-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGmxA+Y6umN5UOn+CDrrvzVW7rhX1MJE8Jv0Hb1YrQQcG+5YiqwwcTjnZVbe4gqO w/y9lMDoDxzt608S7afXvQ== 0001144204-05-034942.txt : 20051114 0001144204-05-034942.hdr.sgml : 20051111 20051110194309 ACCESSION NUMBER: 0001144204-05-034942 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051018 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XERION ECOSOLUTIONS GROUP INC CENTRAL INDEX KEY: 0001000686 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 841286065 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26760 FILM NUMBER: 051195606 BUSINESS ADDRESS: STREET 1: SUITE 905, 102-4369 MAIN STREET CITY: WHISTLER STATE: A1 ZIP: V0N 1B4 BUSINESS PHONE: 604-902-0178 MAIL ADDRESS: STREET 1: SUITE 905, 102-4369 MAIN STREET CITY: WHISTLER STATE: A1 ZIP: V0N 1B4 FORMER COMPANY: FORMER CONFORMED NAME: IMMULABS CORP DATE OF NAME CHANGE: 20001031 FORMER COMPANY: FORMER CONFORMED NAME: NORTH AMERICAN RESORTS INC DATE OF NAME CHANGE: 19950915 8-K/A 1 v027807_8k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 October 18, 2005 ------------------ Date of Report (Date of earliest event reported) Xerion EcoSolutions Group Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Suite 905, 102-4369 Main Sreet Whistler, BC Canada V0N 1B4 --------------------------------------------------- (Address of principal executive offices) 604.902.0178 -------------------------------------------------- (Registrant's telephone number, including area code) N/A -------------------------------------------------------------- (Former name and former address, if changed since last report) Colorado 0-27351 84-1286065 - ---------------------------- --------------- -------------------- (State or other jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b)) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Information included in this Form 8-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Xerion EcoSolutions Group Inc. ("Xerion") and Town House Land Limited ("Town House") to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe Xerion's and Town House's future plans, strategies and expectations, are generally identifiable by use of the words "may," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Xerion's and Town House's actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, Xerion undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. Section 1 - Registrant's Business and Operations Item 1.01 Entry into a Material Definitive Agreement. General. Xerion EcoSolutions Group Inc. ("Xerion") entered into a definitive Stock Exchange Agreement (the "Agreement") under which Town House Land Limited ("Town House") will be acquired by Xerion in consideration of the issuance of common stock of Xerion representing ninety-seven percent (98.75%) ownership interest of Xerion to the owners of Town House and their designees. The closing of the Agreement was conditioned upon, among other things, customary closing conditions, including the satisfaction of both Xerion and Town House with their due diligence investigations of the other party. The closing occurred on October 31, 2005. A copy of the Agreement is attached to this Form 8-K current report as Exhibit 2.1 and is incorporated herein by reference as though fully set forth herein. The foregoing summary description of the Agreement and the transactions contemplated thereby is not intended to be complete and is qualified in its entirety by the complete text of the Agreement. BUSINESS The principal business operations of Town House is real estate development. Its operations are conducted by and through its subsidiaries, (i) Wuhan Pacific Real Estate Development Company Limited ("Wuhan Pacific") located in Hong Kong in The People's Republic of China (the "PRC"), (ii) Town House (Miami) Corporation, a Florida corporation, and (iii) Town House Land (USA) Inc., a California corporation. The principal executive offices of Town House in the PRC are at 128 Gloucester Road, Wanchai, Hong Kong, The People's Republic of China; telephone 011-852-2517-783. The corporate organization of Town House is as follows: --------------------- Town House --------------------- | - -------------------------------------------------------------------------------- | | | - --------------------- --------------------- --------------------- Town House (Miami) Wuhan Pacific Real Town House Land Corporation Estate Development (USA) Corporation - --------------------- Company Limited --------------------- --------------------- Town House is a limited liability company organized in 2003 in the Hong Kong Special Administrative Region in the PRC, as a holding company. Town House owns 97% of Wuhan Pacific which was organized in Hubei Province in the PRC as a limited liability company in 1995. Substantially all of the assets and operations of Town House in the PRC are conducted through Wuhan Pacific. Town House Miami Corporation is a Florida corporation organized on November 18, 2004. Wuhan Pacific Real Estate Development Company Limited Wuhan Pacific is one of the first privately owned property developers in Wuhan City in the PRC and is one of the largest property developers in Wuhan City, based on a list of top 100 property development enterprises in Wuhan City in terms of gross floor area ("GFA"), published by the Wuhan Statistics Bureau and the Development Research Center. It had engaged principally in the development and sale of high quality commercial and private residential properties catering to the middle-class residential property market in Wuhan City and in Yi Chang. Wuhan Pacific's portfolio of properties under development are currently all located in Wuhan City and Yi Chang, and target different segments within the mass residential property market, including young white color employees, middle to senior managers in enterprises, entrepreneurs and families with young children. These upwardly mobile people represent the emerging middle class in Wuhan City and are a growing source of demand in the mass residential property market. As of June 30, 2005, Wuhan Pacific reports that it has equity interests in six property development projects in Wuhan City, with an approximate GFA of 200,000 square meters and an aggregate site area of approximately 100,566 square meters. Wuhan Pacific has obtained land use rights certificates in respect of each of these six property development projects. In addition, Wuhan Pacific has not yet obtained land use rights certificates in respect of, but has interest in and plans to develop a further five projects in Wuhan City with an approximate GFA of 252,000 square meters and an aggregate site area of approximately 70,000 square meters. Since the relevant land use rights certificates have not yet been issued or obtained, no commercial value has been assigned to any of these five additional projects or in the calculation of their adjusted net tangible asset value. Wuhan Pacific aims to further solidify its position in Wuhan City, and also plans to expand its focus on property business to Yi Chang. Wuhan Pacific also indicates that it will pursue quality business opportunities in other fast growing cities in China, if market conditions are appropriate. Wuhan Pacific was organized as a limited liability company in The People's Republic of China ("PRC") on December 18, 1995. The primary purpose of Wuhan Pacific was real estate development including apartments, retail and commercial facilities, and mixed use buildings. The principal executive office of Wuhan Pacific is located at No. 250 Jianghan Road, 32 Diamond Mansion, Jiang'an District, Wuhan City, Hubei Province in the PRC. Property Development Wuhan Pacific is principally engaged in the design and construction of luxury apartment buildings and mixed use buildings in the City of Wuhan and the City of Yi Chang in the PRC. The apartments are primarily held for sale to middle income to upper level income customers. Certain properties developed by Wuhan Pacific are mixed-use properties that also include retail and commercial floors on the lower levels of the buildings. Information concerning Wuhan City Wuhan City, located in central inland China, has played an important role of connecting the east with the west, the south with the north in the PRC. Wuhan City, with an urban population of approximately 8 million, ranks as the sixth city among the top 25 cities in the PRC with favorable development potential. In 2001, the GDP of the city reached 134.8 billion Yuan (US$0.12 per one Yuan), or 12% higher than 2000; and the annual income of citizens of Wuhan City was 7,304 Yuan, or an increase of 8% over 2000. Located at the middle reaches of the Yangtze River, Wuhan is a thoroughfare to nine provinces in the PRC. The Beijing-Guangzhou Railway and the Yangtze River intersect in Wuhan City. The Beijing-Kowloon Railway and Wuhan-Guangzhou Railway also connect in the city. The Beijing-Zhuhai and Shanghai-Chengdu super highway also cross at Wuhan City. In addition, a high-speed railway along the Yangtze River is in the process of being constructed. This high-speed road, railway and river transportation methods make Wuhan a transportation hub. Wuhan is the largest logistics and commercial center in inland China. Commodities can easily be transported to 5 provinces around Wuhan, such as Hunan, Jiangxi, Anhui, Henan and Sichuan, which have a combined population of nearly 400 million. There are presently more than 10,000 commercial organizations, 105,000 business branches, and 8 department stores in Wuhan City. As an important industrial base in China, Wuhan City has a very solid foundation in either high-tech industry or traditional manufacturing. Along the 88 kilometer ring of the city, a series of industrial zones have been established, such as China Optical Valley, Sino-Citroen Automobile City, Taiwan Business Zone and Yangluo Development Zone. With 33 different sectors and more than 30,000 industrial enterprises, Wuhan City has businesses encompassing all industries, including iron and steel, automobile, machinery, petrochemical, optical telecom, Chinese and western medicine, biology engineering, textile, garment, food industry, etc. Wuhan City is a technology research and education center, with its research and education capacity ranked third in the country, behind Beijing and Shanghai. There are 35 universities in the city, serving approximately 300,000 students. There are 736 science research institutes and 10 national labs in Wuhan City. In recent years, the Wuhan Municipal Government has focused on policies favoring an open business environment and environmental renovation, and the investment environment of Wuhan City has been continuously improved. A series of important infrastructure projects have been finished, such as the Wuhan International Airport, Airport Super Highway, No. 1 Yangtze River Bridge, No. 3 Yangtze River Bridge, an extensive telephone system, a water plant, a power plant and a waist water treatment plant. Market The principal market of Town House for its real estate development activities has been in the City of Wuhan and Yi Chang in the PRC. The City of Wuhan is the capital of Hubei Province in central China. Wuhan is the sixth largest city in the PRC with a population of approximately 8,000,000. Wuhan is an important transportation center on the Jianhan Plain, sitting at the confluence of the Yangtze River, the Hanjiang River, and its longest branch - the Hansui River. The City of Wuhan is comprised of three cities: Hanyang, Wuchang and Hankou. Because of the significant economic growth and development of central China, the City of Wuhan has experienced increasing demand for luxury residential properties and for retail and commercial space. The concept of mixed use buildings with retail and commercial space on the street level and the lowest floors with luxury apartment units on the higher floors has become increasingly popular in the PRC. As a result, recent building activity of Town House has been designed with the mixed use concept as principal objective. Town House is in competition with other real estate development companies in the City of Wuhan, some of which are larger and have greater financial resources than Town House. Government Regulation Wuhan Pacific's projects in the PRC are subject to various laws and governmental regulations, such as zoning regulations, relating to its business operations and project developments. It must obtain and keep current various licenses, permits and regulatory approvals for its development projects. Wuhan Pacific believes that it is in compliance with all laws, rules and regulations applicable to its projects and that such laws, rules and regulations do not currently have a material impact on its operations. Due to the increasing levels of development in the areas of China where it currently operates, it is possible that new laws, rules and/or regulations may be adopted that could affect Wuhan Pacific's projects or proposed projects. The enactment of such laws, rules or regulations in the future could have a negative impact on its projected growth or profitability, which could decrease its projected revenues or increase its costs of doing business. Employees As of September 30, 2005, Town House had approximately 150 employees. No employee group is covered under a collective bargaining agreement. Town House and Wuhan Pacific believe their relationship with their employees is good. Legal Proceedings Town House and its subsidiaries are not a party to, nor are any of our respective properties the subject of, any material pending legal or arbitration proceedings. Risk Factors Expansion Risks. Town House anticipates that its proposed expansion of its real estate development activities will include the construction of new building projects. Town House's cost estimates and projected completion dates for construction of new building projects may change significantly as the projects progress. In addition, Town House's projects will entail significant construction risks, including shortages of materials or skilled labor, unforeseen environmental or engineering problems, weather interferences and unanticipated cost increases, any of which could have a material adverse effect on the projects and could delay their scheduled openings. A delay in scheduled openings will delay Town House's receipt of increased sales revenues. New Projects. The projects of Town House to finance, develop, and expand its real estate processing facilities will be subject to the many risks inherent in the rapid expansion of a high growth business enterprise, including unanticipated design, construction, regulatory and operating problems, and the significant risks commonly associated with implementing a marketing strategy in changing and expanding markets. There can be no assurance that any of these projects will become operational within the estimated time frames and projected budgets at the time Town House enters into a particular agreement, or at all. In addition, Town House may develop projects as joint ventures in an effort to reduce its financial commitment to individual projects. There can be no assurance that the significant expenditures required to expand its real estate processing plants will ultimately result in the establishment of increased profitable operations. When Town House's future expansion projects become operational, Town House will be required to add and train personnel, expand its management information systems and control expenses. If Town House does not successfully address Town House's increased management needs or Town House otherwise is unable to manage its growth effectively, Town House's operating results could be materially and adversely affected. Uncertainty of Market Acceptance. Town House is currently selling its developed properties principally in the City of Wuhan and the City of Yi Chang. Achieving market acceptance for Town House's properties, particularly in new markets, will require substantial marketing efforts and the expenditure of significant funds. There is substantial risk that any new markets may not accept or be as receptive to Town House's properties. Market acceptance of Town House's current and proposed properties will depend, in large part, upon the ability of Town House to inform potential customers that the distinctive characteristics of its properties make them superior to competitive properties and justify their pricing. There can be no assurance that Town House's current and proposed properties will be accepted by consumers or that any of Town House's current or proposed properties will be able to compete effectively against other properties. Lack of market acceptance of Town House's properties would have a material adverse effect on Town House. Changing Consumer Preferences. As is the case with other companies new real estate developments, Town House is subject to changing consumer preferences and location-related concerns. Sales Force. Town House intends to hire additional sales personnel. There is no assurance that hiring these additional sales people will result in increased sales. Town House anticipates using independent sales agents to sell and distribute its real estate development projects. Town House cannot predict whether it will be able to obtain and maintain satisfactory sales arrangements and the failure to do so could have a material adverse effect on its business, operations and finances. Geographic Concentration; Fluctuations in Regional Economic Conditions. Nearly all of Town House's sales are concentrated in the central area of the PRC. Accordingly, Town House is susceptible to fluctuations in its business caused by adverse economic conditions in this region. Difficult economic conditions in other geographic areas into which Town House may expand may also adversely affect its business, operations and finances. Dependence on Executives. Town House is highly dependent on the services of Mr. Fang Zhong , Mr. Fang Weifeng, and Mr. Fang Weijun, and the loss of their services would have a material adverse impact on the operations of Town House. They have been primarily responsible for the development of Town House and the development and marketing of its real estate projects. Town House has not applied for key-man life insurance on the lives of these executives, but may do so in the future. Competition. The real estate business is highly competitive and, therefore, Town House faces substantial competition in connection with the marketing and sale of its projects. In general, real estate properties are price sensitive and affected by many factors beyond the control of Town House, including changes in consumer tastes, fluctuating commodity prices and changes in supply due to weather, production, and natural disasters. Town House's real estate properties face competition from other developers in its marketing areas; Most of Town House's competitors are well established, have greater financial, marketing, personnel and other resources, have been in business for longer periods of time than Town House, and have projects that have gained wide customer acceptance in the marketplace. The largest competitors of Town House are state-owned companies owned by the government of the PRC. Large foreign real estate companies have also entered the real estate industry in the PRC. The greater financial resources of such competitors will permit them to procure properties and to implement extensive marketing and promotional programs, both generally and in direct response to advertising claims by Town House. Lack of Property and General Liability Insurance. Town House and its subsidiaries are self-insured, and they do not carry any property insurance, general liability insurance, or any other insurance that covers the risks of their business operations. As a result, any material loss or damage to its properties or other assets, or personal injuries arising from its business operations would have a material adverse affect on its financial condition and operations. Government Regulation. Town House is subject to extensive regulation by the PRC and by other province, county and local authorities in jurisdictions in which its properties are sold. Town House believes that it is currently in substantial compliance with all material governmental laws and regulations and maintains all material permits and licenses relating to its operations. Nevertheless, there can be no assurance that Town House will continue to be in substantial compliance with current laws and regulations, or whether Town House will be able to comply with any future laws and regulations. To the extent that new regulations are adopted, Town House will be required to conform its activities in order to comply with such regulations. Failure by Town House to comply with applicable laws and regulations could subject Town House to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on its business, operations and finances. Doing Business in the PRC. Doing business in the PRC involves various risks including internal and international political risks, evolving national economic policies as well as financial accounting standards, expropriation and the potential for a reversal in economic conditions. Since the late 1970s, the government of the PRC has been reforming the PRC economic system. These reforms have resulted in significant economic growth and social progress. Although we believe that economic reform and the macroeconomic policies and measures adopted by the current PRC government will continue to have a positive effect on economic development in the PRC and that we will continue to benefit from such policies and measures. These policies and measure may from time to time be modified or revised. Adverse changes in economic policies of the PRC government or in the laws and regulations, if any, could have a material adverse effect on the overall economic growth of the PRC, and could adversely affect our business operations. The PRC currency, "Renminbi", is not a freely convertible currency, which could limit our ability to obtain sufficient foreign currency to support our business operations in the future. Town House relies on the PRC government's foreign currency conversion policies, which may change at any time, in regard to our currency exchange needs. We receive substantially all of our revenues in Renminbi, which is not freely convertible into other foreign currencies. In the PRC, the government has control over Renminbi reserves through, among other things, direct regulation of the conversion or Renminbi into other foreign currencies and restrictions on foreign imports. Although foreign currencies which are required for "current account" transactions can be bought freely at authorized PRC banks, the proper procedural requirements prescribed by PRC law must be met. At the same time, PRC companies are also required to sell their foreign exchange earnings to authorized PRC banks and the purchase of foreign currencies for capital account transactions still requires prior approval of the PRC government. This type of heavy regulation by the PRC government of foreign currency exchange restricts certain of our business operations and a change in any of these government policies, or any other, could further negatively impact our operations. Fluctuations in the exchange rate between the PRC currency and the United States dollar could adversely affect its operating results. The functional currency of our operations in the PRC is "Renminbi". Results of our operations are translated at average exchange rates into United States dollars for purposes of reporting results. As a result, fluctuations in exchange rates may adversely affect our expenses and results of operations as well as the value of our assets and liabilities. Fluctuations may adversely affect the comparability of period-to-period results. Although we may use hedging techniques in the future (which we currently do not use), we may not be able to eliminate the effects of currency fluctuations. Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock prices. As a company based in the PRC, our shareholders may have greater difficulty in obtaining information about us on a timely basis than would shareholders of a U.S.-based company. Our operations will continue to be conducted in the PRC and shareholders may have difficulty in obtaining information about us from sources other than us. Information available from newspapers, trade journals, or local, regional or national regulatory agencies such as issuance of construction permits, contract awards for development projects, etc. will not be readily available to shareholders. Shareholders will be dependent upon our management for reports of our progress, development, activities and expenditure of proceeds. In order for the PRC subsidiaries of Town House to pay dividends in the United States, a conversion of Renminbi into US dollars is required. Under current PRC law, the conversion of Renminbi into foreign currency generally requires government consent. Government authorities may impose restrictions that could have a negative impact in the future on the conversion process and upon the ability of Town House to meet its cash needs, and to pay dividends to its shareholders. However, the subsidiaries of Town House are presently classified as a wholly owned foreign enterprise ("WOFE") in the PRC that have verifiable foreign investment in the PRC, funding having been made through an official PRC banking channel. Because the subsidiaries of Town House qualify for treatment as a WOFE, the subsidiaries can declare dividends and their funds can be repatriated to Town House in the United States under current laws and regulations in the PRC. Dependence on Additional Capital. Town House's expansion plans will require substantial capital investment. Town House intends to pay for its expansion using cash, capital stock, notes and/or assumption of indebtedness. Most of the proceeds from this offering will be required by Town House for, among other purposes, establishing additional production locations; acquiring equipment and funding inventory, and work in process. The cash generated internally and cash available from the offering may not be sufficient to provide all of the capital required for such purposes and future operations. Town House may require additional debt and/or equity financing in order to provide for such capital. There can be no assurance, however, that such financing will be available on terms satisfactory to Town House, if at all. Failure by Town House to obtain sufficient additional capital in the future could limit Town House's ability to fully implement its business strategy. Debt financings, if available, may result in increased interest and amortization expense, increased leverage, decreased income available to fund further acquisitions and expansion, and may limit Town House's ability to withstand competitive pressures and render Town House more vulnerable to economic downturns. Future equity financings may dilute the equity interest of existing shares of Common Stock. Management of Town House Directors and Officers. The following table sets forth certain information regarding the executive officers and directors of Town House. All officers serve at the pleasure of the Board of Directors. Directors serve until the election and qualification of their successors. Name Age Position - ---- --- -------- Fang Zhong 41 Chairman, Director, Chief Executive Officer and President Fang Weifeng 35 Director and Vice President Fang Weijun 38 Director and Vice President Hu Min 25 Director and Vice President The following is information of the business experience of each director and officer of Town House. Mr. Fang Zhong is the founder and has been the Chairman of the Board, Chief Executive Officer and President of Town House since its organization in 2003. From 1995 to the present, he has been the Chief Executive Officer and a director of Wuhan Pacific which is the principal operating subsidiary of Town House. Mr. Fang Zhong received Bachelor of Science degree in industrial and domestic architecture from the Wuhan Institute of Urban Construction. He also participated in the MBA program at Northern Jiaotong University. He has received various awards, including "Young Entrepreneur in Central-south Area" of the PRC, and "One of Ten Excellent Young Entrepreneurs Leading Private Enterprises in Wuhan". He also holds various significant positions such as the Standing Director Hubei Physical Culture Foundation, Deputy to Jiang'an District People's Congress, a Standing Member to Jiang'an District Political Consultative Conference, and the Vice Chairman of Jiang'an District Young People Association, etc. Mr. Fang Wei Feng has been employed as the manager of the materials department and construction operations responsible for construction material purchases and distribution, since 1996. He became a director and Vice President-Construction Operations of Town House in 2003. Mr. Fan Wei Jun has been employed as the manager of the engineering department of Wuhan Pacific, since 2000. He has been an employee of Wuhan Pacific for over ten (10) years. He became the General Manager of Operations of Town House in 2003. He attended Zhengzhou College and graduated in 1985. Ms. Hu Min has been employed as the Human Resources Manager of Wuhan Pacific since 2000. She graduated from Wuhan University in 2001. Mr. Fang Zhong is married to Ms. Hu Min. Fang Zhong, Fang Weifeng and Fang Weijun are brothers. Certain Federal Income Tax Consequences Xerion has not sought an opinion as to the tax consequences of the reverse merger because the reverse merger will be treated for tax purposes as an acquisition of all of the stock of Town House in an exchange for shares of Common Stock of Xerion. Xerion believes that the acquisition will constitute a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and accordingly, Xerion will not recognize any gain or loss on such exchange. IRC sections 354 and 368 state that no gain or loss shall be recognized (by the corporations) if the acquiring corporation acquires the target's stock solely in exchange for its own voting stock and the acquiring corporation is in control of the target immediately after the acquisition. IRC section 368(c) defines control to represent 80% of the total combined voting power of all classes of stock. The acquisition of Town House as a wholly-owned subsidiary is considered to be a reverse acquisition in which Xerion will acquire control of Town House. The shares issued by Xerion to be distributed to Town House will be equivalent voting shares. The Exchange Agreement appears to satisfy these IRC sections. In addition to the formal requirements of the IRC, the transaction must meet certain substantive non-statutory requirements developed through case law and IRS regulations. These non-statutory rules may change what is in form a reorganization into a taxable transaction. These two requirements are "Continuity of Interest" and "Continuity of Business Enterprise." Continuity of Interest requires that a substantial part of the value of the proprietary interest in the target must be preserved. The Exchange Agreement appears to satisfy this requirement. Continuity of Business Enterprise requires the acquiring corporation to continue to use the target's historic business or a significant portion of the target's historic business assets in the business. Xerion will preserve Town House's business and continue to use Town House's assets in the wholly-owned Town House subsidiary. In addition to these considerations, Xerion expects that its ability to utilize on an annual basis its net operating loss carry-forward ("NOL") will be eliminated entirely by the acquisition. This is due to the fact that Xerion will not be considered during the two-year periods following the acquisition, to have continued Xerion's historic business or to have used a significant portion of Xerion's assets. REPORTS OF BENEFICIAL OWNERSHIP Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than ten percent (10%) of a registered class of its equity securities to file reports of ownership and changes in their ownership on Form(s) 3, 4, and 5 with the U.S. Securities and Exchange Commission, and forward copies of such filings to the Company. Based on the copies of filings received by the Company, each of the new officers and directors filed a Form 3 with the Securities and Exchange Commission reporting their respective stock ownership in the Company. All of these filings were made on November 2, 2005, the date the reports were due. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Colorado Business Corporation Act (the "Act"), Sections 7-109-101 through 7-109-107, contain indemnification provisions which permit indemnification by a Colorado corporation of a director or an officer against liability incurred in a proceeding if the person conducted himself or herself in good faith and reasonably believed his or her conduct was in the corporation's best interests, and that in all other cases, that his or her conduct was at least not opposed to the corporation's best interests; and in the case of a criminal proceeding, the person had no reasonable cause to believe that his or her conduct was unlawful. Section 7-109-103 of the Act provides that a corporation shall indemnify a person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a director, against reasonable expenses incurred by him or her in connection with the proceeding. Section 1-109-110 of the Act provides that a corporation shall give written notice to the shareholders if the corporation indemnifies or advances expenses to a director with or before the notice of the next shareholders' meeting. The fifth Article of the Articles of Incorporation of the Company provides that the Company shall have the right to indemnify any person to the fullest extent allowed by the laws of the State of Colorado, except as may be limited by the By-Laws of the Company. Article V of the By-Laws of the Company provides that the Company shall indemnify directors and officers for expenses and liabilities in such manner and to the extent provided by Colorado statutes. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and, is therefore, unenforceable. EXECUTIVE COMPENSATION COMPENSATION The following table provides certain summary information concerning the compensation earned for services rendered in all capacities to Town House and its subsidiaries for the fiscal years ended December 31, 2004, 2003, and 2002, by the person serving in the capacity of chief executive officer and the other most highly compensated executive officers of Town House. This information includes the dollar amount of annual base salaries. SUMMARY COMPENSATION TABLE The following table discloses compensation during the years ended December 31, 2004, 2003 and 2002, for the Chief Executive Officers of the Company and/or Town House.
- ------------------------- -------- ------------------------------------- -------------------------------------------- ------------- Long-Term Compensation -------------------------------------------- Annual compensation Awards Payouts - ------------------------- -------- ------------------------------------- -------------------------------- ----------- ------------- Other Securities Name and Annual Restricted Underlying All Other Principal Fiscal Compen- Stock Options/ LTIP Compen- Position Year Salary Bonus sation Awards SARs Payouts sation - ------------------------ --------- ----------- ------------- ----------- -------------- ----------------- ----------- ------------- Fang Zhong (1) 2004 $12,480 $ 0 $ 0 - - - - - - - - - - - - Chairman, Director, 2003 $10,985 $ 0 $ 0 - - - - - - - - - - - - Chief Executive 2002 $ 6,197 $ 0 $ 0 - - - - - - - - - - - - Officer, President and Treasurer - ------------------------ --------- ----------- ------------- ----------- -------------- ----------------- ----------- ------------- - ------------------------ --------- ----------- ------------- ----------- -------------- ----------------- ----------- ------------- Benjamin Traub 2004 $60,000 $ 0 $ 0 - - - - - - - - - - - - Director and former 2003 $60,000 $ 0 $ 0 - - - 150,000 shares - - - - - - Chief Executive Officer of common stock and President 2002 $ 0 $ 0 $ 0 - - - - - - - - - - ------------------------ --------- ----------- ------------- ----------- -------------- ----------------- ----------- -------------
(1) Excludes use of an automobile provided by Town House and certain personal benefits that are valued at less than levels which would otherwise require disclosure under the Rules of the U.S. Securities and Exchange Commission. STOCK OPTION PLAN The Company has not adopted any stock option plan and no options have been issued, or are proposed to be issued, to the named directors and executive officers of the Company at the present time. EMPLOYMENT CONTRACTS The Company has no employment agreements or consulting agreements with any of the directors or officers of the Company. BENEFIT PLANS The Company does not have any pension plan, profit sharing plan, or similar plans for the benefit of its officers, directors or employees. However, the Company may establish such plans in the future. COMPENSATION OF DIRECTORS The Company has not adopted any plan or arrangement for compensating directors for their services. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of October 31, 2005, the number and percentage of the 227,321,840 shares of the total outstanding common stock of the Company that were beneficially owned by each person who is currently a director or director-elect (who are also all of the executive officers). Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned. NAME AND ADDRESS COMMON STOCK PERCENT OF CLASS - ---------------- ------------ ---------------- Fang Zhong (1)(3) 187,640,540 (2) 82.5% (2) Suite A-C, 20/F Neich Tower 128 Gloucester Road Wanchai, Hong Kong The People's Republic of China Hu Min (1) 6,201,340 2.73% Suite A-C, 20/F Neich Tower 128 Gloucester Road Wanchai, Hong Kong The People's Republic of China Fang Weifeng (3) 6,201,340 2.73% Suite A-C, 20/F Neich Tower 128 Gloucester Road Wanchai, Hong Kong The People's Republic of China Fang Weijun (3) 6,201,340 2.73% Suite A-C, 20/F Neich Tower 128 Gloucester Road Wanchai, Hong Kong The People's Republic of China - ------------------------------------------------ (1) Mr. Fang Zhong and Ms. Hu Min are husband and wife. (2) Includes 6,201,340 shares of common stock of the Company held in trust for the minor nephew of Mr. Fang. (3) Mr. Fang Zhong and, Mr. Fang Weifent, and Mr. Fang Weijun are brothers. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the past two years ended December 31, 2004 and 2003, and during the ten month period ended October 31, 2005, Town House has received from time to time short-term advances for general corporate purposes from Mr. Fang Zhong, a director and an officer of Town House. Town House has previously established the practice of making advances for business related costs and expenses to its executive officers. A summary of advances to and from the executive officers and directors of Town House during 2004 and 2003 and during the interim period ended June 30, 2005 (unaudited) are as follows: Maximum outstanding balance during the period Balance at December 31, ended Security Name 2004 2003 June 30, 2005 held - ---- ---- ---- ------------- ---- Fang Zhong $(2,022,604) $(2,399,321) $(1,671,077) none Hu Min $ 5,970 $ (41,667) $ 5,970 none Fang Weijun $ (440) $ (48,077) $ (440) none Fang Wei Feng $ (77,744) $ (125,826) $ (77,744) none - -------------------------------------------------------------------------------- Item 7.01 Regulation FD Disclosure. A press release dated November 10, 2005, discussing the Agreement is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. The information contained in this Item 7.01, including the accompanying exhibit, is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or otherwise subject to the liability of that section. The information contained in this Item 7.01, including the accompanying exhibit, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in such filing. Item 9.01 Financial Statements and Exhibits. (a) Financial statements of business acquired: The following financial statements are provided with this Form 8-K current report: 1. The audited consolidated financial statements of Town House Land Limited for its fiscal years ended December 31, 2004 and 2003; and 2. The unaudited consolidated financial statements of Town House Land Limited for the six month period ended June 30, 2005. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 TOWN HOUSE LAND LIMITED AND SUBSIDIARY TABLE OF CONTENTS PAGE Independent Auditors' Report.............................. 1 Consolidated Balance Sheets, December 31, 2004 and 2003............................. 2 Consolidated Statements of Operations, For the Years Ended December 31, 2004 and 2003......... 3 Consolidated Statements of Members' Equity For the Years Ended December 31, 2004 and 2003......... 4 Consolidated Statements of Cash Flows For the Years Ended December 31, 2004 and 2003......... 5 to 6 Notes to the Consolidated Financial Statements............7 to 21 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND MEMBERS OF TOWN HOUSE LAND COMPANY LIMITED (Incorporated in Hong Kong with limited liability) We have audited the accompanying consolidated balance sheets of Town House Land Limited and subsidiaries (the "Company") as of December 31, 2004 and 2003 and the related consolidated statements of operations, statements of members' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Town House Land Limited and subsidiaries as of December 31, 2004 and 2003 and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Oklahoma City, Oklahoma May 11, 2005 1 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (Expressed in US dollars)
2004 2003 ----------- ----------- ASSETS Current Assets: Cash and equivalents $ 4,251,678 $ 1,159,310 Restricted cash -- 203,659 Accounts receivable, net 1,013,244 3,251,307 Properties held for resale 4,293,627 8,342,484 Advances to suppliers 38,142 407,189 Deferred offering costs -- 280,891 Construction-in-progress - current 6,161,736 2,311,819 ----------- ----------- Total current assets 15,758,427 15,956,659 ----------- ----------- Property and Equipment - net of accumulated depreciation 2,950,831 1,057,200 ----------- ----------- Construction-in-Progress - non-current 931,433 931,433 ----------- ----------- $19,640,691 $17,945,292 =========== =========== LIABILITIES AND MEMBERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 1,753,935 $ 419,656 Advances from buyers 1,230,058 728,391 Amounts due to directors 2,077,849 2,709,075 Enterprise taxes payable 1,843,334 1,006,201 Other tax payables 1,342,573 400,441 Short-term loans -- 791,063 Current portion of long-term debt 66,033 2,253,201 ----------- ----------- Total current liabilities 8,313,782 8,308,028 ----------- ----------- Long-Term Debt - net of current portion shown 816,509 906,686 ----------- ----------- Minority Interest 383,057 308,695 ----------- ----------- Members' Equity: Share capital 62,180 62,180 Additional paid-in capital 5,857,936 5,857,936 Capital reserve 1,316,042 997,928 Retained profit 2,891,185 1,503,839 ----------- ----------- Total members' equity 10,127,343 8,421,883 ----------- ----------- $19,640,691 $17,945,292 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (Expressed in US dollars)
2004 2003 ------------ ------------ Sales Revenues $ 17,346,745 $ 9,080,701 Cost of Properties Sold 11,315,090 5,319,978 ------------ ------------ Gross Profit 6,031,655 3,760,723 ------------ ------------ Selling General and Administrative Expenses: Selling expenses 1,381,007 439,006 Depreciation expense 80,709 69,664 General and administrative expenses 1,701,640 101,308 ------------ ------------ 3,163,356 609,978 ------------ ------------ Income from Operations 2,868,299 3,150,745 ------------ ------------ Other Income (expense) Other revenues 42,909 14,065 Interest and finance costs (272,721) (326,849) ------------ ------------ (229,812) (312,784) ------------ ------------ Net Income before Income Taxes and Minority Interest 2,638,487 2,837,961 Provision for Income Taxes (858,665) (179,798) ------------ ------------ Net Income before Minority Interest 1,779,822 2,658,163 Minority Interest in Earnings (74,362) (80,325) ------------ ------------ Net Income $ 1,705,460 $ 2,577,838 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (Expressed in US dollars)
Total members' Additional equity and Share Paid-in Capital Retained Minority Minority capital Capital Reserve Profit/(Loss) Interest Interest --------- ------------ ------------ -------------- ------------- ------------- Balance at December 31, 2002 $ 62,180 $ 5,795,308 $ 519,260 $ 1,007,233 $ 228,370 $ 7,612,351 Net income for the year ended December 31, 2003 -- -- -- 2,577,838 80,325 2,658,163 Distribution to members 62,628 (1,602,564) (1,539,936) Transfer to capital reserve -- -- 478,668 (478,668) - --------- ------------ ------------ -------------- ------------- ------------- 62,180 997,928 1,503,839 308,695 8,730,578 Balance at December 31, 2003 5,857,936 Net income for the year ended December 31, 2004 -- -- -- 1,705,460 74,362 1,779,822 Transfer to capital reserve -- -- 318,114 (318,114) -- -- --------- ------------ ------------ -------------- ------------- ------------- Balance at December 31, 2004 $ 62,180 $ 5,857,936 $ 1,316,042 $ 2,891,185 $ 383,057 $ 10,510,400 ========= ============ ============ ============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 4 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (Expressed in US dollars)
2004 2003 ----------- ----------- Cash flows from operating activities Net income $ 1,705,460 $ 2,577,838 Adjustments to reconcile net profit to net cash provided by operating activities Depreciation 80,709 69,664 Minority interest in earnings 74,362 80,325 Changes in: Restricted cash 203,659 (201,617) Accounts receivable, net and other receivables 2,238,063 (2,798,591) Properties held for resale 4,048,857 4,331,189 Advances to suppliers 369,047 (407,189) Construction-in-progress (3,849,917) (678,556) Deferred offering cost 280,891 (280,891) Accounts payable and other payables 1,334,279 303,955 Amounts due to directors (631,226) 1,288,042 Advances from buyers 501,667 (1,116,625) Deferred tax expenses 837,133 179,798 Other tax payables 942,132 253,058 ----------- ----------- Net cash provided by operating activities 8,135,116 3,600,400 ----------- ----------- Cash flows from investing activities Purchases of fixed assets (1,974,340) (9,331) ----------- ----------- Net cash (used in) investing activities (1,974,340) (9,331) ----------- ----------- Cash flows from financing activities Loan proceeds 20,415 1,292,271 Principal loans repayments (3,088,823) (2,484,096) Member capital contributions -- 62,628 Distribution to members -- (1,602,564) ----------- ----------- Net cash (used in) financing activities (3,068,408) (2,731,761) ----------- ----------- Net increase in cash 3,092,368 859,308 Cash at beginning of year 1,159,310 300,002 ----------- ----------- Cash at end of year $ 4,251,678 $ 1,159,310 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES Supplemental Disclosure of Consolidated Statement of Cash Flows Year ended December 31, 2004 (Expressed in US dollars) 2004 2003 -------- -------- Supplemental Disclosure of Cash Flow information Interest paid $246,107 $395,134 ======== ======== Enterprise income taxes paid $ 21,522 $633,656 ======== ======== Supplemental disclosure of non-cash investing and financing activities: During the year ended December 31, 2004, the Company transferred car park spaces in Diamond Mansion Phase 2, at cost of $1,420,080 from construction-in-progress to fixed assets. During the year ended December 31, 2003, the Company transferred two floors of the commercial complex in Diamond Mansion Phase 1, at a net book value of $1,929,295 from property and equipment to properties held for resale. During 2003, the Members of 97% of the registered capital of Wuhan transferred their interests to Town House Land Limited ("Town House") in a transaction treated as a recapitalization of Wuhan. In connection with that acquisition, the former Wuhan members, who became members in Town House, were to receive cash of $1,602,564, $62,628 of which was used to repay balances due from directors by Town House prior to the acquisition and the balance was treated as an increase in payables to directors at December 31, 2003. The accompanying notes are an integral part of these consolidated financial statements. 6 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 1. DESCRIPTION OF BUSINESS Organizational Structure Wuhan Town House Land Limited ("Wuhan Town House") (formerly: Wuhan Pacific Real Estate Development Company Limited) was registered as a formal third level property Company in Hubei Province, in the People's Republic of China as a limited liability company (in which investors' potential losses are limited to their capital contributions) on December 18, 1995 with a registered capital of $1,207,729 (Rmb.10,000,000) and a defined period of existence of 14 years to December 18, 2009. To meet the qualifications of third level property company, the company must (1) have registered capital of Rmb.10,000,000, (2) have engineering and staff of not less that 12 people, (3) should have completed at lease 50,000 square meters of accumulated development area, and (4) have a 100% passing rate in construction quality and 10% ranked as excellent. Subsequent recapitalizations during 2000 increased Wuhan Town House's registered capital to $6,038,647 and changed is classification to a second level property company. To meet the qualifications of a second level property company, the company must (1) have registered capital of Rmb.40,000,000, (2) have engineering and management staff of not less than 24 people, (3) should have completed 150,000 square meters of accumulated areas completed within three years, (4) 100% pass rate in construction quality with 10% ranked as excellent, and (5) at least three years experience in property development. On August 15, 2003, Wuhan Town House entered into a reverse merger agreement with Town House Land Limited ("Town House Land"). At December 31, 2004 Town House Land held 97% of the registered capital of Wuhan Town House, directly held 100% of the equity in Town House Land (Miami) Corporation and indirectly 97% of the equity in Town House Land (USA) Inc. Collectively hereinafter, Town House Land, Wuhan Town House, Town House Land (Miami) Corporation and Town House Land (USA), Inc., are referred to as "the Company". Town House Land (formerly: Hong Kong Window of the World Apparel Co., Limited) was incorporated in Hong Kong, as a private limited liability company on August 13, 2001 with an authorized capital of $64,103 (HK$500,000) divided into 500,000 ordinary shares of par value $0.12 (HK$1.00) each. Town House Land Limited ("Town House Land") changed to its present name on August 13, 2003. On August 15, 2003, Town House Land acquired 97% of the outstanding registered capital of Wuhan Town House Land. Terms of the transaction call for Town House Land to pay $1,602,564 in cash plus the contribution of an additional $5,857,488 in share capital in Town House Land as consideration for the acquisition of the 97% interest in Wuhan Town House's registered capital. For financial reporting purposes, Wuhan Town House was considered to be the acquiring entity and the additional cash consideration paid was treated as a distribution to members. Town House Land had no operations prior to this reverse acquisition and there was substantially no change in ownership from that of Wuhan Town House as a result of this transaction. On October 10, 2003 Wuhan City Foreign Investment Bureau approved the registration of Wuhan Town House Land as a Sino Foreign Joint Investment Enterprise with a defined period of existence of 20 years to October 27, 2023. 7 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 1. DESCRIPTION OF BUSINESS - Continued Pursuant to the approval of Wuhan City Industrial and Commercial Administrative Bureau on February 20, 2004 Wuhan Pacific Real Estate Development Company Limited changed its name to Wuhan Town House Land Limited. The Company's principal activity is the development and sale of commercial and residential real estate. The Company's principal country of operations is The People's Republic of China ("PRC"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies: Consolidation Policy - The consolidated financial statements include the accounts of Town House and Wuhan Town House from August 15, 2003 forward and Town House Land (Miami) Corporation and Town House Land (USA) Inc., since their incorporation. Prior to August 15, 2003, the financial statements reflect the activity of Wuhan Town House as adjusted for the effects of the recapitalization of August 15, 2003. All significant inter-company transactions and balances within the Company are eliminated on consolidation. Cash and Equivalents - The Company considers all highly liquid debt instruments purchased with maturity period of three months or less to be cash equivalents. The carrying amounts reported in the accompanying consolidated balance sheet for cash and cash equivalents approximate their fair value. The Company has restricted cash in accordance with the loan covenants. Accounts Receivable - The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. Accounts receivable in the balance sheet is stated net of such provision. Properties Held for Sale - Properties held for sale are comprised of properties held for sale and repossessed properties held for resale and are stated at the lower of cost or net realizable value. Cost includes acquisition costs of land use rights, development expenditure, interests and any overhead costs incurred in bringing the developed properties to their present location and condition. Net realizable value is determined by reference to management estimates based on prevailing market conditions. Capital Reserve - Capital reserve represents that amount of reserve appropriated from the net distributable profit after income tax in each year when a net profit after operations is generated. In accordance with the provisions of the Company's Memorandum and Articles of Association, the Company is required to appropriate 15% of the net distributable profit after enterprises income tax to capital reserve. One-half of the capital reserve may be used for staff welfare payments and the balance one-half may be transferred back to the statement of operations to mitigate the losses from operations. The Company shall not be required to appropriate any amount to capital reserve when the balance standing in capital reserve is equal to or exceeds 50% of the registered capital. 8 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Property and Equipment - Property and equipment are recorded at cost and are being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis for both financial and income tax reporting purposes over useful lives as follows: Building and land rights 40 years Equipment 5 years Motor vehicles 5-8 years Office furniture and fixtures 5 years Repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. Property and equipment are evaluated annually for any impairment in value. Where the recoverable amount of any property and equipment is determined to have declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. There were no property and equipment impairments recognized during the years ended December 31, 2004 and 2003. Construction-In-Progress - Properties currently under development are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including land rights cost, development expenditure, professional fees and during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to properties held for sale. As of December 31, 2004, one construction project is reflected as long-term as further development has ceased until such time as new access roads are completed by the Wuhan City Government. Management anticipates these roads will be completed in the second half of 2005 at which time construction should resume on this project. Related Companies - A related company is a company in which the director has beneficial interests in and in which the company has significant influence. Income Recognition - Revenue from the sale of properties is recognized when the following four criteria are met: (1) a sale is consummated, (2) the buyers initial and continuing investments are adequate to demonstrate a commitment to pay for the property, (3) the seller's receivable is not subject to future subordination, and (4) the seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. Interest income is recognized when earned, taking into account the average principal amounts outstanding and the interest rates applicable. Cost of Properties Sold - The cost of goods sold includes the carrying amount of the properties being sold and the business taxes paid by the Company in connection with the sales. Business taxes included in cost of sales were $1,128,870 and $403,922 for the years ended December 31, 2004 and 2003, respectively. 9 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Foreign Currencies - These financial statements have been prepared in U.S. dollars. The functional currencies for Town House and Wuhan Pacific are the "Hong Kong dollar" and "Renminbi" or "Yuan", respectively. Nonmonetary assets and liabilities are translated at historical rates, monetary assets and liabilities are translated at the exchange rates in effect at the end of the year, and income statement accounts are translated at average exchange rates. There were no material translation gains or losses during the years ended December 31, 2004 and 2003 as the Renminbi was tied to the U.S. Dollar during the time period covered in these financial statements. Taxation - Taxation on overseas profits has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the countries in which the Company operates. Provision for The People's Republic of China enterprise income tax is calculated at the prevailing rate based on the estimated assessable profits less available tax relief for losses brought forward. Enterprise income tax Under the Provisional Regulations of The People's Republic of China Concerning Income Tax on Enterprises promulgated by the State Council and which came into effect on January 1, 1994, income tax is payable by enterprises at a rate of 33% of their taxable income. Preferential tax treatment may, however, be granted pursuant to any law or regulations from time to time promulgated by the State Council. For the year ended December 31, 2004, the Company has been granted the privilege of computing the gross profit margins on real estate development sales at 15% of sales and computed the enterprise income tax at 33% on only 15% of sales. Enterprise income tax ("EIT") is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes. Retirement Benefit Costs - According to The People's Republic of China regulations on pension, the Company contributes to a defined contribution retirement plan organized by municipal government in the province in which the Company was registered and all qualified employees are eligible to participate in the plan. Contributions to the plan are calculated at 20% or 26% of the employees' salaries above a fixed threshold amount and the employees contribute 6% while the Company contributes the balance contribution of 14% or 20%. The Company has no other material obligation for the payment of retirement benefits beyond the annual contributions under this plan. For the years ended December 31, 2004 and 2003, the Company's pension cost charged to the statements of operations under the plan amounted to $5,974 and $1,814, respectively. Fair Value of Financial Instruments - The carrying amounts of certain financial instruments, including cash, accounts receivable, commercial notes receivable, other receivables, accounts payable, commercial notes payable, accrued expenses, and other payables approximate their fair values as of December 31, 2004 because of the relatively short-term maturity of these instruments. 10 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Use of Estimates - The preparation of financial statements in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates related to allowance for uncollectible accounts receivable, depreciation, costs to complete construction in progress, taxes, and contingencies. Estimates may be adjusted as more current information becomes available, and any adjustment could be significant. Recent Accounting Pronouncements - In April 2003, the Financial Accounting Standards Board issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments and for hedging actives under FASB No. 133, Accounting for Derivative Instruments and Hedging Activities. As of December 31, 2004, the Company had no derivative or hedging activity. In May 2003, the Financial Accounting Standards Board issued SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity. This standard establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. As of December 31, 2004, the Company had no financial instruments with these characteristics. In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. SFAS No. 151 requires that certain abnormal costs associated with the manufacturing, freight, and handling costs associated with inventory be charged to current operations in the period in which they are incurred. The adoption of SFAS 151 had no impact on the Company's financial position, results of operations, or cash flows. In December 2004, the FASB issued a revision of SFAS No. 123, Share-Based Payment. The statement establishes standards for the accounting for transactions in which an entity exchanges its equity investments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The statement does not change the accounting guidance for share-based payments with parties other than employees. The statement requires a public entity to measure the cost of employee service received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exception). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). A public entity will initially measure the cost of employee services received in exchange for an award of liability instrument based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation over that period. The grant-date for fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of these instruments. 11 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The statement is effective for the quarter beginning January 1, 2006. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-amendment of APB Opinion No. 29. SFAS No. 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, defined as transactions that are not expected to result in significant changes in the cash flows of the reporting entity. This statement is effective for exchanges of nonmonetary assets occurring after June 15, 2005. Management believes adoption of these new statements will not have any significant effect on the Company's financial condition or results of operations. 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK Substantially all of the Company's bank accounts are in banks located in the People's Republic of China ("PRC") and are not covered by any type of protection similar to that provided by the FDIC on funds held in U.S banks. Substantially all of the Company's operations are in the PRC. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and clients and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers and clients, historical trends, and other information. Accounts receivable totaling $1,064,981 and $2,054,320 as of December 31, 2004 and 2003, respectively, were collateralized by real estate. 4. CASH AND EQUIVALENTS As of December 31, 2004 and 2003, the Company had the following cash and cash equivalents: December 31, -------------------------- 2004 2003 ---------- ---------- Restricted cash: Pledged deposits $ -- $ 203,659 ========== ========== Cash and equivalents: Cash on hand $ 44,492 $ 2,922 Banks deposits 4,207,186 1,156,388 ---------- ---------- $4,251,678 $1,159,310 ========== ========== The pledged bank deposits, which were restricted, carried interest ranging from 0.6% to 0.825% per month and in accordance with the terms and conditions of the banking facilities agreed with a bank to provide mortgage loan facilities to buyers of properties developed by the subsidiary, Wuhan Pacific, which agreed to place guarantee fund deposits of not less than 18% of the total outstanding mortgage loans extended to properties buyers and to guarantee the repayments of the mortgage loans. 12 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 4. CASH AND CASH EQUIVALENTS, Continued The guarantee fund shall be restricted while the mortgage loans extended to properties buyers shall remain outstanding 5. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES Accounts receivable and other receivables consist of the following as of December 31, 2004 and 2003:
December 31, ----------------------- 2004 2003 ---------- ---------- Accounts receivable $1,180,573 $3,195,074 Less: Provision for doubtful debts 455,593 -- ---------- ---------- Accounts receivable net of provision for doubtful debts 724,980 3,195,074 ---------- ---------- Other receivables: Staff advances 48,066 4,590 Utilities and other deposits 159,729 15,097 Others 80,469 36,546 ---------- ---------- Other receivables 288,264 56,233 ---------- ---------- $1,013,244 $3,251,307 ========== ==========
6. PROPERTIES HELD FOR RESALE As of December 31, 2004 and 2003, the Company had the following properties held for resale: December 31, ----------------------- 2004 2003 ---------- ---------- Properties held for resale $4,293,626 $8,205,945 Repossessed properties held for resale -- 136,539 ---------- ---------- $4,293,626 $8,342,484 ========== ========== A break down of properties held for resale by project is as follows: December 31, ----------------------- 2004 2003 ---------- ---------- General Garden $ 13,006 $1,959,277 Garden of Eden -- 183,395 Diamond Mansion Phase I Residential 27,708 1,124,313 Diamond Mansion Phase I Commercial 3,592,628 4,466,830 Diamond Mansion Phase 2 445,246 -- Gutian Apartments 215,039 608,669 ---------- ---------- Total $4,293,627 $8,342,484 ========== ========== 13 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 6. PROPERTIES HELD FOR RESALE, Continued As of December 31, 2004 and 2003, the carrying values of inventories of $0 and $2,775,494, respectively, have been pledged as securities for the Company's long-term bank loans. 7. PROPERTIES AND EQUIPMENT Properties and equipment, stated at cost less accumulated depreciation and amortization, consist of:
December 31, -------------------------- 2004 2003 ----------- ----------- Land use rights and buildings $ 2,495,038 $ 1,074,957 Plant and machineries 29,590 1,981 Motor vehicles 535,116 94,769 Office equipment 172,068 87,695 ----------- ----------- 3,231,812 1,259,402 Less: Accumulated depreciation and amortization (280,981) (202,202) ----------- ----------- $ 2,950,831 $ 1,057,200 =========== ===========
During 2004 and 2003, properties totaling $1,420,080 and $0, respectively, were transferred from construction-in-progress to property and equipment. During the years ended December 31, 2004 and 2003, properties totaling $0 and $1,929,295, net of accumulated depreciation of $0 and $94,149, respectively, were transferred from property and equipment to properties held for resale. 8. CONSTRUCTION-IN-PROGRESS Construction-in-progress represents two combined residential and commercial project. Construction-in-progress represents the cost of the land use rights, capitalized interest expenses, related pre-approval capital expenditures and government approval fees. A breakdown on these costs by project is as follows: December 31, ----------------------- 2004 2003 ---------- ---------- Current Diamond Mansion Phase II Commercial Project $ -- $2,311,819 Diamond Mansion Phase II - Additional floors 24,123 -- Sanyang Apartments 2,953,576 -- YiChang Town House Plaza 3,184,037 -- ---------- ---------- 6,161,736 2,311,819 ---------- ---------- Non-Current Jing Qi Project 931,433 931,433 ---------- ---------- $7,093,169 $3,243,251 ========== ========== 14 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 8. CONSTRUCTION-IN-PROGRESS, Continued Official approval for the construction of Diamond Mansion Phase II was received in 2003 and the construction was completed in September 2004, while the construction of the Jing Qi Project was strategically temporarily suspended until the completion of the construction of a main road near the site of the project by the Wuhan City Government. As at December 16, 2004, construction to the road is still incomplete and the Jing Qi Project has been further postponed. The Company had already completed one half of the construction works of Town House Plaza (formerly Sanyang Apartments) and expected the construction will be completed by the end of 2005. The Company had also already started the foundation work of Yi Chang Project. The capital expenditures in respect of the Yi Chang Project comprised land use rights of $1,660,628 and purchases of construction materials and other expenditures totaling $92,219 as of December 31, 2004. Several approvals for construction works are still pending from relevant government departments and the processes usually take time. 9. ADVANCES FROM BUYERS Advances from buyers represented deposits from residential property buyers and which procedures for the transfer of ownership of the property purchased have not been completed as at the balance sheets date. The deposits from such property buyers for residential properties to be transferred in the subsequent years are carried forward as deferred revenue. 10. TRANSACTIONS WITH RELATED PARTIES Amounts due from/(to) directors at December 31, 2004 and 2003 are as follows:
December 31 Name ---------------------------- Maximum Outstanding Security 2004 2003 Balance During Year Held ------------- ------------ ------------------- -------- Fang Zhong (Director) $ (2,022,604) $(2,399,320) $(2,399,321) none Hu Min (Director) 5,970 (41,667) 5,970 none Luo Yun Fang (Director) 17,409 (46,108) 17,409 none Fang Wei Jun (Director) (440) (48,077) (48,077) none Fang Hui (Deceased) (440) (48,077) (48,077) none Fang Wei Feng (Director) (77,744) (125,826) (125,826) none ------------- ------------ $ (2,077,849) $ (2,709,075) ============= =============
The amounts due are unsecured, interest free and have no fixed repayment terms. 15 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 11. OTHER TAXES PAYABLE Other tax payables consist of the following: December 31, ------------------------- 2004 2003 ---------- ---------- City construction tax $ 79,012 $ 17,748 Business tax 1,137,910 336,985 Food price balancing tax 22,609 9,666 Education surcharge 33,552 7,296 Flood control tax 21,751 4,990 Education development tax 21,225 9,766 Other taxes 26,514 13,990 ---------- ---------- $1,342,573 $ 400,441 ========== ========== 12. SHORT-TERM LOANS The Company had the following short-term loans at December 31, 2004 and 2003: December 31, -------------------------- 2004 2003 -------- -------- Secured $ -- $428,744 Unsecured -- 362,319 -------- -------- $ -- $791,063 ======== ======== Other short-term loan of $428,744 was secured by the Yi Chang project and was fully paid as of December 31, 2004. Other short-term loan was unsecured, carried interest at 5.04% per annum and was repayable within three months if the lender was not appointed as the main contractor to the Yi Chang Project. As a pre-condition for the unsecured short-term loan of $362,319, at December 31, 2003, a subsidiary company, Wuhan Town House, had agreed to appoint the lender as main contractor to Yi Chang construction project and should the subsidiary company fails to appoint the lender as main contractor, the subsidiary company had agreed to make a penalty payment of $36,232 to the lender. The lender was appointed as the main contractor to the Yi Chang Project. 16 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 13. LONG-TERM DEBT The Company had the following long-term debt at December 31, 2004 and 2003:
December 31, 2004 December 31, 2003 ------------------------ ------------------------ Current Long-term Current Long-term ------- --------- ------- --------- 6.534% note payable to a bank, interest payable quarterly with principal due September 2004, secured by Diamond Mansion Phase I $ -- $ -- $ 1,207,729 $ -- 6.534% note payable to a bank, interest payable quarterly with principal due December 2004, secured by Diamond Mansion Phase I -- -- 966,184 -- 6.03% notes payable to a bank, monthly installments of principal and interest, due on various dates through 2007, secured by property 2,304 3,992 2,083 6,377 7.2% notes payable to a bank, monthly installments of principal and interest, due on various dates through 2007, secured by property 3,432 4,683 5,133 8,322 7.2% notes payable to a bank, monthly installments of principal and interest, due on various dates through 2014, secured by property 1,335 15,070 1,578 16,247 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2007, secured by property 1,658 2,066 1,510 3,851
17 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 13. LONG-TERM DEBT, Continued
December 31, 2004 December 31, 2003 ------------------------ ------------------------ Current Long-term Current Long-term ------- --------- ------- --------- 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2010, secured by property 2,149 6,093 2,838 12,301 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2010, secured by property 933 5,265 795 6,283 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2011, secured by property 916 6,553 990 7,353 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2012, secured by property -- -- 3,417 24,842 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2015, secured by property 1,497 19,166 1,645 20,469 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2016, secured by property 1,625 22,668 2,013 23,816 5.58% notes payable to a bank, monthly installments of principal and interest, due on various dates through 2020, secured by property 2,565 58,609 3,599 60,104 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2025, secured by property 903 33,375 1,498 33,675
18 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 13. LONG-TERM DEBT, Continued
December 31, 2004 December 31, 2003 ------------------------- ----------------------- Current Long-term Current Long-term ------- --------- ------- --------- 5.58% note payable to a bank, monthly installments of principal and interest, due on various dates through 2030, secured by property -- -- 523 14,225 4.65% note payable to a bank, monthly installments of principal and interest, due on various dates through 2026, secured by property 1,189 40,240 1,836 40,668 5.04% note payable to a bank, monthly installments of principal and interest, due on various dates through 2012, secured by property 3,517 27,520 7,488 47,271 5.04% note payable to a bank, monthly installments of principal and interest, due on various dates through 2013, secured by property 8,922 76,441 10,266 83,545 5.04% note payable to a bank, monthly installments of principal and interest, due on various dates through 2018, secured by property 15,339 264,482 18,368 274,007 5.04% note payable to a bank, monthly installments of principal and interest, due on various dates through 2022, secured by property 5,047 134,083 7,609 136,453 5.04% note payable to a bank, monthly installments of principal and interest, due on various dates through 2023, secured by property 3,006 82,098 4,589 83,374
19 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 13. LONG-TERM DEBT, Continued
December 31, 2004 December 31, 2003 ------------------------------ ------------------------------ Current Long-term Current Long-term ------------ -------------- -------------- ------------ 7.65% note payable to a bank, monthly installments of principal and interest, due on various dates through 2006, secured by property 1,845 1,541 1,510 3,502 Hire purchase 7,851 12,564 - - ------------ -------------- -------------- ------------ $ 66,033 $ 816,509 $ 2,253,201 $ 906,686 ============ ============== ============== ============
As of December 31, 2004 and 2003, bank loans are secured by a legal charge over the Wuhan Town House's land use rights and buildings totaling $509,401 and $522,463, respectively, and stock of properties held for resale of $0 and $2,775,494, respectively. According to the land use right certificates, the security was discharged / released on November 20, 2003. During the year ended December 31, 2003, the 2nd and 3rd Floors of Diamond Mansion Phase I were pledged in respect of a short-term bank loan of $2,415,459 (Rmb.20,000,000), and which loan was repaid before the year then ended. According to the land use right certificates, the security was discharged / released on February 4, 2004. Maturities of the long-term debts for each of the next five years and thereafter are as follows: Amount -------- 2005 $ 66,033 2006 14,105 2007 10,741 2008 6,093 2009 -- Thereafter 785,570 -------- $882,542 ======== 14. CAPITAL December 31, -------------------- 2004 2003 -------- -------- Authorized, issued and outstanding: 500,000 ordinary share at HK$1.00 each $ 64,103 $ 64,103 Less minority interest (1,923) (1,923) -------- -------- $ 62,180 $ 62,180 ======== ======== Town House Land Limited (formerly Hong Kong Window of the World Apparel Co., Limited) (the "Company") was registered as in Hong Kong, as a limited liability company on August 13, 2001 with a registered capital of $64,103 (HK $500,000). 20 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in US dollars) 14. CAPITAL, Continued Based on the Certificate of Incorporation on Change of Name dated August 3, 2003, the Company changed its name from `Hong Kong Window of the World Apparel Co., Limited' to `Town House Land Limited'. 15. INCOME TAX Provision for the People's Republic of China enterprise income tax ("EIT") is calculated at the prevailing rate based on the estimated assessable profits less available tax relief for losses carried forward. For the year ended December 31, 2004 and 2003, the Company has been granted the privilege of computing the gross profit margins on real estate development sales at 15% of sales and computed the enterprise income tax at 33% on only 15% of sales. EIT is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes. A reconciliation of EIT tax at the statutory rate to the Company's effective rate is as follows:
December 31, ----------------------- 2004 2003 ---------- ---------- Computed at the statutory rate $1,119,877 $ 936,527 Tax effect of special tax rate granted during 2004 156,445 (756,729) ---------- ---------- Tax at effective rate $ 963,432 $ 179,798 ========== ==========
16. COMMITMENTS As of December 31, 2004 and 2003, the Company had contractual commitments of the construction projects totaling $3,588,183 and $1,660,721, respectively, and commitments for rental, capital expenditures for land use rights, plant and machineries totaling $3,943 and $0, respectively. During the year ended December 31, 2004, the Company is leasing office space was set up for salesmen to meet customers in Shanghai and Wenzhou. The Company had commitments to make payments for leasing of this office totaling $38,275 through December 31, 2005. 21 TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 2005 (UNAUDITED) ASSETS Current assets: Cash and equivalents $ 5,105,515 Accounts receivable, net 1,289,932 Properties held for sale 5,837,017 Prepaid and other assets 695,399 Construction-in-progress - current 107,285 ----------- Total current assets 13,035,148 Land held for development 4,767,303 Property and equipment-net of accumulated depreciation of $355,696 2,912,585 Construction-in-progress - non-current 5,188,061 ----------- Total assets $25,903,097 =========== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,303,525 Advances from buyers 872,257 Amounts due to directors, net 1,726,316 Enterprise taxes payable 1,068,215 Other taxes payable 1,450,368 Short-term loans 3,822,345 Current portion of long-term debt 7,851 ----------- Total current liabilities 11,250,877 ----------- Long term debt, net of current portion shown 3,389,894 ----------- Minority interest 476,896 ----------- Stockholders' equity: Share capital 64,103 Additional paid-in capital 5,857,936 Capital reserve 1,316,042 Retained earnings 3,547,349 ----------- Total members' equity 10,785,430 ----------- Total liabilities and members' equity $25,903,097 =========== See accompanying notes to financial statements. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
Six Months Ended June 30, -------------------------- 2005 2004 ----------- ----------- Sales Revenues $ 5,193,341 $ 4,157,687 Cost of Properties Sold 4,134,499 1,999,155 ----------- ----------- Gross profit 1,058,842 2,158,532 ----------- ----------- Selling, General and Administrative Expenses: Selling expenses 348,989 298,147 General and administrative expenses 567,800 317,006 Depreciation 74,714 28,201 ----------- ----------- Total expenses 991,503 643,354 ----------- ----------- Income from operations 67,339 1,515,178 ----------- ----------- Other income (expense) Other revenues 33,987 (5,614) Interest and finance costs (116,348) (18,275) ----------- ----------- Total other income (expense) (82,361) (23,889) ----------- ----------- Net Income (Loss) before Income Taxes and Minority Interest (15,022) 1,491,289 (Provision for) Benefit from Income Taxes 697,046 (208,087) ----------- ----------- Net Income before Minority Interest 682,024 1,283,202 Minority Interest in Earnings (25,861) (39,861) ----------- ----------- Net Income $ 656,163 $ 1,243,341 =========== =========== Weighted average basic and diluted shares outstanding 500,000 500,000 =========== =========== Basic and diluted net income per common share $ 1.31 $ 2.49 =========== ===========
See accompanying notes to financial statements. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
Six Months Ended June 30, -------------------------- 2005 2004 ----------- ----------- Cash flows from operating activities: Net income $ 656,163 $ 1,243,341 Adjustments to reconcile net income to cash flows provided by operating activities Depreciation 74,714 30,003 Minority interest in earnings 25,861 39,861 Changes in assets and liabilites: (Increase) decrease in - Restricted cash -- (403,041) Accounts receivable, net and other receivables (436,417) 997,296 Properties held for resale (1,543,391) 1,591,033 Prepaid and other assets (497,526) (650) Construction-in-progress 1,797,823 (3,395,769) Accounts payable and other payables 549,590 (129,343) Advances from buyers (357,801) 2,425,880 Deferred tax expenses (775,119) 220,329 Other taxes payable 107,795 64,534 ----------- ----------- Net cash provided by (used in) operating activities (398,308) 2,683,474 ----------- ----------- Cash flows from investing activities: Purchase of land held for development (4,767,303) -- Purchase/(transfer) of fixed assets (36,468) (233,324) ----------- ----------- Net cash provided by (used in) investing activities (4,803,771) (233,324) ----------- ----------- Cash flows from financing activities: Minority interest in capital contributions 69,901 -- Amounts due to directors (351,533) (775,525) Loan proceeds 6,427,793 -- Principle loan repayments (90,245) (615,887) ----------- ----------- Net cash provided by (used in) financing activities 6,055,916 (1,391,412) ----------- ----------- Net increase (decrease) in cash and cash equivalents 853,837 1,058,738 Cash and cash equivalents, beginning of period 4,251,678 1,159,310 ----------- ----------- Cash and cash equivalents, end of period $ 5,105,515 $ 2,218,048 =========== =========== Supplemental disclosures of cash flow information: Interest paid, net of capitalized amounts $ 395,134 $ 151,125 =========== =========== Enterprise income taxes paid $ -- $ -- =========== ===========
Supplemental disclosure of non-cash investing and financing activities: During the six months ended June 30, 2005, the Company exchanged two residential units of Diamond Mansion for advertising valued at $122,322. During the six months ended June 30, 2005, the Company transferred $4,210,681 of construction expenditures for the YiChang Project from current construction-in-progress to noncurrent construction-in-progress. See accompanying notes to financial statements. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 1. DESCRIPTION OF BUSINESS Organizational Structure Wuhan Town House Land Limited ("Wuhan Town House") (formerly: Wuhan Pacific Real Estate Development Company Limited) was registered as a formal third level property Company in Hubei Province, in the People's Republic of China as a limited liability company (in which investors' potential losses are limited to their capital contributions) on December 18, 1995 with a registered capital of $1,207,729 (Rmb.10,000,000) and a defined period of existence of 14 years to December 18, 2009. To meet the qualifications of third level property company, the company must (1) have registered capital of Rmb.10,000,000, (2) have engineering and staff of not less than 12 people, (3) should have completed at least 50,000 square meters of accumulated development area, and (4) have a 100% passing rate in construction quality and 10% ranked as excellent. Subsequent recapitalizations during 2000 increased Wuhan Town House's registered capital to $6,038,647 and changed its classification to a second level property company. To meet the qualifications of a second level property company, the company must (1) have registered capital of Rmb.40,000,000, (2) have engineering and management staff of not less than 24 people, (3) should have completed 150,000 square meters of accumulated areas completed within three years, (4) 100% pass rate in construction quality with 10% ranked as excellent, and (5) at least three years experience in property development. On August 15, 2003, Wuhan Town House entered into a reverse merger agreement with Town House Land Limited ("Town House Land"). At December 31, 2004 and June 30, 2005, Town House Land held 97% of the registered capital of Wuhan Town House, directly held 100% of the equity in Town House Land (Miami) Corporation and indirectly 97% of the equity in Town House Land (USA) Inc. Collectively hereinafter, Town House Land, Wuhan Town House, Town House Land (Miami) Corporation and Town House Land (USA), Inc., are referred to as "the Company". Town House Land (formerly: Hong Kong Window of the World Apparel Co., Limited) was incorporated in Hong Kong, as a private limited liability company on August 13, 2001 with an authorized capital of $64,103 (HK$500,000) divided into 500,000 ordinary shares of par value $0.12 (HK$1.00) each. Town House Land Limited ("Town House Land") changed to its present name on August 13, 2003. On August 15, 2003, Town House Land acquired 97% of the outstanding registered capital of Wuhan Town House Land. Terms of the transaction call for Town House Land to pay $1,602,564 in cash plus the contribution of an additional $5,857,488 in share capital in Town House Land as consideration for the acquisition of the 97% interest in Wuhan Town House's registered capital. For financial reporting purposes, Wuhan Town House was considered to be the acquiring entity and the additional cash consideration paid was treated as a distribution to members. Town House Land had no operations prior to this reverse acquisition and there was substantially no change in ownership from that of Wuhan Town House as a result of this transaction. The Company's principal activity is the development and sale of commercial and residential real estate. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies: Consolidation Policy - The consolidated financial statements include the accounts of Town House and Wuhan Town House from August 15, 2003 forward and Town House Land (Miami) Corporation and Town House Land (USA) Inc., since their incorporation. Prior to August 15, 2003, the financial statements reflect the activity of Wuhan Town House as adjusted for the effects of the recapitalization of August 15, 2003. All significant inter-company transactions and balances within the Company are eliminated on consolidation. Cash and Equivalents - The Company considers all highly liquid debt instruments purchased with a maturity period of three months or less to be cash equivalents. The carrying amounts reported in the accompanying consolidated balance sheet for cash and cash equivalents approximate their fair value. The Company has restricted cash in accordance with the loan covenants. Accounts Receivable - The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. Accounts receivable in the balance sheet is stated net of such provision. Properties Held for Sale - Properties held for sale are comprised of properties held for sale and repossessed properties held for resale and are stated at the lower of cost or net realizable value. Cost includes acquisition costs of land use rights, development expenditure, interests and any overhead costs incurred in bringing the developed properties to their present location and condition. Net realizable value is determined by reference to management estimates based on prevailing market conditions. Capital Reserve - Capital reserve represents that amount of reserve appropriated from the net distributable profit after income tax in each year when a net profit after operations is generated. In accordance with the provisions of the Company's Memorandum and Articles of Association, the Company is required to appropriate a portion of the net distributable profit after enterprises income tax to capital reserve. The amount appropriated is determined on an annual basis by the Board of Directors. One-half of the capital reserve may be used for staff welfare payments and the balance one-half may be transferred back to the statement of operations to mitigate the losses from operations. The Company shall not be required to appropriate any amount to capital reserve when the balance standing in capital reserve is equal to or exceeds 50% of the registered capital. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Property and Equipment - Property and equipment are recorded at cost and are being depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line basis for both financial and income tax reporting purposes over useful lives as follows: Building and land rights 40 years Equipment 5 years Motor vehicles 5-8 years Office furniture and fixtures 5 years Repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. Property and equipment are evaluated annually for any impairment in value. Where the recoverable amount of any property and equipment is determined to have declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. There were no property and equipment impairments recognized during the years ended December 31, 2004 and 2003, or the six months ended June 30, 2005. Construction-In-Progress - Properties currently under development are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including land rights cost, development expenditure, professional fees and during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to properties held for sale. As of June 30, 2005, two construction projects are reflected as long-term as construction on both projects has been delayed. Related Companies - A related company is a company in which the director has beneficial interests in and in which the company has significant influence. Revenue Recognition - Revenue from the sale of properties is recognized when the following four criteria are met: (1) a sale is consummated, (2) the buyers initial and continuing investments are adequate to demonstrate a commitment to pay for the property, (3) the seller's receivable is not subject to future subordination, and (4) the seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. Interest income is recognized when earned, taking into account the average principal amounts outstanding and the interest rates applicable. Cost of Properties Sold - The cost of goods sold includes the carrying amount of the properties being sold and the business taxes paid by the Company in connection with the sales. Business taxes included in cost of sales were $296,663 and $210,189 for the six months ended June 30, 2005 and 2004, respectively. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Foreign Currencies - These financial statements have been prepared in U.S. dollars. The functional currencies for Town House and Wuhan Pacific are the "Hong Kong dollar" and "Renminbi" or "Yuan", respectively. Nonmonetary assets and liabilities are translated at historical rates, monetary assets and liabilities are translated at the exchange rates in effect at the end of the year, and income statement accounts are translated at average exchange rates. There were no material translation gains or losses during the years ended June 30, 2005 and 2004 as the Renminbi was tied to the U.S. Dollar during the time period covered in these financial statements. Taxation - Taxation on overseas profits has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the countries in which the Company operates. Provision for The People's Republic of China enterprise income tax is calculated at the prevailing rate based on the estimated assessable profits less available tax relief for losses brought forward. Enterprise Income Tax - Under the Provisional Regulations of The People's Republic of China Concerning Income Tax on Enterprises promulgated by the State Council and which came into effect on January 1, 1994, income tax is payable by enterprises at a rate of 33% of their taxable income. Preferential tax treatment may, however, be granted pursuant to any law or regulations from time to time promulgated by the State Council. For the year ended December 31, 2004, the Company has been granted the privilege of computing the gross profit margins on real estate development sales at 15% of sales and computed the enterprise income tax at 33% on only 15% of sales. Enterprise income tax ("EIT") is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes. Retirement Benefit Costs - According to The People's Republic of China regulations on pension, the Company contributes to a defined contribution retirement plan organized by municipal government in the province in which the Company was registered and all qualified employees are eligible to participate in the plan. Contributions to the plan are calculated at 20% or 26% of the employees' salaries above a fixed threshold amount and the employees contribute 6% while the Company contributes the balance contribution of 14% or 20%. The Company has no other material obligation for the payment of retirement benefits beyond the annual contributions under this plan. For the six months ended June 30, 2005 and 2004, the Company's pension cost charged to the statements of operations under the plan amounted to $4,818 and $3,171, respectively. Fair Value of Financial Instruments - The carrying amounts of certain financial instruments, including cash, accounts receivable, commercial notes receivable, other receivables, accounts payable, commercial notes payable, accrued expenses, and other payables approximate their fair values as of December 31, 2004 because of the relatively short-term maturity of these instruments. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Use of Estimates - The preparation of financial statements in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates related to allowance for uncollectible accounts receivable, depreciation, costs to complete construction in progress, taxes, and contingencies. Estimates may be adjusted as more current information becomes available, and any adjustment could be significant. Recent Accounting Pronouncements - In December 2004, the FASB issued a revision of SFAS No. 123, Share-Based Payment. The statement establishes standards for the accounting for transactions in which an entity exchanges its equity investments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The statement does not change the accounting guidance for share-based payments with parties other than employees. The statement requires a public entity to measure the cost of employee service received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exception). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). A public entity will initially measure the cost of employee services received in exchange for an award of liability instrument based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation over that period. The grant-date for fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of these instruments. The statement is effective for the quarter beginning January 1, 2006. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-amendment of APB Opinion No. 29. SFAS No. 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, defined as transactions that are not expected to result in significant changes in the cash flows of the reporting entity. This statement is effective for exchanges of nonmonetary assets occurring after June 15, 2005. Management believes adoption of these new statements will not have any significant effect on the Company's financial condition or results of operations. 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK Significant amounts of the Company's bank accounts are in banks located in the People's Republic of China ("PRC") and are not covered by any type of protection similar to that provided by the FDIC on funds held in U.S banks. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK - Continued The Company has real estate in the PRC and in the United States of America. Through June 30, 2005, the Company had generated no income and very few expenses associated with its U.S. real estate development activities. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and clients and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers and clients, historical trends, and other information. Accounts receivable totaling $1,333,978 and $2,055,902 as of June 30, 2005 and 2004, respectively, were collateralized by real estate. 4. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES Accounts receivable and other receivables consist of the following as of June 30, 2005: Accounts receivable $ 1,333,978 Less: Provision for doubtful debts (455,592) ----------- Accounts receivable net of provision for doubtful debts 878,386 ----------- Other receivables: Staff advances 135,569 Loans to third parties 120,419 Others 155,558 ----------- $ 1,289,932 =========== 5. PROPERTIES HELD FOR SALE As of June 30, 2005, the Company had the following properties held for sale: Properties held for sale $5,837,017 Repossessed properties held for resale -- ---------- $5,837,017 ========== As of June 30, 2005, the carrying value of inventory of $636,721 has been pledged as collateral on a short-term bank loan. 6. LAND HELD FOR DEVELOPMENT At June 30, 2005, the Company held three parcels of land for development, as follows: Las Vegas, Nevada $1,156,348 Chino Hills, California 2,007,111 Fontana, California 1,603,844 ---------- $4,767,303 ========== TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 7. PROPERTIES AND EQUIPMENT Properties and equipment, stated at cost less accumulated depreciation and amortization, consist of the following at June 30, 2005: Land use rights and buildings $ 2,502,964 Plant and machineries 29,590 Motor vehicles 561,113 Office equipment 174,614 ----------- Less: Accumulated depreciation and 3,268,281 amortization (355,696) ----------- $ 2,912,585 =========== At June 30, 2005, fixed assets with a carrying value of $1,603,844 were pledged as collateral to a bank with respect to an outstanding loan. 8. CONSTRUCTION-IN-PROGRESS Construction-in-progress represents three combined residential and commercial projects. Construction-in-progress represents the cost of the land use rights, capitalized interest expenses, related pre-approval capital expenditures and government approval fees. A breakdown on these costs by project is as follows: Current Diamond Mansion Phase 2 $ 107,285 ========== Non-Current Yi Chang Project 4,256,628 Jing Qi Project 931,433 ---------- $5,188,061 ========== Due to a change in business strategy, construction costs of $4,256,628 on the YiChang project was transferred to non-current construction-in-progress in 2005, with construction expected to be completed by the end of 2006. Construction of the Jing Qi Project has been temporarily suspended until the completion of the construction of a main road near the site of the project by the Wuhan City Government. As of June 30, 2005, construction to the road is still incomplete and, although the Company anticipates that the road will be completed by the end of 2005, re-start of construction on Jing Qi remains uncertain due to circumstances beyond control of the Company. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 9. ADVANCES FROM BUYERS Advances from buyers represented deposits from residential property buyers and which procedures for the transfer of ownership of the property purchased have not been completed as of the balance sheet date. The deposits from such property buyers for residential properties to be transferred in the subsequent years are carried forward as deferred revenue. 10. TRANSACTIONS WITH RELATED PARTIES Net amounts due from/ (to) directors at June 30, 2005, are as follows: Name June 30, 2005 ------------------------ ------------- Fang Zhong (Director) $(1,671,077) Hu Min (Director) 5,970 Luo Yun Fang (Director) 17,409 Fang Wei Jun (Director) (440) Fang Hui (Deceased) (440) Fang Wei Feng (Director) (77,744) ------------- $(1,726,316) ============= The amounts due are unsecured, interest free and have no fixed repayment terms. 11. SHORT-TERM LOANS The Company had the following short-term loans at June 30, 2005: Amount ---------- Secured: Wuhan Town House short-term bank loan, partially secured by residential units of Town House Plaza (39 units valued at $636,721 at June 30, 2005), interest at 120% of the Chinese national rate paid periodically, principle due on February 1, 2006 $1,570,048 Wuhan Town House short-term bank loan, secured by corporate guarantee, interest at 6.696% paid periodically, principle due on December 31, 2005 792,297 Town House Land (USA) short-term bank loan, secured by real estate property in the United States, interest at Far East Bank Prime Rate plus 1% (7.0% at June 30, 2005) paid periodically, principle due on May 1, 2006 760,000 Town House Land short-term loan from a financial institution, secured by 433,000 shares of Town House Land stock issued to a director, interest at 20% paid periodically, principle due on October 25, 2005 700,000 ---------- $3,822,345 ========== TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 12. LONG-TERM DEBT The Company had the following long-term debt at June 30, 2005: Current Long-term ---------- ---------- Note payable to a bank for construction development, interest at 115% of the Chinese national rate paid monthly, principle due December 20, 2006, secured by Yi Chang construction-in-progress $ -- $3,381,643 Hire purchase 7,851 8,251 ---------- ---------- $ 7,851 $3,389,894 ========== ========== Maturities of the long-term debts for each of the next five years and thereafter are as follows: Amount ---------- 2006 $3,389,894 2007 -- 2008 -- 2009 -- 2010 -- Thereafter -- ---------- $3,389,894 ========== 13. CAPITAL Authorized, issued and outstanding: 500,000 ordinary share at $.12 (HK$1.00) each $64,103 ======= Town House Land Limited (formerly Hong Kong Window of the World Apparel Co., Limited) (the "Company") was registered in Hong Kong, as a limited liability company on August 13, 2001 with a registered capital of $64,103 (HK $500,000). Based on the Certificate of Incorporation on Change of Name dated August 3, 2003, the Company changed its name from "Hong Kong Window of the World Apparel Co., Limited" to "Town House Land Limited". 14. INCOME TAX Enterprise income tax ("EIT") is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes. For the six month periods ended June 30, 2005 and 2004, the Company has been granted the privilege of computing the gross profit margins on real estate development sales at 15% of sales and computed the enterprise income tax at 33% on only 15% of sales. TOWN HOUSE LAND LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (Expressed in US dollars) 15. COMMITMENTS As of Jun 30, 05 ---------------- Capital Commitments (Wuhan Town House): Estimated (Fifth floor - Diamond Mansion II) $ 371,000 Contracted and authorized (Jing Qi Project) 42,880 Contracted and authorized (Yichang Project) 543,000 ---------------- $ 956,880 ================ Operating Commitments (Town House Land(Miami)): Lease commitment $ 75,210 Advertising commitment 26,280 ---------------- $ 101,490 ================ In 2004 the Company elected to suspend construction on the Jing Qi project temporarily until the main road currently under construction by the local government is completed. As of June 30, 2005, construction on this main road has not been completed. The Company has agreed with certain contractors for an extension of contractual payments due to the deferment of construction on the project. (b) Pro forma financial information: The unaudited consolidated pro forma financial statements of Xerion EcoSolutions Group Inc. and of Town House Land Limited for the six month period ended June 30, 2005. XERION ECOSOLUTIONS GROUP, INC. PROFORMA BALANCE SHEET JUNE 30, 2005 (UNAUDITED) ASSETS
Xerion Town House Adjustments Proforma ------------ ------------ ----------- ------------ Current assets: Cash and equivalents $ 11,577 $ 5,105,515 $ -- $ 5,117,092 Accounts receivable, net -- 1,289,932 -- 1,289,932 Properties held for sale -- 5,837,017 -- 5,837,017 Prepaid and other assets -- 695,399 -- 695,399 Construction-in-progress -- 107,285 -- 107,285 ------------ ------------ ----------- ------------ Total current assets 11,577 13,035,148 -- 13,046,725 Land held for development 3,367 4,767,303 -- 4,770,670 Property and equipment, net -- 2,912,585 2,912,585 Construction-in-progress - non-current -- 5,188,061 -- 5,188,061 ------------ ------------ ----------- ------------ Total assets $ 14,944 $ 25,903,097 $ -- $ 25,918,041 ============ ============ =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 180,466 $ 2,303,525 $ -- $ 2,483,991 Advances from buyers -- 872,257 -- 872,257 Amounts due to directors 13,234 1,726,316 -- 1,739,550 Enterprise taxes payable -- 1,068,215 -- 1,068,215 Other taxes payable -- 1,450,368 -- 1,450,368 Short-term loans -- 3,822,345 -- 3,822,345 Current portion of long-term debt -- 7,851 -- 7,851 ------------ ------------ ----------- ------------ Total current liabilities 193,700 11,250,877 -- 11,444,577 Long term debt, net of current portion shown above -- 3,389,894 -- 3,389,894 ------------ ------------ ----------- ------------ Total liabilities 193,700 14,640,771 -- 14,834,471 ------------ ------------ ----------- ------------ Minority interest -- 476,896 -- 476,896 ------------ ------------ ----------- ------------ Stockholders' equity: Common stock 2,842 64,103 -- 66,945 Preferred stock -- -- -- -- Additional paid in capital 10,014,413 5,857,936 -- 15,872,349 Capital reserve -- 1,316,042 -- 1,316,042 Donated capital 126,000 -- -- 126,000 Retained earnings (10,322,011) 3,547,349 -- (6,774,662) ------------ ------------ ----------- ------------ Total stockholders' equity (178,756) 10,785,430 -- 10,606,674 ------------ ------------ ----------- ------------ Total liabilities and stockholders' equity $ 14,944 $ 25,903,097 $ -- $ 25,918,041 ============ ============ =========== ============
XERION ECOSOLUTIONS GROUP, INC. PROFORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
Xerion Town House Adjustments Proforma ------------ ------------ ------------- ------------ Sales Revenues $ -- $ 5,193,341 $ -- $ 5,193,341 Cost of Properties Sold -- 4,134,499 -- 4,134,499 ------------ ------------ ------------- ------------ Gross profit -- 1,058,842 -- 1,058,842 ------------ ------------ ------------- ------------ Selling, General and Administrative Expenses: Selling expenses -- 348,989 -- 348,989 General and administrative expenses 36,961 567,800 -- 604,761 Depreciation 1,469 74,714 -- 76,183 ------------ ------------ ------------- ------------ Total expenses 38,430 991,503 -- 1,029,933 ------------ ------------ ------------- ------------ Income from operations (38,430) 67,339 -- 28,909 ------------ ------------ ------------- ------------ Other income (expense) Other revenues -- 33,987 -- 33,987 Interest and finance costs -- (116,348) -- (116,348) ------------ ------------ ------------- ------------ Total other income (expense) -- (82,361) -- (82,361) ------------ ------------ ------------- ------------ Loss from continuing operations (38,430) -- -- (38,430) ------------ ------------ ------------- ------------ Income before income taxes (38,430) (15,022) -- (53,452) (Provision for) benefit from income taxes -- 697,046 -- 697,046 ------------ ------------ ------------- ------------ Net Income before Minority Interest (38,430) 682,024 -- 643,594 Minority Interest in Earnings -- (25,861) -- (25,861) ------------ ------------ ------------- ------------ Net income (loss) $ (38,430) $ 656,163 $ -- $ 617,733 ============ ============ ============= ============ Weighted average basic and diluted shares outstanding 2,841,523 500,000 28,415,230 ============ ============ ============= ============ Basic and diluted net income (loss) per common share $ (0.01) $ 1.31 $ 0.02 ============ ============ ============= ============
XERION ECOSOLUTIONS GROUP, INC. PROFORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
Xerion Town House Adjustments Proforma ------------ ------------ ------------- ------------ Sales Revenues $ -- $ 4,157,687 $ -- $ 4,157,687 Cost of Properties Sold -- 1,999,155 -- 1,999,155 ------------ ------------ ------------- ------------ Gross profit -- 2,158,532 -- 2,158,532 ------------ ------------ ------------- ------------ Selling, General and Administrative Expenses: Selling expenses -- 298,147 -- 298,147 General and administrative expenses 55,515 317,006 -- 372,521 Business development 3,307 -- -- 3,307 Depreciation -- 28,201 -- 28,201 ------------ ------------ ------------- ------------ Total expenses 58,822 643,354 -- 702,176 ------------ ------------ ------------- ------------ Income from operations (58,822) 1,515,178 -- 1,456,356 ------------ ------------ ------------- ------------ Other income (expense) Other revenues -- (5,614) -- (5,614) Interest and finance costs -- (18,275) -- (18,275) ------------ ------------ ------------- ------------ Total other income (expense) -- (23,889) -- (23,889) ------------ ------------ ------------- ------------ Loss from continuing operations (58,822) -- -- (58,822) ------------ ------------ ------------- ------------ Income before income taxes (58,822) 1,491,289 -- 1,432,467 (Provision for) benefit from income taxes -- (208,087) -- (208,087) ------------ ------------ ------------- ------------ Net Income before Minority Interest (58,822) 1,283,202 -- 1,224,380 Minority Interest in Earnings -- (39,861) -- (39,861) ------------ ------------ ------------- ------------ Net income (loss) $ (58,822) $ 1,243,341 $ -- $ 1,184,519 ============ ============ ============= ============ Basic and diluted net income (loss) per common share $ (0.02) $ 2.49 $ 0.04 ============ ============ ============= ============ Weighted average basic and diluted shares outstanding 2,841,523 500,000 28,415,230 ============ ============ ============= ============
(c) Exhibits 2.1 Stock Exchange Agreement between Xerion EcoSolutions Group Inc., a Colorado corporation, and Town House Land Limited, a limited liability company under the Company Law of The People's Republic of China (the "PRC"), and each member of Town House dated October 19, 2005. 23.1 Consent of Murrell Hall McIntosh & Co., P.L.L.C. independent registered public accounting firm. 99.1 Form of press release. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: November 9, 2005 Xerion EcoSolutions Group Inc. a Colorado corporation By: /s/ Fang Zhong ------------------------------------- Fang Zhong Chief Executive Officer and President EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ---------------------- 2.1 Stock Exchange Agreement between Xerion EcoSolutions Group Inc., a Colorado corporation ("Xerion"), and Town House Land Limited ("Town House"), a limited liability company organized under the Company Law of The People's Republic of China (the "PRC"), and each member of Town House dated October 19, 2005. 23.1 Consent of Murrell Hall McIntosh & Co., P.L.L.C. independent registered public accounting firm. 99.1 Form of press release. EX-2.1 2 v027613_ex2-1.txt EXHIBIT 2.1 STOCK EXCHANGE AGREEMENT between Xerion EcoSolutions Group, Inc. and Town House Land Limited and its Shareholders THE SHARES OF XERION ECOSOLUTIONS GROUP INC. TO BE ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION PURUSANT TO REGULATION S UNDER THE ACT. UNTIL ONE YEAR AFTER THE DATE OF PURCHASE, NO AMOUNT OF THE SHARES MAY BE OFFERED, SOLD, OR TRANSFERRED TO ANY U.S. PERSON AND NO HEDGING TRANSACTIONS REGARDING THE SHARES SHALL BE MADE EXCEPT IN COMPLIANCE WITH THE ACT. OFFERS, SALES OR TRANSFERS IN THE U.S. OR TO A U.S. PERSON (AS DEFINTED IN REGULATION S PROMULATED UNDER THE ACT) OR FOR THE ACCOUNT AND BENEFIT OF A U.S. PERSON ARE NOT PERMITTED, EXCEPT AS PROVIDED IN SAID REGULATION S, UNLESS THE SHARES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS APPLICABLE. STOCK EXCHANGE AGREEMENT THIS STOCK EXCHANGE AGREEMENT (hereinafter referred to as this "Agreement"), is entered into as of this 19th day of October, 2005, by and among Xerion EcoSolutions Group Inc., a Colorado corporation ("Xerion"); Town House Land Limited ("Town House"), a limited liability company organized in the Hong Kong Special Administrative Region in The People's Republic of China ("China" or "PRC") and all of the equity registered capital stock owners of Town House ( the "Shareholders"), upon the following premises: PREMISES A. Xerion is a public company which has been in existence since 1985. B. Town House owns 97% of the issued and outstanding shares of registered capital of Town House Land (Wuhan) Limited ("Wuhan Town House"), a limited liability company organized in the City of Wuhan, Hubei Province, in the PRC in 1995, which in turns directly owns 100% of Town House Land (Miami) Corporation, a Florida corporation, and Town House Land (USA), Inc., a California Corporation (the "Subsidiaries"). C. The Shareholders own 100% of the issued and outstanding capital stock of Town House and have agreed to sell to Xerion and Xerion has agreed to purchase all of the issued and outstanding capital stock of Town House (the "Town House Stock") from the Shareholders in exchange for shares representing approximately 98.75% of the subsequently issued and outstanding fully diluted shares of common stock of Xerion after the stock exchange, pursuant to the terms and conditions set forth in this Agreement (the "Exchange"). D. Town House, together with its Subsidiaries, will become a subsidiary of Xerion after the closing of the Exchange. 2 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ AGREEMENT NOW THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the parties to be derived here from, it is hereby agreed as follows: ARTICLE I PLAN OF EXCHANGE 1.1 The Exchange. At the Closing (as defined in Section 1.3 below), the Shareholders of Town House hereby agree to assign, transfer, and deliver to Xerion, free and clear of all liens, pledges, encumbrances, charges, restrictions, or known claims of any kind, nature, or description, the certificates evidencing the Town House Stock duly endorsed for transfer to Xerion or accompanied by stock powers executed in blank by the Shareholders, and Xerion agrees to acquire such shares on such date by issuing and delivering in exchange therefore solely shares of Xerion common stock, in the amount of 224,480,317 shares of its restricted common voting stock, par value $0.001 (the "Xerion Stock") to be issued to the Shareholders of Town House and their designees as listed on Schedule 1 in full satisfaction of any right or interest which the Shareholders held in the Town House Stock. As a result of the exchange of the Town House Stock in exchange for the Xerion Stock, Town House will become a wholly owned subsidiary of Xerion and the Shareholders of Town House and their designees will own 98.75% of the then issued and outstanding shares of the common stock of Xerion. 1.2 Dilution. For all relevant purposes of this Agreement, the 224,480,317 shares of Xerion Stock to be issued and delivered pursuant to this Agreement will be subject to dilution if the capital structure of Xerion is modified. However, if the capital structure of Xerion is modified between the date of execution of this Agreement and the Closing, then the total amount of Xerion Stock to be issued shall be adjusted to the extent that the Shareholder's and their designees' percentage of ownership in Xerion shall still reflect the exact percentage of ownership as described in Schedule 1 attached hereto. In the instance of a change of the capital structure of Xerion between the date of execution of this Agreement and the Closing, the number of shares of Xerion Stock to be issued shall be appropriately adjusted to take into account any stock split, stock dividend, reverse stock split, recapitalization, or similar change in the Xerion common stock, par value $0.001, which occurred between the date of the execution of this Agreement and the Closing. 1.3 Closing. The closing ("Closing") of the transactions contemplated by this Agreement shall be at 10:00 AM British Columbia time on the fifth business day (a day on which banks are open in the Province of British Columbia) following the date on which the Consolidated US Balance Sheet (as that term is defined in Section 5.1) is delivered to Xerion, via registered overnight courier or facsimile, or on a date and at such time and place as the parties may agree, but no later than October 31, 2005 ("Closing Date"). 1.4 Closing Events. At the Closing, each of the respective parties hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) any and 3 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ all certificates, opinions, financial statements, schedules, agreements, resolutions, rulings, or other instruments required by this Agreement to be so delivered at or prior to the Closing, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby if agreed to by the parties. ARTICLE II REPRESENTATIONS, COVENANTS, AND WARRANTIES OF TOWN HOUSE As an inducement to, and to obtain the reliance of, Xerion, Town House represents and warrants as follows: 2.1 Organization. Town House is a company duly organized, validly existing, and in good standing under the laws of the Hong Kong Special Administrative Region in The People's Republic of China ("PRC"). Town House Land (Wuhan)Limited ("Wuhan Town House") is a limited liability company duly organized, validly existing, and in good standing under the laws of Hubei Province in the PRC that is 97% owned by Town House. Wuhan Town House directly owns 100% of Town House (Miami) Corporation, a Florida corporation, and Town House Land (USA) Inc., a California corporation. Each of Town House and its subsidiaries have the power and are duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on their respective businesses in all material respects as it is now being conducted, including qualification to do business as a foreign entity in the jurisdictions in which the character and location of the assets owned by them or the nature of the business transacted by them requires qualification. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof will not, violate any provision of any of Town House's and or its Subsidiaries' charters, articles of formation, bylaws or other organizational documents. Town House has taken all action required by law, its articles of formation, its bylaws, or otherwise to authorize the execution and delivery of this Agreement. Town House has full power, authority, and legal right and has taken all action required by law, its Articles of Formation, bylaws, and otherwise to consummate the transactions herein contemplated. 2.2 Capitalization. The authorized capitalization of Town House consists of 500,000 shares, of which 500,000 shares are currently issued and outstanding. All issued and outstanding shares are legally issued, fully paid, and non-assessable and not issued in violation of the preemptive or other rights of any person. Town House has not granted to any person any options, warrants, or rights to purchase any of its shares of its registered capital or issued any securities convertible into shares of its registered capital. 2.3 Subsidiaries and Predecessor Corporations. Town House owns 97% of the registered capital of Wuhan Town House which in turns owns 100% of Town House Land (Miami) Corporation and Town House Land (USA), Inc. None of Town House nor its Subsidiaries owns, beneficially or of record, any shares of any other corporation, partnership, company, limited company, or other business entity. 4 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (a) Town House will deliver to Xerion its consolidated audited balance sheets as of December 31, 2004 and the related audited statements of operations, stockholders' equity and cash flows for the years ended December 31, 2004 and 2003, together with notes to such statements and the opinions of both Murrell, Hall, McIntosh & Company, PLLP and Henny Wee & Co., independent certified public accountants, with respect thereto, and the Unaudited Balance Sheet of Town House as of June 30, 2005, and the related statements of operations, condensed consolidated stockholders' equity, and consolidated cash flow for the six (6) months ended June 30, 2005, together with the notes thereto. All of these Consolidated Financial Statements are included in the Town House Schedules. The unaudited consolidated US balance sheet, as of June 30, 2005, shall herein be defined as the "Unaudited Balance Sheet" and is included in the Town House Schedules. Total members' equity showing on the Unaudited Balance Sheet is $10,785,430 ("Members Equity"). (b) All such financial statements of Town House have been prepared in accordance with generally accepted accounting principles in Hong Kong and the United States. The balance sheets of Town House present fairly as of their dates the consolidated financial condition of Town House. Town House did not have, as of the dates of such consolidated balance sheets, except as and to the extent reflected or reserved against therein, any liabilities or obligations (absolute or contingent) which should be reflected in the consolidated balance sheets or the notes thereto, prepared in accordance with generally accepted accounting principles in Hong Kong and in the United States, and all assets reflected therein will be properly reported and present fairly the value of the assets of Town House in accordance with such generally accepted accounting principles. The statements of income, condensed stockholders' equity, and cash flows will reflect fairly the information required to be set forth therein by generally accepted accounting principles in Hong Kong. (c) Each of Town House and its Subsidiaries has filed all local income tax returns required to be filed by them from inception to the date hereof and all taxes have been paid. Each of Town House and its Subsidiaries have filed all national, province, and local income tax returns required to be filed by them from inception to the date hereof and all taxes have been paid. None of such income tax returns have been examined or audited in the PRC. (d) None of Town House or its Subsidiaries owe any unpaid national, province, county, local, or other taxes (including any deficiencies, interest, or penalties), except for taxes accrued but not yet due and payable for which Town House and its Subsidiaries may be liable in their own right or as a transferee of the assets of, or as a successor to, any other corporation or entity. Furthermore, except as accruing in the normal course of business, none of Town House or its Subsidiaries owes any accrued and unpaid taxes to the date of this Agreement. 5 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (e) The books and records, financial and otherwise, of each of Town House and its Subsidiaries are in all material respects complete and correct and have been maintained in accordance with good business and accounting practices. (f) Each of Town House and its Subsidiaries has good and marketable title to their assets and, except as set forth in the Town House Schedules or the Unaudited Balance Sheet or the notes thereto, has no material contingent liabilities, direct or indirect, matured or not matured. 2.4 Information. The information concerning Town House and its Subsidiaries set forth in this Agreement and in the Town House Schedules is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading. 2.5 Options or Warrants. There are no existing options, warrants, calls, or commitments of any character relating to the authorized and unissued stock or registered capital of Town House. 2.6 Absence of Certain Changes or Events. Except as set forth in this Agreement or the Town House Schedules, from the date of the Consolidated US Balance Sheet to the Closing: (a) except in the normal course of business, there will not be (i) any material adverse change in the business, operations, properties, Member's Equity, assets, or condition of Town House and its Subsidiaries, individually or taken as a whole; or (ii) any damage, destruction, or loss to any of Town House and its Subsidiaries (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or condition of Town House and its Subsidiaries, individually or taken as a whole; (b) None of Town House or its Subsidiaries will have (i) amended their charter or organizational documents; (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Town House and its Subsidiaries; (iv) made any material change in its method of management, operation, or accounting (other than as contemplated in Section 5.1 for the Consolidated US Balance Sheet); (v) entered into any other material transaction which is not in the ordinary course of business; (vi) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or directors or any of its employees whose monthly compensation exceeds $20,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit 6 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ plan, payment, or arrangement made to, for, or with its officers, directors, or employees; and (c) None of Town House or its Subsidiaries will have (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except borrowings in the ordinary course of business or borrowings involving one or a series of related borrowings exceeding $10,000,000 in the aggregate; (ii) paid any material obligation or liability not otherwise in the ordinary course of business (absolute or contingent) other than current liabilities reflected in or shown on the Unaudited Balance Sheet, and current liabilities incurred since that date in the ordinary course of business; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights not otherwise in the ordinary course of business (except assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $500,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $1,000,000); (iv) made or permitted any amendment or termination of any contract, agreement, or license to which any of them is a party, except for any such contracts, or amendments or terminations, in the ordinary course of business or any such contracts or amendments or terminations that provide for aggregate consideration over the terms of the contract in excess of $5,000,000; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock). For purposes of this Agreement the terms "Material Adverse Change" and "Material Adverse Effect" mean an adverse change or effect that a reasonable person would attach importance to in evaluating the party to which it relates, the party's business or financial condition, or the transactions herein contemplated. 2.7 Title and Related Matters. Town House has good and marketable title to all of its properties, inventory, interests in properties, and assets, real and personal, which will be reflected in the Unaudited Balance Sheet free and clear of all liens, pledges, charges, or encumbrances except as disclosed therein. At Closing, Town House and its Subsidiaries will have good and marketable title to all of its properties, inventory, interests in properties, and assets, real and personal, reflected in the Consolidated US Balance Sheet (as that term is defined in Section 5.1) or acquired after that date (except properties, interests in properties, and assets sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all liens, pledges, charges, or encumbrances except: (a) as such assets may be affected by laws of the Hong Kong Special Administrative Region and The People's Republic of China; (b) statutory liens or claims not yet delinquent; and (c) such imperfections of title and easements as do not and will not materially detract from or interfere with the present or proposed use of the properties subject thereto 7 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ or affected thereby or otherwise materially impair present business operations on such properties; Except as set forth in the Town House Schedules, each of Town House and its Subsidiaries own, free and clear of any liens, claims, encumbrances, royalty interests, or other restrictions or limitations of any nature whatsoever, any and all properties it is currently constructing and all procedures, techniques, marketing plans, business plans, methods of management, or other information utilized in connection with its or their business. Except as set forth in the Town House Schedules, no third party has any right to, and none of Town House or its Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any product, technology, data, trade secrets, know-how, proprietary techniques, trademarks, service marks, trade names, or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding, would have a materially adverse affect on the business, operations, financial condition, income, or business prospects of Town House or its Subsidiaries or any material portion of its or their properties, assets, or rights, individually or taken as a whole. 2.8 Litigation and Proceedings. Except as set forth in the Town House Schedules, there are no actions, suits, proceedings, or investigations pending or, to the knowledge of either Town House or the Shareholders after reasonable investigation, threatened by or against any of Town House and its Subsidiaries, or affecting any of Town House or its Subsidiaries or their respective properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. Neither Town House nor the Shareholders have any knowledge of any default on the part of any of Town House and its Subsidiaries with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default. 2.9 Contracts. (a) Included in the Town House Schedules are copies of the most significant contracts, agreements, franchises, license agreements, or other commitments to which any of Town House and its Subsidiaries is a party or by which any of them or their respective assets, products, technology, or properties are bound, that have been reasonably requested by Xerion; (b) All contracts, agreements, franchises, license agreements, and other commitments to which any of Town House and its Subsidiaries are parties or by which their respective properties are bound and which are material to the operations of them individually or taken as a whole are valid and enforceable in all respects by the one or more of Town House and its Subsidiaries that is a party thereto, except as limited by bankruptcy and insolvency laws and by other laws affecting the rights of creditors generally; and 8 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (c) Except as described in the Town House Schedules, none of Town House or its Subsidiaries is a party to or bound by, and none of the properties of any of Town House and its Subsidiaries is subject to, any contract, agreement, other commitment or instrument; any charter or other corporate restriction; or any judgment, order, writ, injunction, decree, or award which materially and adversely affects, or in the future may (as far as Town House or the Shareholders can now foresee) materially and adversely affect, the business, operations, properties, assets, or condition of any of Town House and its Subsidiaries, individually or taken as a whole. 2.10 Material Contract Defaults. None of Town House or its Subsidiaries is in default in any material respect under the terms of any outstanding contract, agreement, lease, or other commitment which is material to its or their business, operations, properties, assets, or condition of Town House and its Subsidiaries and there is no event that has occurred which presently or with the passage of time, could result in a material default in any material respect under any such contract, agreement, lease, or other commitment in respect of which any of Town House and its Subsidiaries have not taken adequate steps to prevent such a default from occurring. 2.11 No Conflict with Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which any of Town House or its Subsidiaries is a party or to which any of their respective properties or operations are subject. 2.12 Compliance with Laws and Regulations. Each of Town House and its Subsidiaries have complied with all applicable statutes and regulations of any national, province, county, city, local or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of any of Town House and its Subsidiaries or except to the extent that noncompliance would not result in the incurrence of any material liability for any of Town House or its Subsidiaries. 2.13 Approval of Agreement. The board of directors of Town House has authorized the execution and delivery of this Agreement by Town House, and has or will have approved the transactions contemplated hereby. 2.14 Foreign Person and Activity Regulations. (a) None of Town House, its Subsidiaries, the Shareholders, or any other person who otherwise controls any of Town House or the Subsidiaries is or shall be (i) listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control ("OFAC"), Department of the Treasury, and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation (collectively, "OFAC Laws and Regulations"), (ii) a "Designated National" as defined in the Cuban Assets 9 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ Control Regulations, 31 C.F.R. Part 515, or (iii) a person designated under Paragraph 1 (b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders (collectively, the "Executive Orders"); and each of Town House and the Subsidiaries and the Shareholders are in compliance with all OFAC Laws and Regulations, Executive Orders and related government guidance; (b) None of Town House, the Subsidiaries, the Shareholders, or any other person who otherwise controls any of Town House and the Subsidiaries (i) is under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering (under either 18 U.S.C. Paragraph 1956 or 1957), or drug trafficking, terrorist-related activities or other money laundering predicate crimes or a violation of the Bank Secrecy Act laws (31 U.S.C. Paragraphs 5311, et seq.), (ii) has been assessed civil penalties under these or related laws (collectively, "Anti-Money Laundering Laws"), or (iii) has had any of its funds seized or forfeited in an action under Anti-Money Laundering Laws; and (c) None of Town House, the Subsidiaries, the Shareholders, or any other person who is or was affiliated or associated as an officer, employee, agent, consultant, or in any other capacity with any of Town House and the Subsidiaries has, during the five-year period ended August 31, 2005, and from that date to the Closing engaged in any act or practice that could reasonably be construed as a violation of any of the provisions of the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq. or any rule or regulation pertaining thereto. 2.15 Town House Schedules. Town House has delivered to Xerion or will deliver, as soon as practicable but in no event less than 5 days prior to the Closing, the following schedules, which are collectively referred to as the "Town House Schedules" and which consist of separate schedules, all of which are complete, true, and correct in all material respects. (a) a schedule containing complete and correct copies of the organizational documents, as amended, of each Town House and its Subsidiaries in effect as of the date of the Closing of this Agreement; (b) a schedule containing the financial statements of Town House and its Subsidiaries identified in paragraph 2.3(a) and 5.1; (c) a schedule, if requested by Xerion, containing true and correct copies of the most significant contracts, agreements, or other instruments to which any of Town House and its Subsidiaries is a party or by which any of them or their properties is bound, specifically including all contracts, agreements, or arrangements referred to in Section 2.10; (d) a schedule setting forth a description of any material adverse change in the business, operations, property, inventory, assets, or condition of Town House or 10 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ its Subsidiaries since the date of the Consolidated US Financial Statements, required to be provided pursuant to section 2.6 hereof; and (e) a schedule setting forth any other information, together with any required copies of documents, required to be disclosed in the Town House Schedules by sections 2.1 through 2.16. Each of the Town House Schedules shall be produced through delivery of a hard paper copy of the original and an electronic Microsoft Word or HTML formatted copy of the original, and if the original is in a language other than English, shall be produced through delivery of a hard paper copy of the original and an electronic Microsoft Word or HTML formatted copy of the original foreign language version and an English translation, certified by the translator as a complete and accurate translation from the original. Town House and the Shareholders shall cause the Town House Schedules and the instruments and data delivered to Xerion hereunder to be updated after the date hereof up to and including the Closing Date. ARTICLE III REPRESENTATIONS, COVENANTS, AND WARRANTIES OF THE SHAREHOLDERS OF TOWN HOUSE As an inducement to, and to obtain reliance of Xerion, the Shareholders further represent and warrant as follows: 3.1 Ownership of Town House Shares. The Town House Shareholders hereby represent and warrant with respect to themselves that they are the legal and beneficial owners of all of the issued and outstanding shares of Town House's registered capital and ordinary shares free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever, and that such Shareholders have full right, power, and authority to transfer, assign, convey, and deliver their Town House shares; and delivery of such shares at the Closing will convey to Xerion good and marketable title to such shares free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever. 3.2 Exemption From Registration. The Shareholders represent that the Xerion Stock is being acquired without a view to, or for, resale in connection with any public distribution of the Shares or any interest therein without registration or other compliance under the Securities Act of 1933, as amended (the "1933 Act") and that the Shareholders have no direct or indirect participation in any such undertaking or in the underwriting of such an undertaking. The Shareholders acknowledge that the Xerion Stock to be acquired pursuant to this Agreement have not been registered with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933 and are being issued pursuant to Regulation S, as the Closing will occur outside of the United States. The Shareholders agree and acknowledge that the Xerion Stock will be "restricted securities" within the meaning of Rule 144 adopted under the 1933 Act, and Xerion will issue stop transfer instructions to its registrar and transfer agent prohibiting the transfer of the Xerion Stock of Xerion delivered under this Agreement. The Shareholders acknowledge that the Xerion Stock must be held and may not be sold, transferred, or otherwise 11 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ disposed of for value unless they are subsequently registered under the 1933 Act or an exemption from such registration is available. The certificates representing the Xerion Stock will bear a legend restricting their transfer, except in compliance with applicable federal and state securities statutes: as follows: THE SHARES OF XERION ECOSOLUTIONS GROUP INC. TO BE ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION PURUSANT TO REGULATION S UNDER THE ACT. UNTIL ONE YEAR AFTER THE DATE OF PURCHASE, NO AMOUNT OF THE SHARES MAY BE OFFERED, SOLD, OR TRANSFERRED TO ANY U.S. PERSON AND THAT NO HEDGING TRANSACTIONS REGARDING THE SHARES SHALL BE MADE EXCEPT IN COMPLIANCE WITH THE ACT. OFFERS, SALES OR TRANSFERS IN THE U.S. OR TO A U.S. PERSON (AS DEFINTED IN REGULATION S PROMULATED UNDER THE ACT) OR FOR THE ACCOUNT AND BENEFIT OF A U.S. PERSON ARE NOT PERMITTED, EXCEPT AS PROVIDED IN SAID REGULATION S, UNLESS THE SHARES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION UNSDER THE ACT IS APPLICABLE. Each of the Shareholders represent to Xerion that: a. he/she is a citizen and resident of The People's Republic of China, and is NOT a U.S. person within the meaning of Rule 902(A) of Regulation S; b. he/she and his/her assigns of the Shares agree that the Shares of Xerion acquired hereby shall not be voluntarily sold, transferred or otherwise disposed of in the United States or to any U.S. person for a minimum period of one year from the closing date of this transaction, except by registration of such Shares under the Act and any applicable state securities laws. c. he/she understands that any disposition of the Shares in violation of this Agreement shall be null and void. No transfer of the Shares shall be made by Xerion or Xerion's registrar and transfer agent upon Xerion's transfer books or records unless there has been compliance with the terms of this Agreement, including the above provisions. Xerion will issue stop transfer instructions to its registrar and transfer agent to the effect that the Shares of Xerion may not be transferred for a period of one year after the closing date and may be transferred thereafter only except as provided herein. He/she agrees to indemnify and hold Xerion harmless from and against damages that may result from or arise out of any dispositions thereof in violation of this Agreement. c. In connection with the transaction which is the subject of this Agreement, he/she acknowledges that offers respecting the sale of the Shares directed by Xerion were received outside of the United States and that he/she has not and is not engaged in or directed any unsolicited offers to buy the Shares of Xerion in the United States or to any U.S. Person. 3.3 Shell Company. Shareholders acknowledge that Xerion may be a shell company as defined in Securities Act Release 33-8587. Shareholders will be responsible for assuring that Xerion will comply with the terms and conditions of Securities Act Release 33-8587, including, but not limited to filing the required information with the Securities and Exchange Commission in a timely manner. 12 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ 3.4 Investor Status. Each Shareholder is an "accredited investor" as defined in Rule 501(a) of Regulation D under the 1933 Act. ARTICLE IV REPRESENTATIONS, COVENANTS, AND WARRANTIES OF XERION As an inducement to, and to obtain the reliance of Town House and the Shareholders, Xerion represents and warrants as follows: 4.1 Organization. Xerion is a corporation duly organized, validly existing, and in good standing under the laws of the State of Colorado, and has the corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, and there is no jurisdiction in which it is not qualified in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. Included in the Xerion Schedules (as hereinafter defined) are complete and correct copies of the articles of incorporation and bylaws of Xerion, and all amendments thereto, as in effect on the date hereof. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of Xerion's articles of incorporation or bylaws. Xerion has taken all action required by law, its articles of incorporation, its bylaws, or otherwise to authorize the execution and delivery of this Agreement, and Xerion has full power, authority, and legal right to consummate the transactions herein contemplated. 4.2 Capitalization. Xerion's authorized capitalization consists of 300,000,000 shares of common stock, par value $0.001, of which 2,841,523 shares (prior to the stock exchange and the proposed Reverse Split) are issued and outstanding; and 50,000,000 shares of preferred stock, no par value, of which no shares are outstanding. All issued and outstanding shares are legally issued, fully paid, and non-assessable and not issued in violation of the pre-emptive or other rights of any person. 4.3 Subsidiaries. Xerion does not have any subsidiaries and does not own, beneficially or of record, any shares of any other corporation or business entity. 4.4 Financial Statements. (a) Included in the Xerion Schedules, as available from the EDGAR database available on the SEC website at www.sec.gov/edgar.shtml ("EDGAR") will be the audited balance sheets of Xerion as of December 31, 2004 and 2003, and the audited statements of operations, stockholders' equity, and cash flows for the two fiscal years ended December 31, 2004 together with the notes to such statements and the opinion of Manning Elliot, Chartered Accountants in Vancouver, Canada, an independent registered public accounting firm, with respect thereto; and the unaudited balance sheet of Xerion as of June 30, 2005 (the "most recent Xerion balance sheet"), and the related unaudited statements of operations, stockholders' 13 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ equity, and cash flow for the six-month period ended June 30, 2005, together with the notes to such statements. (b) All such financial statements have been prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved. The Xerion balance sheets present fairly as of their respective dates the financial condition of Xerion. Xerion did not have as of the date of any such Xerion balance sheet, except as and to the extent reflected or reserved against therein, any liabilities or obligations (absolute or contingent) which should be reflected in a balance sheet or the notes thereto prepared in accordance with generally accepted accounting principles, and all assets reflected therein are properly reported and present fairly the value of the assets of Xerion, in accordance with generally accepted accounting principles. The statements of operations, stockholders' equity, and cash flow reflect fairly the information required to be set forth therein by generally accepted accounting principles. (c) Xerion has no liabilities with respect to the payment of any federal, state, county, local, or other taxes (including any deficiencies, interest, or penalties), except for taxes accrued but not yet due and payable. (d) Xerion has filed all federal, state, province, or local income tax returns required to be filed by it for the years ended December 31, 2004, 2003, and 2002 and included in the Xerion Schedules are true and correct copies of said federal income tax returns of Xerion filed. None of such federal income tax returns have been examined by the Internal Revenue Service. Each of such income tax returns reflects the taxes due for the period covered thereby, except for amounts which, in the aggregate, are immaterial. (e) The books and records, financial and otherwise, of Xerion are in all material respects complete and correct and have been maintained in accordance with good business and accounting practices to which the corporate auditors have found no disclosable fault. (f) Xerion has good and marketable title to its assets and, except as set forth in the Xerion Schedules or the Financial Statements of Xerion or the notes thereto, has no material contingent liabilities, direct or indirect, matured or unmatured. (g) As of the Closing date, Xerion will have no material assets and shall not have any material liabilities, direct or contingent, except as specifically permitted by this Agreement. 4.5 Information. The information concerning Xerion set forth in this Agreement and the Xerion Schedules is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading. 14 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ 4.6 Options or Warrants. Except as set forth in the Xerion Schedules, there are no existing options, warrants, calls, convertible notes, derivative securities or commitments of any character relating to the authorized and unissued stock of Xerion, except options, warrants, calls, convertible notes, derivative securities or commitments, if any, to which Xerion is not a party and by which it is not bound. 4.7 Absence of Certain Changes or Events. Except as described herein or in the Xerion Schedules, since the date of the most recent Xerion balance sheet: (a) there has not been (i) any material adverse change in the business, operations, properties, assets, or condition of Xerion (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or financial condition of Xerion; (b) Xerion has not (i) recently amended its articles of incorporation or bylaws or restructured the company's stock; (ii) declared or made, or agreed to declare or make any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Xerion; (iv) made any material change in its method of management, operation, or accounting; (v) entered into any other material transactions; (vi) made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or directors or any of its employees whose monthly compensation exceeds $1,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement, made to, for, or with its officers, directors, or employees; (c) Xerion has not (i) granted or agreed to grant any options, warrants, or other rights for its stocks, bonds, or other corporate securities calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (iii) paid or agreed to pay any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent Xerion balance sheet and current liabilities incurred since that date in the ordinary course of business and professional and other fees and expenses incurred in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereby; (iv) sold or transferred, or agreed to sell or transfer, any of its assets, property, or rights (except assets, property, or rights not used or useful in its business which, in the aggregate have a value of less than $1,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $1,000); (v) made or permitted any 15 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Xerion; or (vi) issued, delivered, or agreed to issue or deliver any stock, bonds, or other corporate securities including debentures (whether authorized and unissued or held as treasury stock), except in connection with this Agreement; and (d) to the best knowledge of Xerion, it has not become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, the business, operations, properties, assets, or condition of Xerion. 4.8 Title and Related Matters. Xerion has good and marketable title to all of its properties, interest in properties, and assets, real and personal, which are reflected in the Xerion balance sheet or acquired after that date (except properties, interest in properties, and assets sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all liens, pledges, charges, or encumbrances except (a) statutory liens or claims not yet delinquent; (b) such imperfections of title and easements as do not and will not materially detract from or interfere with the present or proposed use of the properties subject thereto or affected thereby or otherwise materially impair present business operations on such properties; and (c) as described in the Xerion Schedules. 4.9 Litigation and Proceedings. There are no actions, suits, proceedings, or investigations pending or, to the knowledge of Xerion after reasonable investigation, threatened by or against Xerion, or affecting Xerion, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. Xerion has no knowledge of any default on the part of Xerion with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default. 4.10 Contracts. Xerion is not a party to any material contract, agreement, or other commitment, except as specifically disclosed in its schedules to this Agreement. 4.11 No Conflict With Other Instruments. The consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute a default under, any indenture, mortgage, deed of trust, or other material agreement or instrument to which Xerion is a party or to which it or any of its assets or operations are subject. 4.12 Governmental Authorizations. Xerion has all licenses, franchises, permits, and other government authorizations, that are legally required to enable it to conduct its business operations in all material respects as conducted on the date hereof. Except for compliance with federal and state securities or corporation laws, as hereinafter provided, no authorization, 16 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Xerion of this Agreement and the consummation by Xerion of the transactions contemplated hereby. 4.13 Compliance With Laws and Regulations. To the best of its knowledge, Xerion has complied with all applicable statutes and regulations of any federal, state, or other applicable governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or conditions of Xerion or except to the extent that noncompliance would not result in the incurrence of any material liability. This compliance includes, but is not limited to, the filing of all reports to date with the U.S. Securities and Exchange Commission and state securities authorities. 4.14 Insurance. Xerion owns no insurable properties and carries no casualty or liability insurance. 4.15 Approval of Agreement. The board of directors of Xerion has authorized the execution and delivery of this Agreement by Xerion and has approved this Agreement and the transactions contemplated hereby. 4.16 Continuity of Business Enterprises. Xerion has no commitment or present intention to liquidate Xerion or sell or otherwise dispose of a material portion of its business or assets following the consummation of the transactions contemplated hereby. 4.17 Material Transactions of Affiliations. Except as disclosed herein and in the Xerion Schedules, there exists no material contract, agreement, or arrangement between Xerion and any person who was at the time of such contract, agreement, or arrangement an officer, director, or person owning of record or known by Xerion to own beneficially, 10% or more of the issued and outstanding common stock of Xerion and which is to be performed in whole or in part after the date hereof or was entered into not more than three years prior to the date hereof. Neither any officer, director, nor 10% shareholders of Xerion has, or has had during the last preceding full fiscal year, any known interest in any material transaction with Xerion which was material to the business of Xerion. Xerion has no commitment, whether written or oral, to lend any funds to, borrow any money from, or enter into any other material transaction with any such affiliated person. 4.18 Employment Matters . Xerion has no employees other than its executive officers. 4.19 Xerion Schedules. Xerion has delivered to Town House, or will deliver as soon as practicable at its request, the following schedules, which are collectively referred to as the "Xerion Schedules," and which consist of separate schedules, all of which are complete, true, and correct in all material respects.: (a) a schedule containing complete and accurate copies of the articles of incorporation and bylaws, as amended, of Xerion as in effect as of the date of this Agreement and as are available online at the Colorado Secretary of State website; 17 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (b) a schedule containing all filings made by Xerion with the "SEC" since January 1, 2002 as available on EDGAR and all those since January 1, 2002 which have not appeared on EDGAR. (c) a schedule containing a copy of the federal income tax returns of Xerion identified in paragraph 4.4(d); (d) a schedule setting forth the description of any material adverse change in the business, operations, property, assets, or condition of Xerion since the date of the most recent Xerion balance sheet, required to be provided pursuant to section 4.7 hereof; and (e) a schedule setting forth any other information, together with any required copies of documents, required to be disclosed in the Xerion Schedules by sections 4.1 through 4.17. 4.20. Updated Schedules. Xerion shall cause the Xerion Schedules and the instruments and data delivered to Town House hereunder to be updated after the date hereof up to and including the Closing Date. 4.21 Cancellation of Debts to Affiliates. Xerion shall cause all debts and any other obligations to directors, officers and any other affiliates of Xerion to be cancelled and terminated on or before the Closing Date. ARTICLE V SPECIAL COVENANTS 5.1 Town House Consolidated US Financial Statements. At least five days prior to Closing, Town House shall deliver to Xerion the consolidated US financial statements ("Consolidated US Financial Statements"), which shall consist of the consolidated audited balance sheets of Town House and the Subsidiaries at December 31, 2004 and 2003 and June 30, 2005. The unaudited consolidated balance sheet at June 30, 2005 is referred to herein as the "Unaudited Balance Sheet". The related audited consolidated statements of operations, stockholders' equity and cash flows for the periods ended December 31, 2004 and 2003 and June 30, 2005 (consolidating Town House and the Subsidiaries), together with notes to such statements and the opinion of Murrell, Hall, McIntosh & Company, P.L.C., independent certified public accountants, with respect thereto shall be included in the Town House Schedules. All of the Consolidated US Financial Statements will be in United States Dollars and be prepared in accordance with generally accepted accounting principles in the United States (consistently applied during each of the periods) and the requirements of Regulation S-X adopted by the SEC. The Consolidated US Financial Statements will be part of the Town House Schedules. Each of Town House and the Shareholders represents and warrants that the Consolidated US Balance Sheet presents fairly the consolidated financial condition of Town House and its Subsidiaries. Town House and its Subsidiaries will not have, as of the date of the Consolidated US Balance Sheet, except as and to the extent reflected or reserved against therein, any liabilities or 18 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ obligations (absolute or contingent) that should be reflected in the Consolidated US Balance Sheet or the notes thereto. All assets reflected in the Consolidated US Balance Sheet will be properly reported and present fairly the value of the assets of Town House and its Subsidiaries. Consolidated statements of income, stockholders' equity, and cash flows presented in the Consolidated US Financial Statements will reflect fairly the information required to be set forth therein. Town House and Shareholders represent and warrant that the Members' Equity to be reported in the Consolidated US Balance Sheet shall not show a material adverse change from that reported on the Unaudited Balance Sheet. Town House and Shareholders further represent and warrant that the Members' Equity to be reported in the Town House 3rd quarter ending September 30, 2005 shall not show a material adverse change greater than one million dollars from the Member's Equity reported on the Consolidated US Balance Sheet. 5.2 Access to Properties and Records. Xerion and Town House will each afford to the officers and authorized representatives of the other full access to the properties, books, and records of Xerion or Town House and its Subsidiaries as the case may be, in order that each may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other, and each will furnish the other with such additional financial and operating data and other information as to the business and properties of Xerion or Town House and its Subsidiaries as the case may be, as the other shall from time to time reasonably and with cause request. 5.3 Delivery of Books and Records. At the Closing, Xerion shall deliver to Stephen A. Zrenda, Jr., Esq., legal counsel to Town House, the originals of the corporate minute books, books of account, contracts, records, and all other books or documents of Xerion now in the possession or control of Xerion or its representatives and agents. 5.4 Xerion Board of Directors. At the Closing, Xerion shall deliver or cause to be delivered the resignation of all members from the board of directors of Xerion, together with a unanimous written consent of the Xerion board of directors providing for: the appointment of persons designated by the Shareholders for election to the board of directors to fill the vacancies left by the resignations (the "New Board"), including one member of the Board of Directors to be designated by Etech Capital Group, Inc.; and, all actions taken subsequent to the Closing of this Agreement and prior to the effective date of the resignations of the current directors as directors of Xerion, by the board of directors, will require the approval and consent of the director elected to the board to fill the vacancy left by the resignations. At the Closing each of the resigning directors will deliver to Town House and Xerion their signed resignations as directors of Xerion and a unanimous written consent of the directors of Xerion appointing as directors to fill the vacancies left by their resignations persons designated by the Shareholders and one person designated by Etech Capital Group, all of which will be effective 10 days following the later to occur of, the date a statement complying with the requirements of Rule 14f-1 adopted under the Securities Exchange Act of 1934 (the "Exchange Act") disclosing the change in control of the Xerion board of directors is mailed to all shareholders of record of Xerion, and said statement is filed with the SEC. Xerion will take all action required to prepare, mail to shareholders, and file the foregoing statement required by Rule 14f-1 of the Exchange Act no later than 20 days following the Closing Date. The New Board of Xerion will be responsible for the filing of Xerion's third quarter 2005 10QSB. The New Board of Xerion 19 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ agrees to promptly transfer shares of the Xerion Stock to all parties involved in this Exchange according to the schedule 1. The New Board of Xerion shall also agree to promptly register the shares of Etech Capital Group and its designated holders through a Form SB-1 or Form SB-2 or other appropriate form under the Securities Act of 1933. It is understood that Xerion may also register shares of its common stock for sale in the same registration statement to further capitalize Xerion. 5.5 Third Party Consents and Certificates. Xerion and Town House agree to cooperate with each other in order to obtain any required third party consents to this Agreement and the transactions herein and therein contemplated. 5.6 Actions Prior to Closing. (a) From and after the date of this Agreement until the Closing Date and except as set forth in the Xerion or Town House Schedules or as permitted or contemplated by this Agreement, Xerion and Town House and its Subsidiaries respectively, will each: (i) carry on its business in substantially the same manner as it has heretofore; (ii) maintain and keep its properties in states of good repair and condition as at present, except for depreciation due to ordinary wear and tear and damage due to casualty; (iii) maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it; (iv) perform in all material respects all of its obligation under material contracts, leases, and instruments relating to or affecting its assets, properties, and business; (v) use its best efforts to maintain and preserve its business organization intact, to retain its key employees, and to maintain its relationship with its material suppliers and customers; and (vi) fully comply with and perform in all material respects all obligations and duties imposed on it by all federal and state laws and all rules, regulations, and orders imposed by federal or state governmental authorities. (b) From and after the date of this Agreement until the Closing Date, neither Xerion nor Town House and its Subsidiaries will: (i) make any change in their organizational documents, articles of incorporation or bylaws; (ii) take any action described in section 2.6 in the case of Town House and its Subsidiaries or in section 4.7, in the case of Xerion (all except as permitted therein or as disclosed in the applicable party's schedules); or (iii) enter into or amend any contract, agreement, or other instrument of any of the types described in such party's schedules, except that a party may enter into or amend any contract, agreement, or other instrument in the ordinary course of business. 5.7 Sales Under Rules 144 or 145, If Applicable. (a) Xerion will use its best efforts to at all times to comply with the reporting requirements of the Exchange Act, including timely filing of all periodic reports required under the provisions of the Exchange Act and the rules and regulations promulgated thereunder. 20 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (b) Upon being informed in writing by any person holding restricted stock of Xerion as of the date of this Agreement that such person intends to sell any shares under Rule 144 or Rule 145 promulgated under the Securities Act (including any rule adopted in substitution or replacement thereof), Xerion will certify in writing to such person that it has filed all of the reports required to be filed by it under the Exchange Act to enable such person to sell such person's restricted stock under Rule 144 or 145, as may be applicable in the circumstances, or will inform such person in writing that it has not filed any such report or reports. (c) If any certificate representing any such restricted stock is presented to Xerion's transfer agent for registration of transfer in connection with any sale theretofore made under Rule 144 or 145, provided such certificate is duly endorsed for transfer by the appropriate person(s) or accompanied by a separate stock power duly executed by the appropriate person(s) in each case with a medallion guarantee with reasonable assurances that such endorsements are genuine and effective, and is accompanied by an opinion of counsel satisfactory to Xerion and its counsel, at the sole expense of the transferee, that such transfer has complied with the requirements of Rule 144 or 145, as the cases may be, Xerion will promptly instruct its transfer agent to register such transfer and to issue one or more new certificates representing such shares to the transferee and, if appropriate under the provisions of Rule 144 or 145, as the case may be, free of any stop transfer order or restrictive legend. The provisions of this Section 5.7 shall survive the Closing and the consummation of the transactions contemplated by this Agreement. 5.8 Indemnification. (a) Each of Town House and the Shareholders hereby agree, jointly and severally, to indemnify Xerion and each of the officers, agents and directors of Xerion as of the date of execution of this Agreement against any loss, liability, claim, damage, or expense (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentation made under Article II, Article III, or Section 5.1 of this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement. (b) Xerion hereby agrees to indemnify Town House and each of the officers, agents and directors of Town House as of the date of execution of this Agreement and the Shareholders against any loss, liability, claim, damage, or expense (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which it or they may become subject 21 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ arising out of or based on any inaccuracy appearing in or misrepresentation made under Article IV of this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement. 5.9 After the Closing of this Agreement and assumption of control of Xerion by the New Board, the New Board and Shareholders shall initiate and approve and effect a one-for-eight (1-for-8) Reverse Split of the outstanding common stock of Xerion. In regard to this Reverse Split, Xerion will not issue any fractional shares nor pay any cash for fractional shares, and any fractional share(s) shall be rounded up to the next higher full share. In connection with the Reverse Split, the New Board of Xerion will authorize special treatment ("Special Treatment") to certain stockholders ("Certain Stockholders") of Xerion in order to preserve round lot holders (i.e., holders owning at least 100 shares) after the Reverse Split, as follows: a) The Certain Stockholders are defined as holding, as of the Closing date, 800 or fewer shares of common stock, but at least 100 shares of common stock in Xerion. b) Special Treatment is defined as follows: The Certain Stockholders shall receive shares, newly issued or from treasury, from Xerion, at no cost to these Certain Stockholders, equaling the amount of shares necessary to bring their holding to 100 shares of common stock of Xerion after the Reverse Split. c) Persons holding less than 100 shares of common stock would not be affected by the Reverse Split and shall continue to hold and own the same number of shares as they possessed before the Reverse Split. d) The Certain Stockholders shall be identified according to the printed Shareholder List provided in the Xerion Schedules. Certain Stockholders who are not listed on the Shareholder List due to their not having their shares registered at time of Closing but which evidence, within 180 days of Closing, to the board along with written request from themselves or their broker for issuance of such new shares that they qualify as a Certain Stockholder will be afforded Special Treatment. e) The new board, upon Closing, shall publicize the details of this Special Treatment in a corporate news release and Form 8-K current report. f) Those Certain Stockholders appearing on the Shareholder List shall automatically be mailed their new certificates within ninety days subsequent to the execution of the Reverse Split. g) Any other terms and conditions of Special Treatment to be afforded to stockholders to preserve round lot stockholders, and determining which 22 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ stockholders may be eligible for such Special Treatment, will be determined solely by the New Board. 5.10 The Shareholders and New Board of Xerion shall not approve a reverse-split of Xerion's shares for a period of at least two years subsequent to the Exchange, except for the Reverse Split provided for herein and except in the instance that market conditions prevent Xerion from achieving a per share price equaling the requisite per share price for NASDAQ listing (as per paragraph 5.11) and institutional investment, such as the purchase of Xerion stock for investment on the open market by a mutual fund, estimated to be US$5.00 and US$8.00 per share respectively, and Xerion is unable to meet the per share price requirement necessary to obtain such listing and Institutional Investment. 5.11 Upon Closing, the Shareholders agree to authorize and direct the New Board of Xerion to apply all diligence and effort to prepare and apply for listing ("Listing") on the NASDAQ Small Cap stock exchange, the American Stock Exchange or other reputable and nationally listed North American stock exchange. 5.12 Reverse Stock Split. Promptly after the Closing, the assumption of control of the New Board and the issuance of Xerion Stock, the Shareholders shall approve a reverse stock split of one-for eight (1-for-8) (1 post-split share equals 8 pre-split shares) of the then issued and outstanding shares of the common stock of Xerion (referred to herein as the "Reverse Split"). The resultant post-Reverse Split percentage of ownership of Xerion Stock will equal approximately the structure expressed in schedule 2, with the only exceptions being that of the possibility of the numbers being adjusted for fractional shares. (the remainder of this page intentionally left blank) ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF XERION The obligations of Xerion under this Agreement are subject to Xerion's satisfaction at or prior to Closing of the following conditions: 6.1 Accuracy of Representations. The representations and warranties made by Town House and the Shareholders in this Agreement were true when made and shall be true at the Closing Date with the same force and effect as if such representations and warranties were made at and as of the Closing Date (except for changes therein permitted by this Agreement), and Town House and the Shareholders shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by Town House and the Shareholders prior to or at the Closing. Xerion shall be furnished with a certificate, signed by a 23 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ duly authorized officer of Town House and the Shareholders and dated the Closing Date, to the foregoing effect. 6.2 Officer's Certificates. Xerion shall have been furnished with a certificate dated the Closing Date and signed by a duly authorized officer of Town House and the Shareholders to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of Town House or the Shareholders threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement, and, to the extent not disclosed in the Town House Schedules, by or against the Shareholders or any of Town House and its Subsidiaries which might result in any material adverse change in any of the assets, properties, business, or operations of any of Town House and its Subsidiaries, individually or taken as a whole. 6.3 No Material Adverse Change. Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business, or operations of any of Town House and its Subsidiaries, individually or taken as a whole, nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business, or operations of any of Town House and its Subsidiaries. 6.4 Director Questionnaires. Xerion shall have received director questionnaires completed and signed by each director to be designated and elected as director of Xerion in form and substance reasonably satisfactory to Xerion and its counsel which shall contain information for use by Xerion in reporting the transaction contemplated hereby on Form 8-K and other documents to be filed with the SEC. 6.5 Other Items. (a) Xerion shall have received a Shareholders list of Town House containing the name, address, and number of shares held by the Town House Shareholders as of the date of Closing certified by an executive officer of Town House as being true, complete, and accurate. (b) Xerion shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as Xerion may reasonably request. (c) Xerion shall have been furnished with the Consolidated US Financial Statements not less than five days prior to the Closing. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF TOWN HOUSE AND THE SHAREHOLDERS 24 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ The obligations of Town House and the Shareholders under this Agreement are subject to Town House's and the Shareholder's satisfaction at or prior to Closing of the following conditions: 7.1 Accuracy of Representations. The representations and warranties made by Xerion in this Agreement were true when made and shall be true as of the Closing Date (except for changes therein permitted by this Agreement) with the same force and effect as if such representations and warranties were made at and as of the Closing Date, and Xerion shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with by Xerion prior to or at the Closing. Town House shall have been furnished with a certificate, signed by a duly authorized executive officer of Xerion and dated the Closing Date, to the foregoing effect. 7.2 Officer's Certificate. Town House shall have been furnished with a certificate dated as of the Closing Date and signed by a duly authorized executive officer of Xerion to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of Xerion threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement. 7.3 No Material Adverse Change. Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business, or operations of Xerion nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business, or operations of Xerion. 7.4 Good Standing. Xerion shall have received a certificate of good standing from the Secretary of State of the State of Colorado or other appropriate office, dated as of a date within 10 days prior to the Closing Date certifying that Xerion is in good standing as a corporation in the State of Colorado. (the remainder of this page intentionally left blank) 7.5 Other Items. (a) Town House shall have received a shareholders' list of Xerion ("Shareholder List") from its transfer agent, current at least within ten (10) days prior to Closing, containing the name and number of shares held by each registered Xerion shareholder. (b) Town House shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as Town House may reasonably request. 25 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ (the remainder of this page intentionally left blank) ARTICLE VIII TERMINATION 8.1 Termination. (a) This Agreement may be terminated by the board of directors of either Xerion or Town House at any time prior to the Closing Date if: (i) there shall be any actual or threatened action or proceeding, that is not frivolous, before any court or any governmental body which shall seek to restrain, prohibit, or invalidate the transactions contemplated by this Agreement and which, in the judgment of such board of directors, made in good faith and based on the advice of its legal counsel, makes it inadvisable to proceed with the exchange contemplated by this Agreement; (ii) any of the transactions contemplated hereby are disapproved by any regulatory authority whose approval is required to consummate such transactions or in the judgment of such board of directors, made in good faith and based on the advice of counsel, there is substantial likelihood that any such approval will not be obtained or will be obtained only on a condition or conditions which would be unduly burdensome, making it inadvisable to proceed with the exchange; (iii) either party identifies a serious material deficiency with the results of its business, legal, and accounting due diligence regarding the other conducted up to the Closing Date, or (iv) there shall have been any material adverse change after the date of the latest balance sheet of Xerion or financial condition of Xerion, which could have a materially adverse affect on the value of the business of Xerion, except any changes disclosed in the Xerion Schedules or allowed for herein. In the event of termination pursuant to this paragraph (a) of section 8.1, no obligation, right, or liability shall arise hereunder, and each party shall bear all of the expenses incurred by it in connection with the negotiation, drafting, and execution of this Agreement and the transactions herein contemplated. (b) This Agreement may be terminated at any time prior to the Closing by action of the board of directors of Xerion if: (i) Town House shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Town House contained herein shall be inaccurate in any material respect; or (ii) there shall have been a material adverse change between the previously delivered financial statements and the yet to be delivered Consolidated US Balance Sheet in the assets, properties, business, or financial condition of any of Town House and its Subsidiaries, which could have a materially adverse affect on the value of the business of any of Town House and its Subsidiaries, individually and taken as a whole, except any changes disclosed in the Town House Schedules. If this 26 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ Agreement is terminated pursuant to this paragraph (b) of section 8.1, this Agreement shall be of no further force or effect, and no obligation, right, or liability shall arise hereunder. (c) This Agreement may be terminated at any time prior to the Closing by action of the board of directors of Town House if Xerion shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Xerion contained herein shall be inaccurate in any material respect. If this Agreement is terminated pursuant to this paragraph (c) of section 8.1, this Agreement shall be of no further force or effect, and no obligation, right, or liability shall arise hereunder, except that each party shall bear its own costs incurred in connection with the negotiation, preparation, and execution of this Agreement. ARTICLE IX MISCELLANEOUS 9.1 Brokers. Xerion, the Shareholders and Town House agree that there were no finders or brokers, other than Etech Securities, Inc. involved in bringing the parties together or who were instrumental in the negotiation, execution, or consummation of this Agreement. Xerion, on one hand, and Town House and the Shareholders on the other, agree to indemnify the other against any claim by any third person for any commission, brokerage, or finders' fee arising from the transactions contemplated hereby based on any alleged agreement or understanding between the indemnifying party and such third person, whether express or implied from the actions of the indemnifying party. 9.2 Governing Law. This Agreement shall be governed by, enforced, and construed under and in accordance with the laws of the United States of America and, with respect to matters of state law, with the laws of Colorado. Any dispute arising under or in any way related to this Agreement will be submitted to binding arbitration before a single arbitrator by the American Arbitration Association in accordance with the Association's commercial rules then in effect. The arbitration will be conducted in Los Angeles, California. The decision of the arbitrator will set forth in reasonable detail the basis for the decision and will be binding on the parties. The arbitration award may be confirmed by any court of competent jurisdiction. 9.3 Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if personally delivered or if sent by courier or registered mail, both with copy by facsimile, addressed as follows: If to Xerion: Xerion EcoSolutions Group Inc. Suite 905, 102-4639 Main Street Whistler, BC Canada VON 1B4 Telephone: 604-902-0718 Fax: 604-905-0931 27 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ If to Town House or Shareholders: Stephen A. Zrenda, Jr., Esq. Stephen A. Zrenda, Jr., P.C. 100 N. Broadway Avenue, Suite 2440 Oklahoma City, OK 73102-8608 Telephone: 405.235.2111 Fax: 915.975.8003 Email: zrendaesq@aol.com or such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice or communication shall be deemed to have been given as of the date so delivered by courier or fax. 9.4 Attorney's Fees. In the event that any party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the parties shall be responsible for their own costs. 9.5 Confidentiality. The parties will keep and use all nonpublic information ("Confidential Information") in confidence solely for the purpose set forth in this Agreement and will not disclose any part of Confidential Information to any person, firm, corporation, or other entity. Confidential Information includes, but is not limited to; all data and information obtained with respect to another party or any subsidiaries thereof from any representative, officer, director, or employee or other entity or from any books or records or from personal inspection, or such other party. Other than provided for herein, the parties shall not use Confidential Information or disclose the same to others, except (i) to the extent such data or information is published or is or becomes a matter of public knowledge other than by breach of this Agreement, or is required by law to be published; and (ii) to the extent that such data or information must be used or disclosed in order to consummate the transactions contemplated by this Agreement. 9.6 Expenses of Stock Exchange. Except as otherwise provided for in Section 8.1, Xerion and Town House agree that they will each bear their own costs and expenses in negotiating and closing the transactions contemplated by this Agreement, including but not limited to, attorneys' fees, accounting fees, due diligence expenses, travel, printing, copying, mail, telephone and other related expenses. 9.7 Third Party Beneficiaries. This contract is solely between Xerion, the Shareholders and Town House and, except as specifically provided, no director, officer, stockholder, employee, agent, independent contractor, or any other person or entity shall be deemed to be a third party beneficiary of this Agreement. 9.8 Entire Agreement. This Agreement represents the entire agreement (including the exhibits or schedules hereto) between the parties relating to the subject matter hereof, including this Agreement alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. There are no other courses of dealing, understandings, agreements, representations, or warranties, written or oral, except as set forth herein. 28 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ 9.9 Survival. The representations, warranties, and covenants of the respective parties shall survive the Closing Date and the consummation of the transactions herein contemplated. 9.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. 9.11 Amendment or Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing, unless so delivered in writing. At any time prior to the Closing Date, this Agreement may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance hereof may be extended by a writing signed by the parties whose signatures appear on this Agreement.. 9.12 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. All monetary amounts stated in this Agreement are, unless specifically stated otherwise, denominated in United States Dollars. The parties acknowledge and agree with respect to their respective schedules that (i) the schedules may include certain items and information solely for informational purposes for the convenience of the parties hereto, (ii) each attachment referenced in a schedule shall be deemed incorporated into and a part of such schedule. 9.14 Headings. The headings in this document are for reference only and are not intended to be used to interpret the document. Further documentation, if any, required to give force and effect to the spirit and intent of this Agreement will be executed promptly. 9.15 Time and Transmission. Time shall of the essence in this Agreement. The parties agree that executed copies of this Agreement transmitted and received via facsimile shall be accepted as binding documents evidencing the intention of the parties to be bound by the terms of this Agreement. The parties agree to also send complete original copies by courier. 9.16 Validity. Should any part of this Agreement be declared or held invalid for any reason, such validity shall not affect the validity of the remainder which shall continue in full force and effect and be construed as if this Agreement had been executed without the invalid portion and it is hereby declared that the intention of 29 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ the parties hereto that this Agreement should have been executed without reference to any portion of which may be for any reason hereinafter declared or held invalid. 9.17 Full Understanding. This Agreement contains the full and complete agreement of the parties and supersedes all prior agreements, arrangements or understandings, whether written or oral, relating thereto. This Agreement may not be amended, modified or supplemented, and no provision or requirement hereof may be waived, except by written instrument signed by the party to be charged. There are no representations or warranties, expressed or implied, statutory or otherwise, other than as expressly set forth or referred to herein. [Signatures on Following Page.] 30 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the date first above-written and each page has been initialed by the parties. 31 XERION ECOSOLUTIONS GROUP INC. By: /s/ Ben Traub ------------------------------------- Ben Traub Chief Executive Officer and President TOWN HOUSE LAND LIMITED By: /s/ Fang, Zhong ------------------------------------- Fang, Zhong Chief Executive Officer and President TOWN HOUSE LAND LIMITED'S SHAREHOLDERS: /s/ Fang, Zhong ----------------------------------------- Fang, Zhong /s/ Hu Min ----------------------------------------- Hu Min /s/ Fang, Wei-Jun ----------------------------------------- Fang, Wei-Jun /s/ Fang, Hui's legal representative ----------------------------------------- Fang, Hui's legal representative 31 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ Schedule 1 to STOCK EXCHANGE AGREEMENT Dated October 17, 2005 The Xerion Stock of Xerion EcoSolutions Group Inc. to be issued under section 1.1 and section 1.2 of the Stock Exchange Agreement shall be issued to the following persons with a restrictive legend consistent with the Securities Act of 1933, as amended: Common Stock of Xerion EcoSolutions Group Inc. to be issued to the stockholders of Town House Land Limited and their designees Number of Shares Percentage - --------------------------- ---------------- ---------- 1. Fang, Zhong 181,439,200 79.816% 2. Hu, Min 6,201,340 2.728% 3. Fang, Wei-Jun 6,201,340 2.728% 4. Fang Hui's legal representative 6,201,340 2.728% 5. Belmont Capital Group Limited 8,751,891 3.85% 6. Hung Wan 991,123 0.436% 7. Stephen A. Zrenda, Jr. 1,623,078 0.714% 8. Etech Capital Group 9,092,974 4.0% 9. Liang, Rang Yi 3,978,132 1.75% ---------------- ---------- 224,480,317 98.75% ---------------- ---------- 32 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ Schedule 2 to STOCK EXCHANGE AGREEMENT Dated October 17, 2005 Immediately subsequent to Closing, the Common Stock of Xerion EcoSolutions Group Inc. will be Reverse Split at a one-for-eight ratio , as per section 5.12 of Article V of the Stock Exchange Agreement. All Xerion Stock issued shall bear a restrictive legend consistent with the Securities Act of 1933, as amended. The post Reverse Split shareholder structure for all parties receiving Xerion Stock under the Stock Exchange Agreement will be as follows: Common Stock of Xerion EcoSolutions Group Inc. to be issued to the stockholders of Town House Land Limited and their designees Number of Shares Percentage - --------------------------- ---------------- ---------- 1. Fang, Zhong 22,679,900 79.816% 2. Hu, Min 775,167 2.728% 3. Fang, Wei-Jun 775,167 2.728% 4. Fang Hui's legal representative 775,167 2.728% 5. Belmont Capital Group Limited 1,093,986 3.85% 6. Hung Wan 123,890 0.436% 7. Stephen A. Zrenda, Jr. 202,885 0.714% 8. Etech Capital Group 1,136,609 4.0% 9. Liang, Rang Yi 497,267 1.75% ---------------- ---------- 28,060,040 98.75% ---------------- ---------- 33 BT______, / FZ______, / FZ______, HM______, FWJ______, FH______ EX-23.1 3 v027807_ex23-1.txt Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Form 8-K current report (File No. 0-27351) of Xerion EcoSolutions Group Inc. of our report dated May 11, 2005 related to the audited consolidated financial statements of Town House Land Limited for the years ended December 31, 2004 and 2003. /s/ Murrell, Hall, McIntosh & Co., PLLP Oklahoma City, Oklahoma November 10, 2005 EX-99.1 4 v027807_ex99-1.txt Exhibit 99.1 Press Release ------------- November 10, 2005 Contact: Wei Zhang Xerion EcoSolutions Group Inc. (OTC-B XECO) announced that it has closed its Stock Exchange Agreement (the "Agreement") with Town House Land Limited ("Town House"), a limited liability organized in the Hong Kong Special Administrative District in The People's Republic of China (the "PRC"). Town House is a real estate development company, and its principal executive offices are located in the City of Wuhan in the PRC where its principal real estate development activities are located. Town House has also recently acquired undeveloped real estate properties in Florida and California for development purposes. Under the terms of the Agreement, Xerion acquired 100% of the outstanding registered capital/equity of Town House in exchange for 224,480,317 shares of the common stock of Xerion which represents 98.7% of the issued and outstanding common stock of Xerion. The Board of Directors of Xerion has appointed new officers comprised of Mr. Fang Zhong who was appointed as the Chief Executive Officer, President and Treasurer and of Ms. Hu Min as the Secretary of Xerion. Mr. Warren C. Gacsi has resigned as a director of Xerion, and the Board of Directors has appointed Mr. Fang Zhong as a director and Chairman of the Board. -----END PRIVACY-ENHANCED MESSAGE-----