificate of Incorporation has eliminated our directors' liability to the maximum extent permitted by the corporation law of Delaware. Moreover, our Bylaws provide that we must indemnify each director, officer, agent and/or employee to the maximum extent provided for by the corporation law of Delaware. Further, we may purchase and maintain insurance on behalf of any such persons whether or not we have the power to indemnify such person against the liability insured against. Consequently, because of the actions or omissions of officers, directors, agents and employees, we could incur substantial losses and be prevented from recovering such losses from such persons. Further, the Securities and Exchange Commission maintains that indemnification for liabilities arising under the Securities Act is against the public policy expressed in the Securities Act, and is therefore unenforceable.
MANAGEMENT OWNS A LARGE PERCENTAGE OF OUR OUTSTANDING STOCK, AND CUMULATIVE VOTING IS NOT AVAILABLE TO STOCKHOLDERS.
Our current Chairman of the Board and sole director, Chief Executive and Chief Financial Officer, Steven Gidumal currently owns approximately 30.6% of our outstanding common stock (considered on an undiluted basis). Although Section 214 of the Delaware General Corporation Law allows for cumulative voting if a corporation’s certificate of incorporation specifically provides for it, the Company’s Third Amended and Restated Certificate of Incorporation has no provision for cumulative voting. Mr. Gidumal's large percentage ownership of our outstanding common stock may help enable him to maintain his position as such and thus control of our business and affairs.
REAL ESTATE PRICES CAN BE VOLATILE, WHICH MAY AFFECT OUR ABILITY TO ATTRACT BUYERS AT THE PRICES WE NEED TO MAKE A PROFIT.
Our revenues, profitability and future growth and the carrying value of our properties will depend substantially on the prices we realize for the sale of our consigned and owned units. Our realized prices will also affect the amount of cash flow available for subsequent acquisitions and our ability to borrow and raise additional capital.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO SELECT RESIDENTIAL PROPERTIES THAT ULTIMATELY PROVE SUCCESSFUL ECONOMICALLY.
The economic success of any project will depend on a number of factors, including our ability to discern and estimate the quantity of residential properties or projects we can sell at a price sufficient to make a profit after corporate overhead and, if such residential properties are purchased, any financing carrying costs. All of these factors affect whether or not a project will ultimately generate cash flows sufficient to provide a suitable return on investment. Our assessments and estimations of these factors (which are inherently inexact and uncertain) may prove inaccurate. Although we have criterion for selecting the residential properties and projects that we will decide to pursue, we might stray from it. Accordingly, we will have significant flexibility in selecting such properties or projects. There can be no assurance that we will be able to identify economically successful residential projects or that we will be able to pursue these projects successfully even if identified. Our failure to select economically successful residential projects will materially and adversely affect our business, results of operations and financial condition. We will be constantly challenged to add new projects through further consignments or further acquisitions of new properties. There can be no assurance that our acquisition efforts will be successful in adding new profitable projects. If we fail to identify additional properties or projects to sell, our future revenues, profitability and cash flows will be adversely impacted.
CURRENTLY, WE DO NOT HAVE ANY EXCLUSIVE CONSIGNMENT AGREEMENTS, AND ARE FOCUSING OUR PROPERTY CONSIGNMENT EFFORTS IN ONLY TWO GEOGRAPHICAL AREAS. THIS CURRENT LACK OF GREATER DIVERSIFICATION ENTAILS RISK.
The Company currently does not have any exclusive consignment agreements, although a developer in Northern California with whom the Company previously had an exclusive consignment agreement is continuing to allow the Company to offer for sale certain remaining properties in its housing developments to the Company’s international clients. All of our sales have been in the State of California, although we continue to explore properties in Florida. At the present, our success depends entirely upon our ability to locate and secure properties on a profitable basis in California and Florida. There can be no assurance that we will be able to do this, and that we will not encounter one or more problems arising from the particular legal, economic, environmental and market conditions of these two states. Our current lack of diversification may make our results of operations more volatile than they would be if we were seeking to sell residential properties in more than these two states.
OUR INABILITY TO PROCURE ADEQUATE INSURANCE COVERAGE FOR CERTAIN OCCURANCES COULD ADVERSELY AFFECT OUR BUSINESS.
We may choose not to obtain insurance for some risks if we believe the cost of available insurance is excessive relative to the risks presented. In addition, some risks may either not be fully insurable or not insurable at all. Even if we broaden our insurance coverage, our insurance would probably not cover all potential claims or may not adequately indemnify us for all liability to which we will be exposed. Any liability or legal defense expenses not covered by insurance or exceeding our insurance coverage could materially and adversely affect our business, operating results and financial condition. Moreover, we do not currently carry business interruption insurance.
WE RELY ON A NUMBER OF THIRD PARTIES, AND SUCH RELIANCE EXPOSES US TO A NUMBER OF RISKS.
Our operations depend on a number of third parties. We have limited control over these third parties. We rely on Premier Capital, an international seller of real estate properties that was founded in 1988 and expanded into China in 1997. We rely upon Premier Capital’s ability to bring potential buyers to presentations of the Company’s real estate in the five leading cities of China and to follow up on all leads with prospective Chinese buyers. 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 “ITEM 1. BUSINESS - OVERVIEW-- The Company’s Business - Strategic Partner and Marketing Agreement”. We also rely upon the services of US-based and international banks to provide mortgage financing to our international buyers. In addition, we rely upon brokers to identify promising consignment, auction and acquisition properties suitable for our international clientele. Overall, our inability to maintain satisfactory relationships with the requisite third parties on acceptable commercial terms, or the failure of such third parties to maintain the quality of services they provide at a satisfactory standard, could materially adversely affect our business, results of operations and financial condition.
WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL REGULATIONS, WHICH CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY OF DOING BUSINESS.
Acquiring, completing, renovating and selling residential properties are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. Under these laws and regulations, we could be liable for personal injuries, property damage, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations.
CHANGES IN FOREGN CURRENCY EXCHANGE RATES AND INTEREST RATES COULD ADVERSELY AFFECT OUR BUSINESS.
As a company that focuses on marketing real estate located in the United States to foreign buyers, we are exposed to certain market risks, specifically with regard to foreign currency exchange risks (and initially in particular the dollar/yuan exchange rate) and interest rates. To date, the changes in the price of the yuan have gone in the favor of the Company, making US homes less expensive to Chinese buyers, and while we monitor these exposures, we currently have no plan to manage these risks through hedging or other derivatives transactions. As a result, unfavorable changes in foreign currency exchange rates and interest rates could affect the affordability of our properties to prospective foreign buyers, which could have a substantial adverse effect on our financial condition and results of operations.
OUR COMPETITORS MAY HAVE GREATER RESOURCES, WHICH COULD ENABLE THEM TO PAY A HIGHER PRICE FOR PROPERTIES AND TO BETTER WITHSTAND PERIODS OF LOW MARKET PRICES FOR RESIDENTIAL PROPERTIES.
The residential real estate industry is intensely competitive, and we compete with other companies that have substantially larger financial resources, operations, staffs and facilities. Many of these companies not only develop, purchase and sell residential properties but also carry on construction operations and market properties on a regional or national basis. Such companies may be able to pay more for residential properties or develop, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to continue acquisition activities during periods of low home market prices. Our ability to enter into consignment transactions to market additional properties and to sell them profitability in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.
OUR AUTHORIZED PREFERRED STOCK EXPOSES HOLDERS OF OUR COMMON STOCK TO CERTAIN RISKS.
Our Third Amended and Restated Certificate of Incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock, par value $0.0001 per share. The authorized but unissued preferred stock constitutes what is commonly referred to as "blank check" preferred stock. This type of preferred stock may be issued by the Board of Directors from time to time on any number of occasions, without stockholder approval, as one or more separate series of shares comprised of any number of the authorized but unissued shares of preferred stock, designated by resolution of the Board of Directors stating the name and number of shares of each series and setting forth separately for such series the relative rights, privileges and preferences thereof, including, if any, the: (i) rate of dividends payable thereon; (ii) price, terms and conditions of redemption; (iii) voluntary and involuntary liquidation preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v) terms of conversion to common stock, including conversion price, and (vi) voting rights. Such preferred stock may provide our Board of Directors the ability to hinder or discourage any attempt to gain control of us by a merger, tender offer at a control premium price, proxy contest or otherwise. Consequently, the preferred stock could entrench our management. Currently, no shares of preferred stock had been issued, nor is there any intention to issue preferred shares at this time.
OUR COMMON STOCK HAS EXPERIENCED ONLY LIMITED TRADING AND MAY FLUCTUATE SIGNIFICANTLY.
Our Common Stock is quoted and traded in limited quantities on the OTC Electronic Bulletin Board in the United States under the symbol "GNGT". The quotation of our common stock on a securities market or exchange does not assure that a meaningful, consistent and liquid trading market will ever exist. Our stock is a penny stock and there are significant risks. Until shares of our common stock become more broadly held and orderly markets develop and even thereafter, the prices of our common stock may fluctuate significantly.
Stockholders should be aware that, according to the SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Furthermore, the “penny stock” designation may adversely affect the development of any public market for the Company’s shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in “penny stock” is suitable for customers.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our fiscal year and that remain unresolved.
ITEM 2.
ITEM 2. PROPERTIES.
We maintain our executive offices at 14 Wall Street, 20th Floor, New York, New York 10005.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
To the knowledge of management, there is no litigation or administrative proceeding currently pending or contemplated against us or any of our officers or directors in their capacity as such.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
The shares of the Company’s common stock are currently quoted on the Over the Counter Bulletin Board under the symbol “GNGT.” The Company does not currently have any authorized or outstanding equity compensation plans.
The following table sets forth, for the calendar quarter indicated, the quarterly high and low sales prices of our common stock, warrants and units as reported on the Over the Counter Bulletin Board for the years ended December 31, 2012 and 2011.
Source: Bloomberg historical pricing.
HOLDERS
As of December 31, 2012, there were approximately 14 holders of record of our common stock. It is likely that the actual number of beneficial holders exceeds this amount.
DIVIDENDS
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenue and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our then Board. It is the present intention of our Board to retain all earnings, if any, for use in our business operations and, accordingly, our Board does not anticipate declaring any dividends in the foreseeable future.
During the past three years, we sold the following shares of common stock without registration under the Securities Act of 1933, as amended (the “Securities Act”):
In June 2010, the Company issued 45,606 shares of common stock to Basil N. Argerson, Senior Vice President of the Company, for $20,795 in cash, at a purchase price of $0.456 per share, and 38,379 shares of common stock to Keith D. Spickelmier, a former officer and director of the Company, for $17,500 in cash, at a purchase price of $0.456 per share. In July 2010, the Company issued 15,000 shares of common stock to an individual for consulting work. In August 2010, the Company also issued 7,692 shares of common stock to another individual for $10,000 in cash, at a purchase price of $1.30 per share.
In February 2011, the Company issued 25,000 shares of its common stock, valued at $6,250, to the same individual to whom it had issued shares of common stock in July 2010, for work performed during the third and fourth quarters of fiscal 2010, 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 of fiscal 2011. The consulting agreement with this individual was terminated on February 15, 2011. In addition, on March 2, 2011, 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.
Such shares are exempt from registration under regulations promulgated by the SEC under Section 4(2) of the Securities Act. The exemption was available on the basis that there was no general solicitation in connection with the placement and sales were only made to accredited investors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report. Our fiscal year end is December 31.
RESULTS OF OPERATIONS
Comparison of Fiscal Year Ended December 31, 2012 to Fiscal Year Ended December 31, 2011
For the fiscal year ended December 31, 2012, we had a net loss of $10,203. For the fiscal year ended December 31, 2011, we had net income of $134,021. For the fiscal year ended December 31, 2012, we incurred $39,520 of general and administrative expenses, as compared to the fiscal year ended December 31, 2011, when we incurred $55,619 of operating expenses.
For the fiscal year ended December 31, 2012, we had $25,074 in revenues from the sale of properties and revenues of $4,243 from our asset management business.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Company’s cash position as of December 31, 2012 is $34,854. The Company had outstanding payables and other current liabilities of $15,899 as of December 31, 2012. The future of the Company is dependent upon the Company’s ability to consummate sales of properties and the development of new business opportunities. See “ITEM 1A. RISK FACTORS.” Capital constraints currently limit the Company’s ability to purchase residential properties for resale to international clients, and consequently the Company is restricted to selling agreements and consignment arrangements. Currently, the Company is out of contract with the developers with whom the Company had entered into such agreements, although one of these developers is allowing the Company to market certain of its properties to its international clients for resale. The Company is seeking to enter into additional selling agreements and consignment arrangements for residential properties that will have lower sales prices than those it has previously sold to minimize the need for prospective international purchasers to obtain financing. There can be no assurances that the Company will enter into any such agreements. Absent new agreements, the Company will be unable to generate future revenues beyond the income derived from asset management fees.
The Company has taken numerous steps to conserve cash. We have closed our shared office in Napa and eliminated our full-time employees However, given the Company’s current cash position, it may be difficult for the Company to enter into any new agreements to market properties to its international clients without obtaining additional funding.
The Company can make no assurances that any additional financing will be available to it when needed or, if available, that it can be obtained on commercially reasonable terms.
To conserve on the Company's capital requirements, the Company may issue shares of its common stock to pay certain expenses. During the quarter ended March 31, 2011, the Company issued 32,500 shares of its common stock to a consultant as payment for services rendered, and issued an additional 50,000 shares of its common stock as payment for legal services rendered. These stock issuances reduced outstanding payables reflected on our financial statements on December 31, 2010 by approximately $25,000. See Note 2 to the Company’s Financial Statements.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to our financial statements beginning on page of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of December 31, 2012. Based on such evaluation, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective as of December 31, 2012.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles ("GAAP"). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
To evaluate the effectiveness of our internal control over financial reporting as of December 31, 2012, as required by Section 404 of the Sarbanes-Oxley Act of 2002, management conducted an assessment, including testing, based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO Framework"). Based on this evaluation, management has concluded that, as of December 31, 2012, our internal control over financial reporting was effective. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rule13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of fiscal 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our current directors and executive officers are as follows:
The following is the background of Messrs. Gidumal and Argerson:
Steven Gidumal. Since 2004, Mr. Gidumal has served as the founder, President and Portfolio Manager for Virtus Capital, a firm based in Orlando, Florida that invests in the securities of companies in distressed and restructuring situations, including a variety of real estate and financial institutions. From August 2006 to August 2008, Mr. Gidumal also served as Co-Portfolio Manager of Resurgence Asset Management, a distressed fund based in New York City for which he co-ran a portfolio in excess of $400 million. Mr. Gidumal earned a Bachelor of Science, Economics cum laude from the University of Pennsylvania (Wharton Undergraduate program) and a Master of Business Administration from Harvard Business School as a Baker Scholar (highest honors).
Basil N. Argerson. Since February 2006, Mr. Argerson has served as a management consultant in his own firm, where he focuses on providing merger and acquisition advice, performing business valuations and evaluating new market opportunities, primarily for clients in the medical services/devices and real estate industries. Mr. Argerson received a Bachelor of Arts in Economics, with distinction, from the University of Virginia, a Juris Doctorate from the University of Virginia School of Law, and a Master of Business Administration from the University of Chicago Booth School of Business.
Our Board of Directors has one director. On December 31, 2009, Steven Gidumal was elected as a director of the Company, replacing James P. Wilson, and on March 17, 2010, Tim Wilkens was elected as a director, replacing Keith D. Spickelmier. On August 11, 2011, but effective as of August 1, 2011, Tim Wilkens resigned his position as a director and as Chief Executive Officer. The Board of Directors named Steven Gidumal, the Company’s Chairman of the Board and Chief Financial Officer, as Chief Executive Officer. The Company is currently conducting a search for a director to replace Mr. Wilkens. Mr. Gidumal will serve until the next annual meeting of stockholders and until his successor is elected and qualified.
Mr. Gidumal serves on the Company’s Nominating and Governance Committee. The Company’s Board of Directors has not established any standing Compensation Committee. The Board of Directors as a whole will undertake the functions of this committee at the appropriate time. The Board of Directors may establish a Compensation Committee whenever it believes that doing so would benefit the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of common stock and other equity securities. Directors, officers and greater than 10% stockholders are required by SEC regulation to furnish us with all Section 16(a) forms they file. To our knowledge, based solely upon our review of the copies of such reports furnished to us, we believe that all of our directors, officers and greater than 10% stockholders have complied with the applicable Section 16(a) reporting requirements.
AUDIT COMMITTEE
No member currently serves on our audit committee.
The audit committee will review the professional services and independence of our independent registered public accounting firm and our accounts, procedures and internal controls. The audit committee will also recommend the firm selected to be our independent registered public accounting firm, review and approve the scope of the annual audit, review and evaluate with the independent public accounting firm our annual audit and annual consolidated financial statements, review with management the status of internal accounting controls, evaluate problem areas having a potential financial impact on us that may be brought to the committee's attention by management, the independent registered public accounting firm or the board of directors, and evaluate all of our public financial reporting documents.
CODE OF ETHICS
We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws and the rules of the American Stock Exchange. A copy of the Company Code of Ethics and any amendments thereto is available at www.goldengatehomes.net.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer or director has received any cash compensation for services rendered. The Company has not established standard compensation arrangements for its directors, and the compensation, if any, payable to each individual for his or her service on the Company’s Board will be determined (for the foreseeable future) from time to time by the Board of Directors based upon the amount of time expended by each of the directors on the Company’s behalf. For the 2012 calendar year, we paid our Senior Vice President, Treasurer and Secretary, Basil N. Argerson, an aggregate of $4,000 for providing us with certain storage space for corporate records and for reimbursement of other office expenses.
The Company has not decided upon the remuneration that it will pay to its officers as of the date of this Annual Report. The Company may choose to pay stock compensation to its executives but does not expect to pay any cash remuneration (other than expense reimbursements) until such time as it is able to generate sufficient revenues or complete a significant capital raising event to permit it to do so. In either such event, management expects that the Company will start to pay management salaries at market levels, consistent with any restrictions on salaries imposed by investors providing additional funds. However, our stockholders that also serve as officers will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our Board of Directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. If none of our directors are deemed "independent," we will not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The table set forth below contains certain information as of February 22, 2013 concerning the beneficial ownership of the Company’s common stock (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding common stock; (ii) by each director; and (iii) by all directors and officers as a group. The address for all persons listed in the table is 14 Wall Street, 20th Floor, New York, New York 10005.
Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares. Shares not outstanding but deemed beneficially owned by virtue of the right of a person or member of a group to acquire them within 60 days of February 22, 2013 are treated as outstanding only for determination of the number and percent owned by such group or person.
(1) The stock numbers reflect the 1-for-35 reverse stock split effected on March 8, 2010.
(2) Mr. Wilkens is the trustee of two trusts that are the record owners of the stock shown in the table.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates, including loans by our officers and directors, will be on terms believed by us to be no less favorable than are available from unaffiliated third parties and such transactions or loans, including any forgiveness of loans, will require prior approval in each instance by a majority of our uninterested ''independent'' directors (to the extent we have any) or the members of our Board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. In addition, our management will gather pricing information, estimates or fairness opinions from unaffiliated third parties with respect to similar transactions undertaken by us.
DIRECTOR INDEPENDENCE
Our common stock is traded on the NASDAQ Over the Counter Bulletin Board (OTC.BB). Accordingly, we use the standards established by the OTC.BB for determining whether or not each of our directors is "independent." We have determined that currently Steven Gidumal is not independent. The OTC.BB rules generally require that a listed company's Board of Directors be composed of a majority of independent directors. As a consequence, we do not presently comply with the OTC.BB rules in this regard.
Moreover, the OTC.BB rules generally require that a listed company's Audit Committee be composed of at least three members, each of whom must be independent. We do not presently comply with the OTC.BB rules in this regard either.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For 2012 and 2011, we incurred fees from our principal accountant of $17,000 and $18,900, respectively, for the services they performed including the year-end audit, the quarters and consents on other SEC filings.
Audit-Related Fees
During 2012, our principal accountant did not render assurance and related services reasonably related to the performance of the audit or review of financial statements.
Tax Fees
For 2012 and 2011, we paid our principal accountant $2,500 and $2,800, respectively.
All Other Fees
During 2012, there were no fees incurred for products and services provided by the principal accountant other than those set forth above.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent auditor for the next year's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
1. AUDIT services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
2. AUDIT-RELATED services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. TAX services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. OTHER FEES are those associated with services not captured in the other categories. We generally do not request such services from the independent auditor.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditor.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Annual Report:
1. FINANCIAL STATEMENTS:
Index to Financial Statements and Schedules
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2012 and December 31, 2011
Statement of Operations - Year ended December 31, 2012, December 31, 2011
Statement of Stockholders' Equity (Deficit) -Year ended December 31, 2012 and
December 31, 2011
Statement of Cash Flows -Year ended December 31, 2012 and December 31, 2011
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable.
3. EXHIBITS:
EXHIBIT NO.
DESCRIPTION
1.1
Form of Underwriting Agreement.*
1.2
Form of Selected Dealers Agreement.*
3.1
Third Amended and Restated Certificate of Incorporation**
3.2
Amended and Restated Bylaws.*
3.3
Amendment to the Amended and Restated Certificate of Incorporation.*
3.4
Amendment to the Amended and Restated Certificate of Incorporation.*
4.1
Specimen Unit Certificate.*
4.2
Specimen Common Stock Certificate.***
4.3
Specimen Warrant Certificate.*
4.4
Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant.*
4.5
Form of Unit Purchase Option.*
10.1
Form of Letter Agreement among the Registrant, Ferris, Baker Watts, Incorporated, and James P. Wilson.*
10.2
Form of Letter Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Keith D. Spickelmier.*
10.3
Form of Letter Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Michael H. McConnell.*
10.4
Form of Letter Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Herbert C. Williamson.*
10.5
Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the Registrant.*
10.6
Form of Stock Escrow Agreement between the Registrant, Continental Stock Transfer & Trust Company and the Initial Stockholders.*
10.7
Form of Letter Agreement between 4350 Management, LLC and the Registrant regarding administrative support.*
10.8
Advance Agreement between the Registrant and James P. Wilson, dated May 18, 2005.*
10.9
Advance Agreement between the Registrant and Keith D. Spickelmier, dated May 18, 2005.*
10.10
Form of Registration Rights Agreement among the Registrant and the Initial Stockholders.*
10.11
Form of Unit Placement Agreement among each of James P. Wilson and Keith D. Spickelmier and Ferris, Baker Watts, Incorporated.*
10.12
Advance Agreement between the Registrant and James P. Wilson, dated December 20, 2005.*
10.13
Advance Agreement between the Registrant and Keith D. Spickelmier, dated December 20, 2005.*
10.14
Amended Marketing and Sales Partnership Agreement dated March 10, 2010 by and between the Company and Premier Capital, Ltd.**
10.15
Consulting Agreement between the Company and Brian McConnell, dated April 8, 2010***
Power of Attorney.*
31.1
Sarbanes Oxley Section 302 Certifications****
31.2
Sarbanes Oxley Section 302 Certifications****
Sarbanes Oxley Section 906 Certifications****
99.1
Audit Committee Charter*
99.2
Code of Ethics*
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Linkbase
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
* Incorporated herein by reference to the Company's Registration Statement on Form S-1, as amended, (File No. 333-125211)
** Incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 12, 2010
***Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q dated March 31, 2010
**** Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the first day of March 2013.
GOLDEN GATE HOMES, INC.
By: /s/ Steven Gidumal
Steven Gidumal
Chairman of the Board, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
NAME
POSITION
DATE
By: /s/ Steven Gidumal
Steven Gidumal
Chairman of the Board of Directors, Chief Executive Officer
and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
March 1, 2013
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Golden Gate Homes, Inc.
New York, New York
We have audited the accompanying balance sheets of Golden Gate Homes, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, shareholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of Golden Gate Homes, Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Golden Gate Homes, Inc. as of December 31, 2012 and 2011 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
By: /s/ Malone Bailey, LLP
www.malonebailey.com
Houston, Texas
March 1, 2013
GOLDEN GATE HOMES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011
The accompanying notes are an integral part of these audited financial statements.
GOLDEN GATE HOMES, INC.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2012 AND DECEMBER 31, 2011
The accompanying notes are an integral part of these audited financial statements.
GOLDEN GATE HOMES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2012 AND 2011
The accompanying notes are an integral part of these audited financial statements.
GOLDEN GATE HOMES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
The accompanying notes are an integral part of these audited financial statements.
GOLDEN GATE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Golden Gate Homes, Inc. (”we”, “our”, "the Company") markets and sells residential property located in California and Florida to buyers in mainland China through a broker headquartered in Hong Kong. The Company enlists the services of acquisition brokers who present the Company with residential properties that are typically owned by a developer or financial institution. The Company is currently focusing on “consignment” transactions whereby the Company enters into an agreement with the owner of the properties to market such properties overseas. Terms of the consignment agreement specify the price at which the Company has an option to purchase each of the properties, which the Company then seeks to re-sell to buyers in China. If the Company is successful in completing a major capital raising transaction, it will also consider purchasing similar assets for resale to the same target market.
REVENUE RECOGNITION
Our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties. Our policy follows the guidance from SEC Staff Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”). SAB 104 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. The Company books revenue at the close of escrow, after the sale of the property has been consummated and all fees paid and title recorded. Only after the money is exchanged by the buyer and seller at escrow does the Company recognize the revenue: the transaction happens simultaneously. The Company records revenue as the net difference between the sale price to the third-party buyer and the price paid to the developer for the option. For its asset management services, the asset management agreement provides for the Company to receive a portion of the fee for leasing properties to tenants. Revenue is booked only after the lease has been signed and the monthly rental has been collected from the tenant and the portion of the fee allocated to the Company for its services has been received. The Company considers the criteria established primarily by FASB ASC 605-45, Reporting Revenue Gross as a Principal versus Net as an Agent, in determining whether revenue should be recognized on a gross versus a net basis. Factors considered in determining if gross or net basis recognition is appropriate include whether the Company is primarily responsible to the client for the services, has discretion on vendor selection, or bears credit risk. The Company believes that the indicators under ASC 605-45 support net revenue presentation since the Company is not the primary obligor in the arrangement and does not have credit risk.
CONTINGENCIES
We account for claims and contingencies in accordance with FASB Accounting Standards Codification Topic 450 “Accounting for Contingencies” (“ASC 450”). ASC 450 requires that we record an estimated loss from a claim or loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for claims and contingencies requires us to use our judgment.
USE OF ESTIMATES
In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenue and expenses in the income statement. Actual results could differ from those estimates.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not. As of December 31, 2012, the Company had a net operating loss carry forward of approximately $1,727,000, which expires beginning 2027. The majority of the unused net operating loss carryforward is limited due to the change in control in 2009.
Deferred tax assets consisted of the following:
BASIC AND DILUTED NET INCOME PER SHARE
The basic net income per common share is computed by dividing the net income by the weighted average number of common shares outstanding. The diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common share that then shared in the earnings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flow.
NOTE 2 - EQUITY
In February 2011, the Company issued 25,000 common shares, valued at $6,250, to the same individual to whom it had issued shares in July 2010, for consulting work performed during the third and fourth fiscal quarters of 2010, which was accrued for in 2010, and an additional 7,500 shares, valued at $3,750 for consulting work performed during the first quarter of 2011. The consulting agreement with this individual was terminated on February 15, 2011. In addition, the Company issued 50,000 common shares as payment for an outstanding payable of $24,700 during the first quarter of 2011. The fair value of the stock was $37,000 and the loss on settlement was $12,300.
NOTE 3 - RENTAL GUARANTEE ADVANCES
The Company has ten properties being managed under its property management program. The Company has provided rental guarantees for a period of one year for 7% of the purchase price of the property for eight of these properties. Of these, four guarantees have expired without any obligation owed. Two other guarantees were subject to a loan advance repayment, of which the Company advanced one-half of the amount of such guarantee to the purchasers. These purchasers have agreed to reimburse the funds advanced for their rental guarantees from funds received from the rental of their properties over a period of 13.5 months for one property and 18 months for the other. At December 31, 2012, an aggregate of $4,710 was outstanding on the two advances. The Company reflects these advances on its balance sheet as loan advances. The Company expects that the full amount of each advance of rental guarantee will be repaid completely based on the current rent amounts. Of the two remaining properties with active rental guarantees, one is rented at prices higher than the respective rent guarantee, so there does not appear to be any liability to the Company unless the tenants fail to make their rent payments or terminate their leases. With respect to the second property, the rental guarantee amount may create a liability approximately $1,000 higher than the expected property management fees expected, but lower than the expected collective property management fees of all of the rental properties. Therefore, the Company has not reserved against any of these rent guarantees at this time. There may be situations in the future, however, that will require the Company to reserve against similar guarantees. Of the $6,052 reflected on the Company’s balance sheet as rental guarantee advances, $1,342 was for funds advanced by the Company to pay certain owners’ property taxes. These funds were settled with these property owners during the first quarter.
NOTE 4 - RELATED PARTY TRANSACTION
Expenses paid on behalf of the Company and funds contributed to the Company through GGH, Inc., the entity that held a controlling interest in the Company at the time of such contributions, are treated as contributed capital and reflected in additional paid-in capital. $20,000 contributed during 2011 is by a former director of the Company, who does not intend to be repaid for the amount after his departure.
During the year ended December 31, 2012, $4,000 was paid to a related party for providing us with certain storage space for corporate records and for reimbursement of other office expenses.
NOTE 5 - REVENUE
Our revenue is comprised of the following: