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0001204459-10-002619.txt : 20101103
0001204459-10-002619.hdr.sgml : 20101103
20101103172106
ACCESSION NUMBER: 0001204459-10-002619
CONFORMED SUBMISSION TYPE: 8-K/A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20101102
ITEM INFORMATION: Financial Statements and Exhibits
FILED AS OF DATE: 20101103
DATE AS OF CHANGE: 20101103
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CHINA OUMEI REAL ESTATE INC.
CENTRAL INDEX KEY: 0001368192
STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552]
IRS NUMBER: 000000000
STATE OF INCORPORATION: E9
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-52132
FILM NUMBER: 101162353
BUSINESS ADDRESS:
STREET 1: FLOOR 28, BLOCK C
STREET 2: LONGHAI MINGZHU BUILDING
CITY: QINGDAO
STATE: F4
ZIP: 266000
BUSINESS PHONE: (86) 532 8099 7969
MAIL ADDRESS:
STREET 1: FLOOR 28, BLOCK C
STREET 2: LONGHAI MINGZHU BUILDING
CITY: QINGDAO
STATE: F4
ZIP: 266000
FORMER COMPANY:
FORMER CONFORMED NAME: Dragon Acquisition CORP
DATE OF NAME CHANGE: 20060630
8-K/A
1
d8ka.htm
FORM 8-K/A
China Oumei Real Estate Inc.: Form 8-K/A - Filed by newsfilecorp.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event Reported): November 3,
2010 (April 14, 2010)
CHINA OUMEI REAL ESTATE INC.
(Exact name of registrant as specified in its charter)
Cayman
Islands |
000-52132 |
N/A |
(State or other jurisdiction of
|
(Commission File Number) |
(IRS Employer Identification No.) |
incorporation or organization)
|
|
|
Floor 28, Block C
Longhai Mingzhu Building
No.182
Haier Road
Qingdao 266000
Peoples Republic of China
(Address of principal executive offices)
(86) 532 8099 7969
(Registrant's telephone
number, including area code)
______________________________________________________
(Former name or former address, if changed since last report)
Check the appropriate box
below if the Form 8-K filing is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following provisions (see
General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
On April 19, 2010, China Oumei Real Estate Inc., formerly
Dragon Acquisition Corporation (the Company), filed a Current Report on Form
8-K (the Original Filing) with the Securities and Exchange Commission (the
SEC) disclosing the consummation of a share exchange transaction (the Share
Exchange) with Leewell Investment Group Limited, a Hong Kong company
(Leewell), Longhai Holdings Company Limited (Longhai Holdings), the sole
shareholder of Leewell, and Mr. Antoine Cheng, the sole shareholder of Longhai
Holdings, pursuant to which the Company acquired 100% of the issued and
outstanding capital stock of Leewell in exchange for 29,235,000 ordinary shares,
which constituted 94.31% of the Companys issued and outstanding ordinary shares
on a fully-diluted basis as of and immediately after the consummation of the
Share Exchange. The Company reported that, for accounting purposes, the Share
Exchange was treated as a reverse acquisition, with Leewell as the acquirer and
the Company as the acquired party.
The Company is filing this Current Report on Form 8-K/A (the
Form 8-K/A) solely to amend Item 9.01, Financial Statements and Exhibits, of
the Original Filing to reflect certain changes to Leewells historical financial
statements and the pro forma financial statements of the combined company that
were included in the Original Filing. Specifically, we recategorized certain
items in Leewells consolidated financial statements for the years ended
December 25, 2009, 2008 and 2007 in connection with three related-party
acquisitions that were consummated in 2008 and 2009 (see Note 2 Acquisition of
Subsidiaries of Leewells consolidated financial statements for the years ended
December 25, 2009, 2008 and 2007 filed under Item 9.01 of this 8-K/A).
The following tables present the effect of making this
amendment to the consolidated financial statements for the years ended December
25, 2009 and 2008.
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 25, 2008 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Paid-in capital |
|
(13,749,747 |
) |
|
(13,611,215 |
) |
Unappropriated retained earnings
|
|
50,638,872 |
|
|
50,502,576 |
|
Accumulated
other comprehensive income |
|
6,565,439 |
|
|
6,563,203 |
|
|
|
|
|
|
|
December 25, 2009 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Paid-in capital |
|
(7,465,626 |
) |
|
(4,136,677 |
) |
Unappropriated retained earnings
|
|
71,326,950 |
|
|
68,001,730 |
|
Accumulated
other comprehensive income |
|
7,041,346 |
|
|
7,037,617 |
|
1
LEEWELL INVESTMENT GROUP
LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
THE YEARS ENDED DECEMBER 25, 2009, 2008, AND 2007
|
|
2008 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
|
|
|
|
|
|
|
EXTRAORDINARY ITEM (NET OF INCOME
TAX OF $0) |
|
12,635,872 |
|
|
12,499,576 |
|
NET INCOME
|
|
31,617,597 |
|
|
31,481,301 |
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT |
|
3,488,440 |
|
|
3,486,204 |
|
COMPREHENSIVE INCOME |
|
35,106,037 |
|
|
34,967,505 |
|
|
|
2009 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
|
|
|
|
|
|
|
OTHER REVENUES: |
|
|
|
|
|
|
Gain on business acquisition ("bargain purchase") |
|
3,188,924 |
|
|
- |
|
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
|
|
33,402,436 |
|
|
30,213,512 |
|
INCOME BEFORE EXTRAORDINARY ITEM |
|
24,344,210 |
|
|
21,155,286 |
|
NET INCOME
|
|
24,344,210 |
|
|
21,155,286 |
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME: |
|
|
|
|
|
|
FOREIGN CURRENCY TRANSLATION ADJUSTMENT |
|
475,907 |
|
|
474,414 |
|
COMPREHENSIVE INCOME |
|
24,820,117 |
|
|
21,629,700 |
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE BASIC AND DILUTED |
|
|
|
|
|
|
- Income before extraordinary
item |
$ |
0.24 |
|
$ |
0.21 |
|
- Net income |
$ |
0.24 |
|
$ |
0.21 |
|
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 2009, 2008, AND
2007
|
|
2008 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income |
|
31,617,597 |
|
|
31,481,301 |
|
Adjustments to reconcile net income to net cash provided
(used) by operating activities: |
|
|
|
|
|
|
Extraordinary
items |
|
(12,635,872 |
) |
|
(12,499,576 |
)
|
|
|
2009 |
|
|
|
As Previously Reported |
|
|
As Amended |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income |
|
24,344,210 |
|
|
21,155,286 |
|
Adjustments to reconcile net income to net cash provided
(used) by operating activities: |
|
|
|
|
|
|
Extraordinary
items |
|
(3,188,924 |
) |
|
- |
|
2
LEEWELL INVESTMENT GROUP
LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE YEARS ENDED DECEMBER 25, 2009, 2008, AND
2007
|
|
Paid-in |
|
|
Unappropriated |
|
|
Accumulated
Other |
|
|
Shareholders
|
|
|
|
Capital |
|
|
Retained Earnings |
|
|
Comprehensive Income |
|
|
Equity |
|
|
|
As Previously |
|
|
|
|
|
As Previously |
|
|
|
|
|
As Previously |
|
|
|
|
|
As Previously |
|
|
|
|
|
|
Reported |
|
|
As Amended |
|
|
Reported |
|
|
As Amended |
|
|
Reported |
|
|
As Amended |
|
|
Reported |
|
|
As Amended |
|
Due to acquisition of subsidiaries |
|
(12,852,777 |
) |
|
(12,714,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,852,777 |
) |
|
(12,714,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
31,617,597 |
|
|
31,481,301 |
|
|
|
|
|
|
|
|
31,617,597 |
|
|
31,481,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,488,440 |
|
|
3,486,204 |
|
|
3,488,440 |
|
|
3,486,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2008 |
|
(13,749,747 |
) |
|
(13,611,215 |
) |
|
50,638,872 |
|
|
50,502,576 |
|
|
6,565,439 |
|
|
6,563,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to acquisition of subsidiaries |
|
6,284,121 |
|
|
9,474,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,284,121 |
|
|
9,474,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
24,344,210 |
|
|
21,155,286 |
|
|
|
|
|
|
|
|
24,344,210 |
|
|
21,155,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
475,907 |
|
|
474,414 |
|
|
475,907 |
|
|
474,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2009 |
|
(7,465,626 |
) |
|
(4,136,677 |
) |
|
71,326,950 |
|
|
68,001,730 |
|
|
7,041,346 |
|
|
7,037,617 |
|
|
|
|
|
|
|
We also reflected the changes described above in the
Companys unaudited pro forma combined financial information, which is filed
under Item 9.01 of this 8-K/A.
Except as described above, no other changes have been made to
the Original Filing and this Form 8-K/A does not modify or update any other
information in the Original Filing. Information not affected by the changes
described above is unchanged and reflects the disclosures made at the time of
the Original Filing. Accordingly, this Form 8-K/A should be read in conjunction
with the Companys filings made with the SEC subsequent to the date of the
Original Filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Filed herewith are audited consolidated financial statements of
Leewell Investment Group Limited for the years ended December 25, 2009, 2008 and
2007.
(b) Pro Forma Financial Information
Filed herewith is unaudited pro forma combined financial
information of China Oumei Real Estate Inc. and its subsidiaries.
(d) Exhibits
Exhibit No. |
Description |
2.1 |
Share Exchange Agreement, dated
April 14, 2010, by and among the Company, Leewell Investment Group
Limited, Longhai Holdings Company Limited and its shareholder
[incorporated by reference to Exhibit 2.1 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
3.1 |
Memorandum of Association of the Company
[incorporated by reference to Exhibit 3.2 to the Companys Registration
Statement on Form 10 filed on July 14, 2006] |
3.2 |
Articles of Association of the
Company [incorporated by reference to Exhibit 3.3 to the Companys
Registration Statement on Form 10 filed on July 14, 2006] |
4.1 |
Form of Investor Warrant, issued April 14, 2010
[incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.1 |
Form of Subscription Agreement,
dated April 14, 2010 [incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.2 |
Make Good Escrow Agreement, dated April 14,
2010, by and among the Company, Longhai Holdings Company Limited, Access
America Investments, LLC and Collateral Agents, LLC, as escrow agent
[incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.3 |
Holdback Escrow Agreement,
dated April 14, 2010, by and among the Company, Brean Murray, Carret &
Co., LLC, Access America Investments, LLC and Collateral Agents, LLC, as
escrow agent [incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
3
Exhibit No. |
Description |
10.4 |
Investor Relations Escrow
Agreement, dated April 14, 2010, by and among the Company, Brean Murray,
Carret & Co., LLC, Access America Investments, LLC and Collateral
Agents, LLC, as escrow agent [incorporated by reference to Exhibit 10.4 to
the Companys Current Report on Form 8-K filed on April 19, 2010] |
10.5 |
Form of Lockup Agreement, dated April 14, 2010
[incorporated by reference to Exhibit 10.5 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.6 |
Share Purchase Agreement, dated
September 5, 2007, between Zhang Weiqing and Leewell Investment Group
Limited (English Translation) [incorporated by reference to Exhibit 10.6
to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.7 |
Share Purchase Agreement, dated September 5,
2007, between Cheng Xiaoyan and Leewell Investment Group Limited (English
Translation) [incorporated by reference to Exhibit 10.7 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.8 |
Share Purchase Agreement, dated
January 19, 2008, among Cheng Defeng, Wang Yingchun and Qingdao Oumei Real
Estate Development Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.8 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.9 |
Share Purchase Agreement, dated January 22,
2008, between Zhang Weiqing and Qingdao Oumei Real Estate Development Co.,
Ltd. (English Translation) [incorporated by reference to Exhibit 10.9 to
the Companys Current Report on Form 8-K filed on April 19, 2010] |
10.10 |
Share Purchase Agreement, dated
January 23, 2008, among Cheng Defeng, Miao Shuangji and Qingdao Oumei Real
Estate Development Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.10 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.11 |
Share Purchase Agreement, dated January 24,
2008, among Li Jie, Li Keyu, Liu Fangyu, Wang Meiling, Jiang Guo, Qingdao
Longhai Investment Group and Qingdao Oumei Real Estate Development Co.,
Ltd. (English Translation) [incorporated by reference to Exhibit 10.11 to
the Companys Current Report on Form 8-K filed on April 19, 2010] |
10.12 |
Share Purchase Agreement, dated
August 27, 2008, among Qingdao Longhai Investment Group, Qingdao Longhai
Luqiao Co., Ltd, Gao Xuling and Qingdao Oumei Real Estate Development Co.,
Ltd. (English Translation) [incorporated by reference to Exhibit 10.12 to
the Companys Current Report on Form 8-K filed on April 19, 2010] |
10.13 |
Share Purchase Agreement, dated August 28,
2008, between Qingdao Pingdu Xinyuan Real Estate Development Co., Ltd and
Qingdao Oumei Real Estate Development Co., Ltd. (English Translation)
[incorporated by reference to Exhibit 10.13 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
10.14 |
Share Purchase Agreement, dated
August 29, 2008, among Qingdao Hexiang Fuzhuang Ltd, Qingdao Fuhai Fangzhi
Ltd and Qingdao Oumei Real Estate Development Co., Ltd. (English
Translation) [incorporated by reference to Exhibit 10.4 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.15 |
Share Purchase Agreement, dated June 25, 2009,
among Qingdao Longhai Investment Group, Wang Hongde and Qingdao Oumei Real
Estate Development Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.15 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.16 |
Share Purchase Agreement, dated
September 25, 2009, among Wang Yingchun, Wang Jinghua and Qingdao Oumei
Real Estate Development Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.16 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.17 |
Construction Contact, dated April 11, 2009,
between Weihai Economic & Technology Development Zone Longhai
Properties Co., Ltd. and Shanghai Baogang Construction Engineering
Corporation (English Translation) [incorporated by reference to Exhibit
10.17 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.18 |
Construction Contract, dated
October 8, 2006, between Qingdao Xudong Real Estate Development Co., Ltd.
and Qingdao Longhai Construction Group Co., Ltd. (English Translation)
[incorporated by reference to Exhibit 10.18 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
4
Exhibit No. |
Description |
10.19 |
Construction Contract, dated July 26,
2006, between Weihai Economic & Technology Development Zone Longhai
Properties Co., Ltd. and Qingdao Longhai Construction Group Co., Ltd.
(English Translation) [incorporated by reference to Exhibit 10.19 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.20 |
Construction Contract, dated April 23, 2004,
between Weifang Longhai Zhiye Co., Ltd. and Qingdao Zhongxin Construction
Group Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.20 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.21 |
Construction Supervision
Contract, dated August 21, 2009, between Weihai Economic & Technology
Development Zone Longhai Properties Co., Ltd. and Weihai Tianhen Project
Consulting Management Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.21 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.22 |
Form of Construction Contract (English
Translation) [incorporated by reference to Exhibit 10.22 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.23 |
Form of Sales Agent Agreement
(English Translation) [incorporated by reference to Exhibit 10.23 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.24 |
Loan Agreement, dated November 30, 2009,
between Weihai Economic & Technology Development Zone Longhai
Properties Co., Ltd. and China Construction Bank, Weihai Branch (English
Translation) [incorporated by reference to Exhibit 10.24 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.25 |
Loan Agreement, dated November
21, 2008, between Caoxian Industrial Properties Co., Ltd. and China
Construction Bank, Caoxian Branch (English Translation) [incorporated by
reference to Exhibit 10.25 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.26 |
Loan Agreement, dated May 28, 2007, between
Qingdao Xudong Real Estate Development Co., Ltd. and Industrial and
Commercial Bank of China, Qingdao Chengyang Branch (English Translation)
[incorporated by reference to Exhibit 10.26 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
10.27 |
Form of Employment Agreement
(English Translation) [incorporated by reference to Exhibit 10.27 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.28 |
Employment Agreement, dated June 28, 2007,
between Qingdao Oumei Real Estate Development Co., Ltd. and Weiqing Zhang
(English Translation) [incorporated by reference to Exhibit 10.28 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.29 |
Employment Agreement, dated
July 23, 2007, between Qingdao Oumei Real Estate Development Co., Ltd. and
Yang Chen (English Translation) [incorporated by reference to Exhibit
10.29 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.30 |
Employment Agreement, dated August 25, 2007,
between Qingdao Oumei Real Estate Development Co., Ltd. and Zhongbo Zhou
(English Translation) [incorporated by reference to Exhibit 10.30 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.31 |
Employment Agreement, dated
August 20, 2007, between Qingdao Oumei Real Estate Development Co., Ltd.
and Yalei Chen (English Translation) [incorporated by reference to Exhibit
10.31 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
21 |
Subsidiaries of the Company [incorporated by
reference to Exhibit 21 to the Companys Current Report on Form 8-K filed
on April 19, 2010] |
5
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.
Dated: November 3, 2010
CHINA OUMEI REAL ESTATE INC.
By: /s/Weiqing
Zhang
Weiqing
Zhang
Chief Executive Officer
6
INDEX TO FINANCIAL STATEMENTS
|
Page |
CONSOLIDATED FINANCIAL STATEMENTS OF
LEEWELL INVESTMENT GROUP LIMITED FOR THE FISCAL YEARS ENDED
DECEMBER 25, 2009, 2008 AND 2007 |
F-2 |
Report of Independent Registered Public Accounting Firm |
F-3 |
Consolidated Balance Sheets |
F-4 |
Consolidated Statements of Income and Comprehensive Income
|
F-5 |
Consolidated Statements of Changes in
Shareholders Equity |
F-6 |
Consolidated Statements of Cash Flows |
F-7 - F-8 |
Notes to Consolidated Financial Statements
|
F-9 - F-25 |
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF
CHINA OUMEI REAL ESTATE INC. AS OF DECEMBER 31, 2009 |
F-26 |
F-1
LEEWELL INVESTMENT GROUP LIMITED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 25, 2009, 2008 and 2007
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Leewell Investment Group Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets
of Leewell Investment Group Limited and Subsidiaries as of December 25, 2009
and 2008 and the related consolidated statements of income and comprehensive
income, changes in shareholders' equity, and cash flows for each of the three
years in the period ended December 25, 2009. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Leewell Investment Group Limited and Subsidiaries as of December 25, 2009 and
2008 and the results of their operations and their cash flows for each of the
three years in the period ended December 25, 2009 in conformity with United
States generally accepted accounting principles.
MSPC
Certified Public Accountants and Advisors, A Professional Corporation
New York, New York
March 23, 2010
F-3
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 25, |
|
|
December 25, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash |
$ |
2,264,438
|
|
$ |
638,639 |
|
Restricted cash |
|
1,641,778 |
|
|
1,635,878 |
|
Revenue in excess of billings
|
|
4,045,979 |
|
|
- |
|
Contracts receivable, net |
|
12,552,315 |
|
|
6,359,497 |
|
Related party receivable
|
|
2,949,102 |
|
|
15,279,068 |
|
Inventories |
|
106,452,702 |
|
|
77,008,683 |
|
Other receivables, net
|
|
1,634,987 |
|
|
367,836 |
|
Prepaid expenses |
|
1,461,670 |
|
|
3,782,408 |
|
Total
Current Assets |
|
133,002,971 |
|
|
105,072,009 |
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET |
|
3,461,317 |
|
|
3,001,888 |
|
PROPERTY, PLANT AND EQUIPMENT, IDLE |
|
1,530,390 |
|
|
1,991,799 |
|
GOODWILL |
|
3,620,670 |
|
|
3,596,117 |
|
LAND USE RIGHTS, NET |
|
54,060,495 |
|
|
64,655,669 |
|
DEFERRED TAX ASSETS |
|
657,000 |
|
|
330,873 |
|
TOTAL ASSETS |
$ |
196,332,843 |
|
$ |
178,648,355 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Current portion of long-term debt |
$ |
35,217,320 |
|
$ |
14,682,599 |
|
Short-term loans |
|
2,719,432 |
|
|
2,879,010 |
|
Notes payable |
|
146,800 |
|
|
- |
|
Accounts payable |
|
487,238 |
|
|
- |
|
Customer deposits |
|
19,780,472 |
|
|
42,980,448 |
|
Other payables |
|
4,186,745 |
|
|
3,287,869 |
|
Taxes payable |
|
26,049,956 |
|
|
22,217,920 |
|
Other current liabilities
|
|
207,936 |
|
|
192,906 |
|
Total Current Liabilities
|
|
88,795,899 |
|
|
86,240,752 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
4,404,000 |
|
|
29,160,895 |
|
LONG-TERM DEFERRED TAX LIABILITIES |
|
8,781,998 |
|
|
- |
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Common stock par value $0.1282 per
share, 150,000,000 shares authorized,
102,566,690 issued and outstanding in 2009 and
2008 |
|
13,149,576 |
|
|
13,149,576 |
|
Paid-in capital |
|
(4,136,677 |
) |
|
(13,611,215 |
) |
Appropriated retained earnings |
|
10,298,700 |
|
|
6,642,568 |
|
Unappropriated retained
earnings |
|
68,001,730 |
|
|
50,502,576 |
|
Accumulated other comprehensive income
|
|
7,037,617 |
|
|
6,563,203 |
|
Total Shareholders'
Equity |
|
94,350,946 |
|
|
63,246,708 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
196,332,843 |
|
$ |
178,648,355 |
|
See Accompanying Notes to Consolidated Financial Statements
F-4
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THE YEARS ENDED DECEMBER 25, 2009, 2008, AND 2007
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
|
|
|
|
SALES |
$ |
91,041,042
|
|
$ |
77,032,561
|
|
$ |
51,850,312
|
|
SALES TO RELATED PARTY |
|
3,274,458 |
|
|
-
|
|
|
-
|
|
TOTAL SALES |
|
94,315,500 |
|
|
77,032,561 |
|
|
51,850,312 |
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES |
|
(57,442,457 |
) |
|
(46,321,251 |
) |
|
(36,243,778 |
) |
COST OF SALES TO RELATED PARTY |
|
(853,951 |
) |
|
-
|
|
|
-
|
|
TOTAL COST OF SALES
|
|
(58,296,408 |
) |
|
(46,321,251 |
) |
|
(36,243,778 |
) |
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
36,019,092 |
|
|
30,711,310 |
|
|
15,606,534 |
|
|
|
|
|
|
|
|
|
|
|
ADVERTISING |
|
(268,222 |
) |
|
(112,263 |
) |
|
(46,492 |
) |
COMMISSION |
|
(84,982 |
) |
|
(574,262 |
) |
|
(134,989 |
) |
SELLING EXPENSES |
|
(49,800 |
) |
|
(81,415 |
) |
|
(2,187 |
) |
BAD DEBT EXPENSE |
|
(207,523 |
) |
|
(1,198,942 |
) |
|
(245,243 |
) |
GENERAL AND ADMINISTRATIVE EXPENSES |
|
(4,655,596 |
) |
|
(2,283,744 |
) |
|
(807,589 |
) |
INCOME FROM OPERATIONS |
|
30,752,969 |
|
|
26,460,684 |
|
|
14,370,034 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
|
Miscellaneous income
|
|
327,294 |
|
|
91,945 |
|
|
10,280 |
|
Interest expense |
|
(866,751 |
) |
|
(968,710 |
) |
|
(70,963 |
) |
|
|
(539,457 |
) |
|
(876,765 |
) |
|
(60,683 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM |
|
30,213,512 |
|
|
25,583,919 |
|
|
14,309,351 |
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
|
|
|
|
|
|
|
Current |
|
(369,660 |
) |
|
(5,350,455 |
) |
|
(5,090,161 |
) |
Deferred |
|
(8,688,566 |
) |
|
(1,251,739 |
) |
|
-
|
|
|
|
(9,058,226 |
) |
|
(6,602,194 |
) |
|
(5,090,161 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE EXTRAORDINARY ITEM |
|
21,155,286 |
|
|
18,981,725 |
|
|
9,219,190 |
|
|
|
|
|
|
|
|
|
|
|
EXTRAORDINARY ITEM (NET OF INCOME TAX OF $0)
|
|
- |
|
|
12,499,576 |
|
|
- |
|
NET INCOME |
|
21,155,286 |
|
|
31,481,301 |
|
|
9,219,190 |
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY TRANSLATION ADJUSTMENT |
|
474,414 |
|
|
3,486,204 |
|
|
2,107,856 |
|
COMPREHENSIVE INCOME |
$ |
21,629,700 |
|
$ |
34,967,505 |
|
$ |
11,327,046 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE BASIC AND DILUTED |
|
|
|
|
|
|
|
|
|
- Income
before extraordinary item |
$ |
0.21 |
|
$ |
0.19 |
|
$ |
921.92 |
|
- Extraordinary item |
$ |
- |
|
$ |
0.12 |
|
$ |
- |
|
- Net income
|
$ |
0.21 |
|
$ |
0.31 |
|
$ |
921.92 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
102,566,690 |
|
|
102,566,690 |
|
|
10,000 |
|
See Accompanying Notes to Consolidated Financial Statements
F-5
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 25, 2009, 2008, AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriated |
|
|
Unappropriated |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Retained |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Earnings |
|
|
Income |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2006 |
|
10,000 |
|
|
1,282 |
|
|
11,860,978 |
|
|
2,684,678 |
|
|
13,768,318 |
|
|
969,143 |
|
|
29,284,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of investment in subsidiary against
subsidiary equity (Note 1) |
|
|
|
|
|
|
|
(13,165,828 |
) |
|
|
|
|
|
|
|
|
|
|
(13,165,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for the acquisition |
|
|
|
|
|
|
|
407,880 |
|
|
|
|
|
(8,343 |
) |
|
|
|
|
399,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,219,190 |
|
|
|
|
|
9,219,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,107,856 |
|
|
2,107,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings appropriated in accordance with Chinese
law |
|
|
|
|
|
|
|
|
|
|
1,550,185 |
|
|
(1,550,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2007, restated |
|
10,000 |
|
|
1,282 |
|
|
(896,970 |
) |
|
4,234,863 |
|
|
21,428,980 |
|
|
3,076,999 |
|
|
27,845,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder loan converted to shares |
|
102,556,690 |
|
|
13,148,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,148,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to acquisition of subsidiaries |
|
|
|
|
|
|
|
(12,714,245 |
) |
|
|
|
|
|
|
|
|
|
|
(12,714,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
31,481,301 |
|
|
|
|
|
31,481,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,486,204 |
|
|
3,486,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings appropriated in accordance with Chinese
law |
|
|
|
|
|
|
|
|
|
|
2,407,705 |
|
|
(2,407,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2008 |
|
102,556,690 |
|
|
13,149,576 |
|
|
(13,611,215 |
) |
|
6,642,568 |
|
|
50,502,576 |
|
|
6,563,203 |
|
|
63,246,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to acquisition of subsidiaries |
|
|
|
|
|
|
|
9,474,538 |
|
|
|
|
|
|
|
|
|
|
|
9,474,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
21,155,286 |
|
|
|
|
|
21,155,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
474,414 |
|
|
474,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings appropriated in accordance with Chinese
law |
|
|
|
|
|
|
|
|
|
|
3,656,132 |
|
|
(3,656,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25, 2009 |
|
102,556,690 |
|
|
13,149,576 |
|
|
(4,136,677 |
) |
|
10,298,700 |
|
|
68,001,730 |
|
|
7,037,617 |
|
|
94,350,946 |
|
See Accompanying Notes to Consolidated Financial Statements
F-6
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 2009, 2008, AND 2007
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
Restated |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net income |
$ |
21,155,286 |
|
$ |
31,481,301 |
|
$ |
9,219,190 |
|
Adjustments to reconcile net income to net
cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
Bad debt expense |
|
207,523 |
|
|
1,198,941 |
|
|
245,243 |
|
Depreciation expense
|
|
245,388 |
|
|
246,400 |
|
|
205,366 |
|
Amortization of land use rights
|
|
- |
|
|
- |
|
|
36,487 |
|
Extraordinary items
|
|
- |
|
|
(12,499,576 |
) |
|
- |
|
Deferred tax expense
|
|
8,688,566 |
|
|
1,251,739 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
192,911 |
|
|
(1,564,681 |
) |
|
26,465 |
|
Revenue in excess
of billings |
|
(4,040,467 |
) |
|
- |
|
|
- |
|
Contracts receivable |
|
(6,696,979 |
) |
|
1,633,906 |
|
|
(5,108,372 |
) |
Related party receivable
|
|
7,286,347 |
|
|
75,695,314 |
|
|
7,857,517 |
|
Inventories |
|
24,608,287 |
|
|
25,990,884 |
|
|
26,040,584 |
|
Other receivables
|
|
593,540 |
|
|
4,667,529 |
|
|
(1,169,774 |
) |
Prepaid expenses |
|
2,343,368 |
|
|
(1,676,883 |
) |
|
93,175 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
(9,335,626 |
) |
|
(1,306,287 |
) |
|
535,539 |
|
Related party payable |
|
- |
|
|
(17,180,260 |
) |
|
(10,185,449 |
) |
Customer deposits
|
|
(37,961,384 |
) |
|
(56,452,177 |
) |
|
(33,248,166 |
) |
Other payable |
|
138,975 |
|
|
(509,459 |
) |
|
44,656 |
|
Taxes payable |
|
3,829,172 |
|
|
9,943,221 |
|
|
6,624,335 |
|
Other current liabilities |
|
(4,087 |
) |
|
95,169 |
|
|
(3,845 |
) |
Net cash provided
by operating activities |
|
11,250,820 |
|
|
61,015,081 |
|
|
1,212,951 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Sale of short-term investment |
|
- |
|
|
- |
|
|
39,456 |
|
Purchase of fixed
assets |
|
(199,025 |
) |
|
(24,716 |
) |
|
(562,007 |
) |
Purchase of Oumei |
|
- |
|
|
- |
|
|
(13,167,110 |
) |
Purchase of subsidiaries
|
|
- |
|
|
(58,496,914 |
) |
|
- |
|
Cash received from acquisition of
subsidiaries |
|
433,839 |
|
|
- |
|
|
- |
|
Net cash provided
(used) by investing activities |
|
234,814 |
|
|
(58,521,630 |
) |
|
(13,689,661 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Capital contribution |
|
- |
|
|
- |
|
|
1,282 |
|
Proceeds from note
payable |
|
(41,048 |
) |
|
- |
|
|
- |
|
Net change in short-term borrowing
|
|
(179,080 |
) |
|
(3,805,052 |
) |
|
14,166,301 |
|
Repayments of long-term
borrowing |
|
(14,044,280 |
) |
|
- |
|
|
- |
|
Proceeds from long-term borrowing
|
|
4,398,000 |
|
|
- |
|
|
- |
|
Net cash provided
(used) by financing activities |
|
(9,866,408 |
) |
|
(3,805,052 |
) |
|
14,167,583 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
6,573 |
|
|
16,518 |
|
|
9,891 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
1,625,799 |
|
|
(1,295,083 |
) |
|
1,700,764 |
|
CASH AT BEGINNING OF YEAR |
|
638,639 |
|
|
1,933,722 |
|
|
232,958 |
|
CASH AT END OF YEAR |
$ |
2,264,438 |
|
$ |
638,639 |
|
$ |
1,933,722 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
Interest paid |
$ |
3,195,886 |
|
$ |
3,737,121 |
|
$ |
756,839 |
|
F-7
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
$ |
260,255 |
|
$ |
1,301,525 |
|
$ |
35,961 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Land use rights purchased
through the exchange of
other receivables |
$ |
- |
|
$ |
- |
|
$ |
1,104,768 |
|
Land use rights
transferred to inventory as project
development cost |
$ |
11,036,630
|
|
$ |
- |
|
$ |
- |
|
Cash consideration
paid by Longhai Group for the subsidiaries'
acquisition, resulting in a decrease
in related party receivable |
$ |
5,131,000 |
|
$ |
14,344,712 |
|
$ |
- |
|
See Accompanying Notes to Consolidated Financial Statements
F-8
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 1 - Organization
Qingdao Oumei Real Estate Development Co., Ltd (Oumei)
was incorporated as a limited liability company in Qingdao under the laws of
the Peoples Republic of China (PRC or China).
Oumei is engaged in the development and sale of residential and commercial real
estate properties located primarily in Pingdu, Laixi and Jimo cities of Shandong
Province, China.
Oumei was established by Mr. Zhang Weiqing (51%) and Mr. Wang
Shengguo (49%) on May 15, 2001 with a registered capital of approximately $604,000.
On February 9, 2002, Mr. Wang Shengguo sold his interest in Oumei to Ms. Cheng
Xiaoyan. Mr. Zhang and Ms. Cheng then increased their contribution to Oumei
in proportion to their ownership interests by approximately $6,200,000 and $5,089,200
in 2003 and 2006, respectively. The equity interests percentages held by these
individuals were 51% and 49%, respectively.
On September 20, 2007, Mr. Zhang and Ms. Cheng sold all their
interests in Oumei to Leewell Investment Group Limited (the Company
or "Leewell") for $13,167,110. Leewell is a Hong Kong based company with an
authorized capital of HK$10,000 (approximately $1,282), and it was wholly owned
by Mr. Zhou Li as nominee for Mr. Zhang and Ms. Cheng until October 2, 2009.
On that date, all the outstanding shares of Leewell were sold to Longhai Holdings
Company Limited, a company controlled by Mr. Antoine Cheng (See Note 5). The
acquisition of Oumei by Leewell is considered a combination under common control.
Acquired assets and liabilities are recorded at book value. Equity of Leewell
is shown as outstanding from the earliest period presented. The financial statements
of the two previously separate entities are retroactively combined for all periods
presented. Because cash was exchanged in the transaction, an adjustment for
$13,165,828 is shown in the consolidated statement of changes in shareholders
equity for the year ended December 25, 2007 to eliminate the difference between
the total cash of $13,167,110 used to purchase Oumei and the amount of Leewell's
equity of $1,282. As a result of the acquisition, Oumei became a wholly foreign-owned
enterprise with limited liability under the laws of China.
Since inception, the Company's activities have been limited to
organizational efforts, obtaining initial financing, and preparing to make filings
with the Securities and Exchange Commission ("SEC").
All significant intercompany transactions and balances are eliminated
on consolidation.
Note 2 - Acquisition of Subsidiaries
On January 19, 2008, Oumei reached agreements with the shareholders
of Weihai Huancui District Mingwei Industry Co., Ltd (Mingwei) to
acquire 100% of its equity interest by paying Chinese Yuan (CNY)
110,000,000 (approximately $15 million).
The following table summarizes the approximate estimated fair
values of the assets and liabilities acquired from Mingwei at acquisition date.
|
Intangible assets |
$ |
37,242,000 |
|
|
Current liabilities |
|
(21,591,000 |
) |
|
Net assets acquired at FMV |
|
15,651,000 |
|
|
Cash consideration |
|
14,960,000 |
|
|
Difference |
$ |
(691,000 |
) |
100% of the above difference was allocated to land use rights
and reduced the fair market value recorded.
On January 22, 2008, Oumei reached an agreement with the sole
shareholder of Longhai Hotel Co., Ltd (Longhai Hotel), to acquire
100% of its equity interest by paying CNY110,000,000 (approximately $15 million).
Longhai Hotel is owned by Mr. Zhang Weiqing, who is also the former shareholder
of Oumei (See Note 1). The acquisition is a business combination under common
control, therefore, the Company accounted for this acquisition using the as
if pooling of interest method. The acquired businesses and net assets are recorded
at book value as if the businesses and net assets of Longhai Hotel have been
owned by the Group from the earliest comparative period presented. Accordingly,
the financial information for 2007 has been restated as follows:
F-9
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 2 - Acquisition of Subsidiaries (Continued)
|
|
|
Year
ended December 25, 2007 |
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
Originally |
|
|
of Longhai |
|
|
|
|
|
|
|
stated |
|
|
Hotel |
|
|
Restated |
|
|
Sales |
$ |
51,850,312 |
|
$ |
- |
|
$ |
51,850,312 |
|
|
Net income |
|
9,334,303 |
|
|
(115,113 |
) |
|
9,219,190 |
|
|
Net cash inflow from operating activities
|
|
1,212,951 |
|
|
- |
|
|
1,212,951 |
|
|
Net cash outflow from investing activities |
|
(13,689,661 |
) |
|
- |
|
|
(13,689,661 |
) |
|
Net cash inflow from financing activities
|
|
14,167,583 |
|
|
- |
|
|
14,167,583 |
|
|
Total current assets |
|
69,443,412 |
|
|
- |
|
|
69,443,412 |
|
|
Total assets |
|
73,677,803 |
|
|
14,144,985 |
|
|
87,822,788 |
|
|
Total current liabilities |
|
46,112,906 |
|
|
13,864,728 |
|
|
59,977,634 |
|
|
Shareholders equity |
|
27,564,897 |
|
|
280,257 |
|
|
27,845,154 |
|
The following table summarizes the carryover historical costs
of the assets and liabilities of Longhai Hotel at acquisition date.
|
Fixed assets |
$ |
2,782,000 |
|
|
Intangible assets |
|
11,367,000 |
|
|
Current liabilities |
|
(13,869,000 |
) |
|
Net asset acquired at historical costs |
|
280,000 |
|
|
Cash consideration |
|
14,960,000 |
|
|
Difference |
$ |
14,680,000 |
|
100% of the above difference was recorded in additional paid-in
capital as it was acquired from a related party with common interest.
On January 23, 2008, Oumei reached agreements with the shareholders
of Weihai Economic & Technology Development Zone Longhai Properties Co.,
Ltd (Longhai Properties) to acquire 100% of its equity interest
by paying CNY140,000,000 (approximately $19 million).
The following table summarizes the approximate estimated fair
values of the assets and liabilities of Longhai Properties at acquisition date.
|
Current assets |
$ |
41,339,000 |
|
|
Fixed assets |
|
15,000 |
|
|
Intangible assets |
|
10,224,000 |
|
|
Current liabilities |
|
(32,901,000 |
) |
|
Long-term debt |
|
(2,992,000 |
) |
|
Net assets acquired at FMV |
|
15,685,000 |
|
|
Cash consideration |
|
19,040,000 |
|
|
Difference |
$ |
3,355,000 |
|
100% of the above difference was recorded as goodwill.
On January 24, 2008, Oumei reached agreements with the shareholders
of Xudong Real Estate Development Co., Ltd (Xudong) to acquire 100%
of its equity interest by paying CNY60,000,000 (approximately $8.3 million).
Longhai Group, a related party, owned approximately 74% of Xudong (See Notes
1 and 5).
F-10
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 2 - Acquisition of Subsidiaries (Continued)
The following table summarizes the approximate estimated fair
values of the assets and liabilities of Xudong at acquisition date.
|
Current assets |
$ |
54,319,000 |
|
|
Current liabilities |
|
(17,599,000 |
) |
|
Long-term debt |
|
(27,700,000 |
) |
|
Net assets acquired at FMV |
|
9,020,000 |
|
|
Cash consideration |
|
8,310,000 |
|
|
Difference |
$ |
(710,000 |
) |
74% of the above difference, approximately $525,000, was recorded
in additional paid-in capital as it was acquired from a related party; the remaining
26%, approximately $185,000, was recorded as extraordinary item in 2008.
On August 27, 2008, Oumei reached agreements with the shareholders
of Weifang Longhai Industry Co., Ltd. (Weifang Industry) to acquire
100% of their equity interest by paying CNY30,000,000 (approximately $4.4 million). Longhai Group, a related party (See Note 5), owned approximately 95% of Weifang
Industry.
Mr. Gao Xuling, acting as a trustee shareholder on behalf of Mr. Antoine Cheng,
held 5% of Weifang Industry.
The following table summarizes the approximate estimated fair
values of the assets and liabilities of Weifang Industry at acquisition date.
|
Current assets |
$ |
23,147,000 |
|
|
Fixed assets |
|
9,000 |
|
|
Current liabilities |
|
(15,983,000 |
) |
|
Net assets acquired at FMV |
|
7,173,000 |
|
|
Cash consideration |
|
4,386,000 |
|
|
Difference |
$ |
(2,787,000 |
) |
$9,000 of the above difference was allocated to fixed assets
and reduced the fair market value recorded. 100% of the remaining difference was recorded in additional paid-in capital as it was
acquired from related parties.
On August 28, 2008, Oumei reached an agreement with the sole
shareholder of Weifang Longhai Zhiye Co., Ltd. (Weifang Zhiye) to
acquire 100% of its equity interest by paying CNY30,000,000 (approximately $4.4
million).
The following table summarizes the approximate estimated fair
values of the assets and liabilities of Weifang Zhiye at acquisition date.
|
Current assets |
$ |
21,707,000 |
|
|
Fixed assets |
|
10,000 |
|
|
Current liabilities |
|
(13,034,000 |
) |
|
Net assets acquired at FMV |
|
8,683,000 |
|
|
Cash consideration |
|
4,392,000 |
|
|
Difference |
$ |
(4,291,000 |
) |
$10,000 of the above difference was allocated to fixed assets
and reduced the fair market value recorded. The remaining difference, approximately
$4,281,000, was recorded as an extraordinary item in 2008.
F-11
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 2 - Acquisition of Subsidiaries (Continued)
On August 29, 2008, Oumei reached agreements with the shareholders
of Weifang Qi Lu Guo Tai Zhiye Co., Ltd. (Qi Lu Guo Tai) to acquire
100% of its equity interest by paying CNY40,000,000 (approximately $5.8 million).
The following table summarizes the approximate estimated fair
values of the assets and liabilities of Qi Lu Guo Tai at acquisition date.
|
Current assets |
$ |
50,076,000 |
|
|
Fixed assets |
|
24,000 |
|
|
Current liabilities |
|
(32,032,000 |
) |
|
Long-term debt |
|
(3,897,000 |
) |
|
Net assets acquired at FMV |
|
14,171,000 |
|
|
Cash consideration |
|
5,860,000 |
|
|
Difference |
$ |
(8,311,000 |
) |
$24,000 of the above difference was allocated to fixed assets
and reduced the fair market value recorded. The remaining difference, approximately
$8,287,000, was recorded as an extraordinary item in 2008.
The assets and liabilities of the acquired companies were recorded
at full fair value at the acquisition dates except Longhai Hotel. The acquisition
of Longhai Hotel was considered as an acquisition from a related party under
common control. Assets and liabilities are recognized at historical carryover
costs. No goodwill or extraordinary item was recognized. The acquisitions of
Xudong and Weifang Industry are considered as acquisitions from a related party;
therefore, the cash consideration paid did not represent the market value that
would have been paid had the transaction been at arms length. The excess
of net assets over the purchase price has been recorded as an extraordinary
item for the non-related party portion and as additional paid-in-capital for
the related party portion.
The assets and liabilities of Mingwei, Longhai Properties,
Weifang Zhiye and Qi Lu Guo Tai were recorded at fair values at the acquisition
dates. Goodwill is recognized for the acquisition of Longhai Property as the
Company believes the value of Longhai Property was higher than the market price
at the date of acquisition. Longhai Property maintains a high profit level and
owns land in the city center of Weihai, which the Company considers a strategic
location for construction that has the potential to significantly increase the
profits of the Company. The combination of these factors is the reason for the
excess of the purchase price over the fair value of the tangible assets and
liabilities acquired. Extraordinary items are recognized for the acquisitions of
Weifang Zhiye and Qi Lu Guo Tai due to the excess of fair values over the
purchase prices. No extraordinary item is recognized for Mingwei since the
excess of fair value over the purchase price was absorbed by non-current assets.
The acquisitions of Mingwei, Weifang Zhiye and Qi Lu Guo Tai were conducted
through arms-length negotiations. Oumei was able to achieve a bargain purchase
due to the fact that shareholders in the selling entity wanted to withdraw
quickly and the transaction was on an all-cash basis in an expedited fashion.
The acquisition increased the land reserve and expanded the market
share of the Company in Shandong Province.
On June 25, 2009, Oumei reached agreement with the shareholder
of Caoxian Industrial Co., Ltd (CXSY) to acquire 100% of its equity interest
by paying CNY15,000,000 (approximately $2.2 million). Longhai Group, a related
party (see Note 5), funded the purchase. This funding reduced the receivable due
from Longhai Group at the time of the acquisition.
Longhai Group owned approximately 90% of
Caoxian Industry; Mr. Wang Hongde, acting as a trustee shareholder on behalf of
Mr. Antoine Cheng, held 10% of Caoxian Industrial.
The following table summarizes the approximate estimated fair
values of the assets and liabilities of CXSY at acquisition date.
|
Current assets |
$ |
16,396,000 |
|
|
Fixed assets |
|
10,000 |
|
|
Current liabilities |
|
(4,092,000 |
) |
|
Long-term debt |
|
(5,128,000 |
) |
|
Net assets acquired at FMV |
|
7,186,000 |
|
|
Cash consideration |
|
2,197,000 |
|
|
Difference |
$ |
(4,989,000 |
) |
F-12
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 2 - Acquisition of Subsidiaries (Continued)
100% of the above difference was recorded in additional paid-in capital as it
was acquired from related parties.
On September 25, 2009, Oumei reached agreement with the
shareholder of Longhai Real Estate Development Co., Ltd ("LHFDC") to acquire
100% of its equity interest by paying CNY20,000,000 (approximately $2.9
million). Longhai Group, a related party (See Note 5), funded the purchase. This
funding reduced the receivable due from Longhai Group at the time of the
acquisition. Ms. Wang Jinhua, Mr. Antoine Chengs wife, owned 40% of LHFDC; Ms.
Wang Yingchun, acting as a trustee shareholder on behalf of Mr. Antoine Cheng,
owned 60% of LHFDC.
The following table summarizes the approximate estimated fair values of the
assets and liabilities of LHFDC at acquisition date.
|
Current assets |
$ |
28,262,000 |
|
|
Current liabilities |
|
(20,842,000 |
) |
|
Net assets acquired at FMV |
|
7,420,000 |
|
|
Cash consideration |
|
2,934,000 |
|
|
Difference |
$ |
(4,486,000 |
) |
100% of the above difference was recorded in additional paid-in capital as it
was acquired from related parties.
The acquisitions of CXSY and LHFDC are considered as acquisitions from a
related party; therefore, the cash consideration paid did not represent the
market value that would have been paid had the transaction been at arms length.
The amounts of revenue and earnings of CXSY since June 25, 2009
which were included in the Consolidated Statement of Income and Comprehensive
Income for 2009 were approximately $6,447,000 and $1,491,000, respectively.
The amounts of revenue and earnings of LHFDC since September
25, 2009 which were included in the Consolidated Statement of Income and Comprehensive
Income for 2009 were approximately $21,962,000 and $7,862,000, respectively.
For the year ended December 25, 2008, the Consolidated Statements
of Income and Comprehensive Income included twelve months results of operations
of Mingwei, Longhai Hotel, Longhai Properties, Xudong and four months results
of operations of Weifang Industry, Weifang Zhiye and Qi Lu Guo Tai.
For the year ended December 25, 2009, the Consolidated Statement
of Income and Comprehensive Income included twelve months results of operations
of Mingwei, Longhai Hotel, Longhai Properties, Xudong, Weifang Industry, Qi
Lu Guo Tai, Weifang Zhiye and six months results of operations of CXSY and three
months results of operations of LHFDC.
Supplemental information on an unaudited pro forma basis, as
if the acquisitions of the subsidiaries had been consummated at the beginning
of each of the years presented, is as follows:
|
|
|
2009 |
|
|
2008 |
|
|
Sales |
$ |
94,315,500 |
|
$ |
77,032,561 |
|
|
Net income |
$ |
20,811,790 |
|
$ |
30,485,677 |
|
The unaudited pro forma supplemental information is based on
estimates and assumptions which the Company believes are reasonable. It is not
necessarily indicative of the consolidated financial position or results of
income in future periods or the results that actually would have been realized
had we been a combined company as of the beginning of the years presented.
F-13
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("US GAAP").
Use of Estimates
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Significant estimates used in the
preparation of the financial statements include the selection of the useful
lives of property and equipment and the provision necessary for uncollectible
receivables. Management believes that the estimates utilized in preparing its
financial statements are reasonable and prudent. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
Accounting Standards Codification (ASC) 820, Fair
Value Measurements and Disclosures, requires disclosing fair value to the
extent practicable for financial instruments that are recognized or unrecognized
in the balance sheet. Fair value of financial instruments is the amount at which
the instrument could be exchanged in a current transaction between willing parties.
The Company considers the carrying amounts of cash, restricted cash, revenue
in excess of billings, contracts receivable, related party and other receivables,
accounts payable, note payable, related party and other payables, customer deposits,
and short-term loans approximate their fair values because of the short period
of time between the origination of such instruments and their expected realization.
The Company considers the carrying amount of long-term bank loans to approximate
their fair values based on the interest rates of the instruments and the current
market rate of interest.
Reporting Currency and Foreign Currency Translation
The functional currency of Oumei and its subsidiaries is the
CNY and the Companys reporting currency is the United States Dollar (USD).
The assets and liabilities of Oumei and its subsidiaries are translated at the
exchange rate on the balance sheet date, shareholders equity is translated
at the historical rates and the revenues and expenses are translated at the
weighted average exchange rate for the year. The resulting translation adjustments
are reported under other comprehensive income in the Statements of Income and
Comprehensive Income in accordance with ASC 220, Comprehensive Income.
Transaction gains and losses that arise from exchange rate fluctuations from
transactions denominated in a currency other than the functional currency are
included in the Statements of Income and Comprehensive Income as incurred. The
transaction gains and losses were immaterial for the all periods presented.
Since July 2005, the CNY is no longer pegged to the USD. Although
the Peoples Bank of China regularly intervenes in the foreign exchange
market to prevent significant short-term fluctuations in the exchange rate,
the CNY may appreciate or depreciate significantly in value against the USD
in the medium to long term. Moreover, it is possible that in the future, PRC
authorities may lift restrictions on fluctuations in the CNY exchange rate and
lessen intervention in the foreign exchange market. Therefore, the Companys
foreign currency exchange gains and losses may be magnified by PRC exchange
control regulations that restrict the Companys ability to convert CNY
into foreign currencies.
F-14
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Revenue Recognition
Real estate sales are reported in accordance with the provisions
of ASC 360-20, Property, Plant and Equipment, Real Estate Sales, Sales Other
Than Retail Land Sales. Revenue from the sales of development properties
where the construction period is twelve months or less is recognized by the
full accrual method when the sale is consummated. A sale is not considered consummated
until (1) the parties are bound by the terms of a contract or agreement, (2)
all consideration has been exchanged, (3) any permanent financing of which the
seller is responsible has been arranged, (4) all conditions precedent to closing
have been performed, (5) the seller does not have substantial continuing involvement
with the property, and (6) the usual risks and rewards of ownership have been
transferred to the buyer. Revenue recognized to date in excess of cash received
from customers is classified as current assets under contracts receivable. Sales
transactions not meeting all the conditions of the full accrual method are accounted
for using the deposit method of accounting. Under the deposit method, all costs
are capitalized as incurred, and payments received from the buyer are recorded
as a deposit liability.
Effective December 26, 2008, the Company adopted the percentage-of-completion
method of accounting for revenue recognition for all building construction projects
in progress in which the construction period was expected to be more than twelve
months at that date. The full accrual method was used before that date for all
of our residential and commercial projects. The Company changed to the percentage-of-completion
method for contracts longer than one year as this method more accurately reflects
how revenue is earned on these contracts, particularly for interim reporting
purposes.
ASC 250 requires retrospective application of a change in accounting
principle unless impracticable. The change to the percentage-of-completion method
had no effect on our December 25, 2008 financial statements and we found it
was impracticable to determine the effect on the December 25, 2007 financial
statements as no progress reports detailing the percentage-of-completion of
our contracts were prepared for that year.
Revenue and profit from the sale of development properties where
the construction period is more than twelve months is recognized by the percentage-of-completion
method on the sale of individual units when the following conditions are met:
(1) construction is beyond a preliminary stage; (2) the buyer is committed to
the extent of being unable to require a refund except for non-delivery of the
unit; (3) sufficient units have already been sold to assure that the entire
property will not revert to rental property; (4) sales prices are collectible
and (5) aggregate sales proceeds and costs can be reasonably estimated. If any
of these criteria are not met, proceeds are accounted for as deposits until
the criteria are met and/or the sale consummated.
Under the percentage of completion method, revenues from
units sold and related costs are recognized over the course of the construction
period, based on the completion progress of a project. In relation to any
project, revenue is determined by calculating the ratio of completion and
applying that ratio to the contracted sales amounts. This ratio of completion is
determined by the Company using data reported by licensed independent third
party construction supervising firms hired by the Company as the contractors
employed by the Company request advance payments and do not specifically
allocate these costs to the various projects. Cost of sales is recognized by
multiplying the ratio by the total budgeted costs. Changes to total estimated
contract costs or losses, if any, are recognized in the period in which they are
determined. Revenue recognized to date in excess of cash received from customers
is classified as current assets under revenue in excess of billings. Amounts
received from customers in excess of revenue recognized to date are classified
as current liabilities under customer deposits.
Any losses incurred or identified on real estate transaction
are recognized in the period in which the transaction occurs.
Real Estate Capitalization and Cost Allocation
Properties under construction or held for sale consist of residential
and commercial units under construction and units completed.
Properties under construction or held for sale are stated at
cost or estimated net realizable value, whichever is lower. Costs include costs
of land use rights, direct development costs, including predevelopment costs,
interest on indebtedness, construction overhead and indirect project costs.
Total estimated costs of multi-unit developments are allocated to individual
units based upon specific identification methods. Costs of land use rights include
land premiums and deed tax and are allocated to projects on the basis of acreage
and gross floor area.
F-15
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Capitalization of Interest
In accordance with ASC 360, Property, Plant and Equipment,
interest incurred during construction is capitalized to properties under construction.
All other interest is expensed as incurred.
For the year ended December 25, 2009, total interest incurred
by the Company was $3,195,886 (2008: $3,737,121 and 2007 restated: $756,839),
of which capitalized interest was $2,329,135 (2008: $2,768,411, and 2007 restated:
$685,876).
Concentration of Risks
The Company sells residential and commercial units to residents
and small business owners. In 2009, the Company recorded approximately $9,995,000
of sales and contracts receivable from the sales of affordable housing to City
Government of Qingdao for the Real-Estate Development Management Bureau for
a relocation program. Such sales are approximately 11% of the total sales in
2009 and the related contracts receivable comprise about 80% of the total contracts
receivable as of December 25, 2009.
For the years ended December 25, 2009 and 2008, the Company had
two major constructors for most of its construction services and construction
materials: Qingdao Zhongxing Construction Ltd and Longhai Construction Ltd.
In 2009 and 2008 Oumei made payments to Longhai Construction Ltd, a related
party (See Note 5), of approximately $13,784,000 and $9,008,000 respectively.
For the year ended December 25, 2007, Qingdao Zhongxing Construction Ltd was
the only constructor used by the Company.
The Companys operations are carried out in the PRC. Accordingly,
the Companys business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the PRC and
by the general state of the PRCs economy. The Companys business
may be influenced by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and methods of
taxation, among other things.
The Company has a credit risk exposure of uninsured cash in banks
at December 25, 2009 of $3,906,216 (2008: $2,274,517). The Company has not experienced
any losses in such accounts and believes it is not exposed to any risks on its
cash in bank accounts. The Company does not require collateral or other securities
to support financial instruments that are subject to credit risk.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. The
Company maintains bank accounts in the PRC and Hong Kong. All PRC bank balances
are denominated in CNY. Hong Kong bank balances are denominated in USD. At December
25, 2009 and 2008, the Company had no cash equivalents.
Cash includes cash on hand and demand deposits in accounts maintained
with state-owned and private banks within the PRC and Hong Kong.
Restricted Cash
PRC banks grant mortgage loans to home purchasers and will credit
these amounts to the Companys bank account once title passes to the purchasers.
If the condominiums are not completed and the new homeowners have no ownership
documents to secure the loan, the bank will deduct 5% of the homeowners
loan from the Companys bank account and transfer that amount to a designated
bank account classified on the balance sheet as restricted cash. Interest earned
on the restricted cash is credited to the Companys normal bank account.
The bank will release the restricted cash after home purchasers have obtained
the ownership documents to secure the mortgage loan. Total restricted cash amounted
to $1,641,778 as of December 25, 2009 (2008: $1,635,878).
F-16
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Allowance for Doubtful Accounts
The Company recognizes an allowance for doubtful accounts to
ensure contracts receivable, related party receivables and other receivables
are not overstated due to uncollectability. Bad debt reserves are maintained
for all customers based on a variety of factors, including the length of time
the receivables are past due, significant one-time events and historical experience.
An additional reserve for individual accounts is recorded when the Company becomes
aware of a customer's or debtor's inability to meet its financial obligation,
such as in the case of bankruptcy filings or deterioration in the customer's
or debtors operating results or financial position. If circumstances related
to customers or debtors change, estimates of the recoverability of receivables
would be further adjusted. As of December 25, 2009 and 2008, the allowances
for doubtful accounts are $1,617,114 and $1,033,520 for contracts receivable,
and $272,361 and $636,745 for other receivables, respectively.
An allowance for contracts receivable is established as follows:
50% of the balances aged between one and two years and over CNY100,000 (approximately
$15,000); 10% of the balances aged between one and two years and under CNY100,000
(approximately $15,000); and 100% of the balances aged over two years.
Inventory
Inventory is stated at the lower of cost or market, on a specific
identification basis. In addition to direct land acquisition, land development
and construction costs, costs include interest and direct overhead which are
capitalized to inventories during the period beginning with the commencement
of construction and ending with the completion of construction.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets as follows:
|
|
Estimated Useful Lives |
|
Buildings and improvements |
20 years |
|
Vehicles |
5 years |
|
Office equipment and others |
5 years |
Maintenance, repairs and minor renewals are charged directly
to expenses as incurred. Major additions and betterments to property, plant
and equipment are capitalized and depreciated over the remaining useful life
of the assets.
Impairment of Long-lived Assets
The Company reviews its long-lived assets other than goodwill
whenever events or changes in circumstances indicate that the carrying amount
of an asset may no longer be recoverable. When these events occur, the Company
measures impairment by comparing the carrying value of the long-lived assets
to the estimated undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flows is less than the carrying amount of the assets, the
Company would recognize an impairment loss based on the fair value of the assets.
There was no impairment loss recognized for long-lived assets for the years
ended December 25, 2009, 2008 and 2007.
F-17
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Goodwill
The Company accounts for acquisitions of business in accordance
with ASC 805, Business Combinations, which results in the recognition
of goodwill when the purchase price exceeds the fair value of net assets acquired.
Goodwill is not subject to amortization but will be subject to at least an annual
evaluation for impairment. The Company has performed such annual evaluation
in 2009 and determined that goodwill was not impaired as of December 25, 2009.
Goodwill is stated in the consolidated balance sheet at cost
less accumulated impairment loss. An analysis of changes in goodwill is as follows:
|
|
December 25, 2009 |
|
|
December 25, 2008 |
|
Opening balance |
$ |
3,596,117 |
|
$ |
- |
|
Acquisitions |
|
- |
|
|
3,596,117 |
|
Effect of exchange rate change |
|
24,553 |
|
|
- |
|
Closing balance |
$ |
3,620,670 |
|
$ |
3,596,117 |
|
Land Use Rights
Land use rights are related to the development rights for acres
of land in various projects. These rights are capitalized until a development
project commences on the land for which the rights have been acquired. At this
time, the rights are transferred to properties under construction inventory.
Income Taxes
The Company follows ASC 740, Income Taxes, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The Company is governed by the Income Tax Laws of the PRC concerning
Chinese registered limited liability companies. Under the Income Tax Laws of
the PRC, Chinese enterprises are generally subject to an income tax at an effective
rate of 25% since January 1, 2008 and 33% prior to that date on taxable income.
According to the Income Tax Laws of the PRC for real estate developers,
income tax of the Company is calculated by project. When all units of a project
are sold, the PRC tax department will assess the tax due on the project and
issue a tax due notification to the Company. The Company has to pay the tax
by the due date on the notification. If the Company does not pay the tax by
the due date, the tax department will charge the Company interest. The Company
includes any interest and penalties in general and administrative expenses.
Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
ASC 740 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements and it prescribes a
recognition threshold and measurement attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC 740 also provides guidance on derecognizing, classification,
interest and penalties, accounting in interim periods, disclosures and transitions.
The Company recognizes that virtually all tax positions in the
PRC are not free of some degree of uncertainty due to tax law and policy changes
by the PRC government. However, the Company cannot reasonably quantify political
risk factors and thus must depend on guidance issued by current PRC government
officials.
F-18
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Income Taxes (Continued)
Based on all known facts and circumstances and current tax law,
the Company believes that the total amount of unrecognized tax benefits as of
December 25, 2009 is not material to its results of operations, financial condition
or cash flows. The Company also believes that the total amount of unrecognized
tax benefits as of December 25, 2009, if recognized, would not have a material
effect on its effective tax rate. The Company further believes that there are
no tax positions for which it is reasonably possible, based on current Chinese
tax law and policy, that the unrecognized tax benefits will significantly increase
or decrease over the next 12 months producing, individually or in the aggregate,
a material effect on the Companys results of operations, financial condition
or cash flows.
Land Appreciation Tax (LAT)
In accordance with the relevant taxation laws in the PRC, the
Company is subject to LAT based on progressive rates ranging from 30% to 60%
on the appreciation of land value, which is calculated as the proceeds of sales
of properties less deductible expenditures, including borrowings costs and all
property development expenditures. The tax rules to implement the laws stipulate
that the whole project must be completed before the LAT obligation can be assessed.
Accordingly, the Company records the liability and the related expense at the
completion of a project, unless the tax authorities impose an assessment at
an earlier date. Deposits made against the eventual obligation are included
in prepaid expenses.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. The Companys only components of comprehensive
income during the years ended December 25, 2009, 2008 and 2007 were net income
and the foreign currency translation adjustment.
Statement of Cash Flows
In accordance with ASC 230, Statement of Cash Flows, cash
flows from the Companys operations are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported
on the statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet.
Advertising Expenses
Advertising costs are expensed as incurred, or the first time
the advertising takes place, in accordance with ASC 720-35,
Advertising Costs.
For the year ended December 25, 2009, the Company recorded an
advertising expense of $311,560 (2008: $242,021 and 2007 restated: $46,492).
Property Warranty
The Company and its subsidiaries provide customers with warranties
which cover major defects of building structure and certain fittings and facilities
of properties sold as stipulated in the relevant sales contracts. The warranty
period is one year. The Company constantly estimates potential costs for materials
and labor with regard to warranty-type claims expected to be incurred subsequent
to the delivery of a property.
F-19
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Property Warranty (Continued)
Reserves are determined based on historical data and trends with
respect to similar property types and geographical areas. The Company monitors
the warranty reserve and makes adjustments to its pre-existing warranties, if
any, in order to reflect changes in trends and historical data as information
becomes available. The Company may seek further recourse against its contractors
or any related third parties if it can be proved that the faults are caused
by them. In addition, the Company also withholds up to 5% of the contract cost
from subcontractors for periods of two to five years. These amounts are included
in current liabilities, and are only paid to the extent that there have been
no warranty claims against the Company relating to the work performed or materials
supplied by the subcontractors. For the three years ended December 25, 2009,
2008 and 2007, the Company has not recognized any warranty liability or incurred
any warranty costs in excess of the amount retained from subcontractors.
Note 4 - Contracts Receivable
Contracts receivable consists of balances due from customers
for the sale of residential and commercial units. In cases where the customers
deposit more than 50% of the total purchase price, the Company may defer the
remaining purchase price. These deferred balances are unsecured, bear no interest
and are due within 360 days from the date of the sale. Contracts receivable
are presented net of an allowance for doubtful accounts of $1,617,114 at December
25, 2009 (2008: $1,033,520).
Note 5 - Related Party Transactions
As of December 25, 2009, the Company has a total of $2,949,102
(2008: $15,279,068) due from and a total of $0 (2008: $0) due to Longhai Group
and its subsidiaries. Mr. Antoine Cheng is the controlling shareholder of Longhai
Group (See Notes 1 and 2). These balances have no stated terms for repayment
and are not interest bearing.
In 2009, the Company sold two floors of a project for office
use to Longhai Construction Ltd, a subsidiary of Longhai Group, for approximately
$3,274,000.
A significant number of the Companys past or recent acquisitions were from
related parties. Refer to Note 2, Acquisition of Subsidiaries, for detailed
descriptions of these related-party transactions.
Note 6 - Inventories
Inventories include properties held for sales and properties
under construction. The following summarizes the components of real estate inventories
at December 25, 2009 and 2008:
|
|
|
2009 |
|
|
2008 |
|
|
Properties held for sale |
$ |
35,549,529 |
|
$ |
21,857,879 |
|
|
Properties under construction |
|
33,552,748 |
|
|
13,302,752 |
|
|
Properties held for sale pledged for mortgage
loans |
|
2,132,197 |
|
|
756,724 |
|
|
Properties under construction pledged for mortgage loans |
|
35,218,228 |
|
|
41,091,328 |
|
|
Total |
$ |
106,452,702 |
|
$ |
77,008,683 |
|
Note 7 - Other Receivables, Net
Other receivables consist of various cash advances to employees
and unrelated companies with which the Company has business relationships. These
amounts are unsecured, non-interest bearing and generally short term in nature.
As of December 25, 2009, the balance of other receivables was $1,634,987 (2008:
$367,836), which is net of an allowance for doubtful accounts of $272,361(2008:
$636,745).
F-20
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 8 - Property and Equipment, Net
Property and equipment consist of the following at December 25,
2009 and 2008:
|
|
|
2009 |
|
|
2008 |
|
|
Buildings and improvements |
$ |
3,756,672 |
|
$ |
2,466,129 |
|
|
Vehicles |
|
392,615 |
|
|
238,546 |
|
|
Office equipment and others |
|
67,938 |
|
|
4,389 |
|
|
Idle assets |
|
1,761,600 |
|
|
2,372,701 |
|
|
Construction in progress |
|
- |
|
|
642,021 |
|
|
|
$ |
5,978,825 |
|
$ |
5,723,786 |
|
|
Accumulated depreciation |
|
(987,118 |
) |
|
(730,099 |
) |
|
Property and equipment, net |
$ |
4,991,707 |
|
$ |
4,993,687 |
|
Depreciation expense for the years ended December 25, 2009, 2008
and 2007 was $246,680, $246,400 and $205,366 (restated), respectively, and is
included in general and administrative expenses on the Statements of Income
and Comprehensive Income.
Note 9 - Accounts Payable
As of December 25, 2009, the Company has accounts payable $487,238.
There was no accounts payable as of December 25, 2008.
Note 10 - Customer Deposits
Customer deposits consist of amounts received from customers
relating to the sale of residential and commercial units in the PRC. In the
PRC, customers will generally obtain permanent financing for the purchase of
their residential unit prior to the completion of the project. The lending institution
will provide the funding to the Company upon the completion of the financing
rather than the completion of the project. The Company receives these funds
and recognizes them as a current liability until the revenue can be recognized.
As of December 25, 2009, the Company has received $19,780,472 deposits from
customers (2008: $42,980,448).
Note 11 - Other Payables
Other payables consist of various cash advances from unrelated
companies and individuals with which management of the Company has business
relationships. These amounts are unsecured, non-interest bearing and short term
in nature. As of December 25, 2009, the balance of other payables is $4,186,745
(2008: $3,287,869).
Note 12 - Taxes Payable
Taxes payable consist of the following at December 25, 2009 and
2008:
|
|
|
2009 |
|
|
2008 |
|
|
Business tax |
$ |
6,461,389 |
|
$ |
3,353,457 |
|
|
Income tax |
|
18,847,145 |
|
|
18,621,457 |
|
|
Others |
|
741,422 |
|
|
243,006 |
|
|
Total |
$ |
26,049,956 |
|
$ |
22,217,920 |
|
The Company prepaid LAT and other taxes of $1,461,670 in 2009
and $3,782,408 in 2008, which are classified as prepaid expenses.
F-21
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 13 - Short-term Loans
As of December 25, 2009, the Company has several short-term loans
from banks and employees totaling $2,719,432 (2008: $2,879,010). The weighted
average interest rate for the short-term bank loans was approximately 5.82%
in 2009 and 8.73% in 2008. The weighted average interest rate for employee loans
was approximately 5.64% in 2009 and 5.10% in 2008.
The short-term loans were borrowed from several financial institutions.
Interest expense incurred was $149,502, $110,719 and $70,963 (restated) for
the years ended December 25, 2009, 2008 and 2007, respectively. The capitalized
interest from short-term loans was $3,751 in 2008, and there was no capitalized
interest from short-term loans in 2009 and 2007.
As of December 25, 2007, the Company had a loan of $15,000,000
from a potential investor. The loan was non-interest bearing and had no repayment
terms. On November 10, 2008, the Company paid $1,851,706 in cash in partial
settlement of the $15,000,000 investor loan. On November 18, 2008, the Company,
Mr. Zhou Li and the investor entered into an agreement stipulating that Mr.
Zhou Li was responsible for settling the remaining loan balance of $13,148,294
and Mr. Zhou Li was entitled to seek reimbursement from the Company for the
repayment. In November 2008, the Company increased its authorized shares from
10,000 to 150,000,000. At December 21, 2008, the $13,148,294 was converted to
102,556,690 shares of common stock of the Company at $0.1282 (HK$ 1.00) per
share.
Note 14 - Long-term Debt
The Company has long-term loans from various financial institutions
totaling $39,621,320 at December 25, 2009 (2008: $43,843,494). The payment schedule
for the long-term loans is as following:
For the year ended December 25, 2010 |
$ |
35,217,320 |
|
For the year ended December 25, 2011 |
$ |
4,404,000 |
|
All long-term loans are borrowed for construction projects. The
interest rates of the long-term loans ranged from approximately 5.31% to 14.74%
and 6.48% to 8.49% in 2009 and 2008, respectively. The interest rate for the
only long-term loan in 2007 was 9.83%.
Total interest incurred was $3,046,384, $3,626,402, and $685,876
in 2009, 2008 and 2007, respectively, of which capitalized interest was $2,329,135,
$2,764,660, and $685,876 (restated), respectively.
Note 15 - Income Taxes
Beginning January 1, 2008, the new Chinese Enterprise Income
Tax (EIT) law replaced the former income tax laws for Domestic Enterprises
(DEs) and Foreign Invested Enterprises (FIEs). The new
standard EIT rate of 25% replaced the 33% rate previously applicable to both
DEs and FIEs.
A reconciliation between approximate taxes computed at the
P.R.C.
statutory rate of 25% and the Company's effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
2009 |
|
|
2008 |
|
|
Restated |
|
|
At P.R.C. statutory rate of 25% (2007-33%) |
$ |
8,311,000 |
|
$ |
6,396,000 |
|
$ |
4,722,000 |
|
|
Tax effect of permanent difference |
|
259,000 |
|
|
- |
|
|
|
|
|
Change in valuation allowance |
|
243,000 |
|
|
498,000 |
|
|
- |
|
|
Expiration of net operating loss carryforwards |
|
195,000 |
|
|
- |
|
|
- |
|
|
Others |
|
50,000 |
|
|
(292,000 |
) |
|
368,000 |
|
|
Income tax at effective rate |
$ |
9,058,000 |
|
$ |
6,602,000 |
|
$ |
5,090,000 |
|
F-22
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 15 - Income Taxes (Continued)
The tax effects of temporary differences that give rise to the
following approximate deferred tax assets and liabilities as of December 25
are presented below.
|
|
|
2009 |
|
|
2008 |
|
|
Deferred tax assets |
|
|
|
|
|
|
|
Short-term deferred tax assets: |
|
|
|
|
|
|
|
Allowance for bad debt |
$ |
472,000 |
|
$ |
418,000 |
|
|
Less: Valuation allowance
|
|
(472,000 |
) |
|
(418,000 |
) |
|
|
|
- |
|
|
- |
|
|
Long-term deferred tax assets: |
|
|
|
|
|
|
|
Net operating loss carryforwards |
$ |
378,000 |
|
$ |
412,000 |
|
|
Combined effect
due to reporting revenues and expenses
differently for financial statement and income
tax purposes |
|
548,000 |
|
|
- |
|
|
Less: Valuation allowance |
|
(269,000 |
) |
|
(81,000 |
) |
|
|
$ |
657,000 |
|
$ |
331,000 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
Combined effect
due to reporting revenues and expenses
differently for financial statement and income
tax purposes |
$ |
8,782,000 |
|
$ |
- |
|
As of December 25, 2009, the Company has net operating loss carryforwards
of approximately $1,283,000, which expire at varying years through 2013, and
net operating loss carryforwards of approximately $344,000, which will not expire.
Note 16 - Appropriated Retained Earnings
In accordance with the PRC Company Law, the Company is required
to transfer 15% of its profit after tax, as determined in accordance with PRC
accounting standards and regulations, to the statutory surplus reserve (the
SSR) until such reserve reaches 50% of the registered capital of
the subsidiaries. Subject to certain restrictions set out in the PRC Company
Law, the SSR may be distributed to stockholders in the form of share bonus issues
to increase share capital, provided that the remaining balance after the capitalization
is not less than 25% of the registered capital.
For the year ended December 25, 2009, the Company appropriated
reserve funds in the amount of $3,656,132 (2008: $2,407,705).
Note 17 - Employee Welfare Plan
Regulations in the PRC require the Company to contribute to a
defined contribution retirement plan for all permanent employees. Pursuant to
the mandatory requirement from the local authority in the PRC, the retirement
pension insurance, unemployment insurance, health insurance, injury insurance
and pregnancy insurance are established for the employees during the term of
employment. For the year ended December 25, 2009, the Company contributed $87,776
(2008: $50,759 and 2007 restated: $5,490).
F-23
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 18 - Recent Pronouncements
ASU No. 2009-13, Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements a consensus of the FASB
Emerging Issues Task Force
This ASU addresses the accounting for multiple-deliverable arrangements
to enable vendors to account for products or services (deliverables) separately
rather than as a combined unit. The ASU is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010.
ASU No. 2009-14, Software (Topic 985) Certain
Revenue Arrangements That Include Software Elements a consensus of the
FASB Emerging Issues Task Force
The amendments in this ASU change the accounting model for revenue
arrangements that include both tangible products and software elements. The
ASU is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010.
ASU No. 2009-15, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
This ASU concludes that at the date of issuance, a share-lending
arrangement entered into on an entitys own shares in contemplation of
a convertible debt offering or other financing is required to be measured at
fair value and recognized as issuance cost in the financial statements of the
entity. The ASU is effective for fiscal years beginning on or after December
15, 2009, and interim periods within those fiscal years for arrangements outstanding
as of the beginning of those fiscal years. The ASU is effective for interim
or annual periods beginning on or after June 15, 2009, for share-lending arrangements
entered into in those periods.
ASU No. 2009-16, Transfers and Servicing (Topic
860): Accounting for Transfers of Financial Assets
Among other provisions, this ASU eliminates the concept of a
qualifying special-purpose entity from SFAS No. 140 and removes
the exception from applying FIN No. 46(R) to qualifying special-purpose entities.
This ASU is effective at the beginning of a reporting entitys first fiscal
year that begins after November 15, 2009.
ASU No. 2009-17, Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities
Among other provisions, this ASU amends FIN No. 46(R) to require
an enterprise to perform an analysis to determine whether the enterprises
variable interest or interests give it a controlling financial interest in a
variable interest entity. This ASU is effective at the beginning of a companys
first fiscal year that begins after November 15, 2009.
ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820) Improving Disclosures about Fair Value Measurements
This ASU affects all entities that are required to make disclosures
about recurring and nonrecurring fair value measurements under FASB ASC Topic
820, originally issued as FASB Statement No. 157, Fair Value Measurements. The
ASU requires certain new disclosures and clarifies two existing disclosure requirements.
The new disclosures and clarifications of existing disclosures are effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years.
F-24
LEEWELL INVESTMENT GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 2009, 2008 AND 2007
Note 18 - Recent Pronouncements (Continued)
ASU No. 2010-08, Technical Corrections to Various
Topics
This ASU eliminates certain inconsistencies and outdated provisions
and provides needed clarifications. The changes are generally non substantive
in nature and will not result in pervasive changes to current practice. However,
the amendments that clarify the guidance on embedded derivatives and hedging
(ASC Subtopic 815-15) may cause a change in the application of that Subtopic.
The clarifications of the guidance on embedded derivatives and hedging (Subtopic
815-15) are effective for fiscal years beginning after December 15, 2009. The
other amendments are effective as of the first reporting period (including interim
periods) beginning after February 2, 2010.
Note 19 - Potential Listing as a Public Company in the United
States (Unaudited)
As of the date of this report, the Company is negotiating an
agreement with Access American Fund, LP (AAI) to raise $15 million
to $20 million in conjunction with an alternative public offering (APO).
This APO is a reverse merger of a foreign operating entity into a US public
shell company, accompanied by a simultaneous Private Investment in Public Equity
(PIPE) offering, a capital raise in which a publicly traded company
sells its stock to investors in a privately negotiated transaction. The detailed
terms and final agreement will be subject to a complete due diligence review.
The Company will file a Form 8-K with the Securities and Exchange Commission
once the final agreement is reached.
Note 20 - Subsequent Events
The Company has evaluated the subsequent events through March
23, 2010, the date the financial statements were issued.
The Company has paid back approximately $3 million of the long-term
debt as of March 23, 2010.
Note 21 Reclassifications
Certain reclassifications have been made to the December 25,
2008 and 2007 figures in order to conform them to the current years presentation.
F-25
CHINA OUMEI REAL ESTATE INC.
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
DECEMBER 31, 2009
On April 14, 2010, China Oumei Real Estate Inc., formerly
Dragon Acquisition Corporation ("Dragon"), issued 29,235,000 ordinary shares at
par value of $0.002112 for all of the outstanding ordinary shares of Leewell
Investment Group Limited ("Leewell").
The unaudited pro forma information is based upon the
historical financial statements of Dragon and the consolidated historical
financial statements of Leewell after giving effect to pro forma adjustments
described below.
(1) To eliminate Leewell's common
shares.
(2) To eliminate Dragon's accumulated deficit.
(3) To reflect
the issuance of 29,235,000 shares by Dragon.
The adjustments are based on currently available information
and certain estimates and assumptions. However, management believes that the
assumptions provide a reasonable basis for presenting the unaudited pro forma
financial information and that pro forma adjustments give effect to those
assumptions and are properly applied in the unaudited pro forma financial
information.
The following unaudited pro forma financial information
presents the effects of the transaction on equity as of December 31, 2009.
|
|
Dragon |
|
|
Leewell |
|
|
|
|
|
|
Pro Forma |
|
|
|
Historical |
|
|
Historical |
|
|
Adjustments |
|
|
|
Combined |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
Common shares |
|
2,112 |
|
|
13,149,576 |
|
|
(13,149,576 |
) |
(1) |
|
63,856 |
|
|
|
|
|
|
|
|
|
61,744 |
|
(3) |
|
|
|
Paid-in capital |
|
45,238 |
|
|
(4,136,677 |
) |
|
13,149,576 |
|
(1) |
|
8,939,164 |
|
|
|
|
|
|
|
|
|
(57,229 |
) |
(2) |
|
|
|
|
|
|
|
|
|
|
|
(61,744 |
) |
(3) |
|
|
|
Appropriated retained earnings |
|
- |
|
|
10,298,700 |
|
|
|
|
|
|
10,298,700 |
|
Unappropriated retained
earnings/(Accumulated deficit) |
|
(57,229 |
) |
|
68,001,730 |
|
|
57,229 |
|
(2) |
|
68,001,730 |
|
Accumulated other comprehensive income |
|
- |
|
|
7,037,617 |
|
|
|
|
|
|
7,037,617 |
|
Shareholders' equity |
|
(9,879 |
) |
|
94,350,946 |
|
|
|
|
|
|
94,341,067 |
|
F-26
EXHIBIT INDEX
Exhibit No. |
Description |
2.1 |
Share Exchange Agreement, dated
April 14, 2010, by and among the Company, Leewell Investment Group
Limited, Longhai Holdings Company Limited and its shareholder
[incorporated by reference to Exhibit 2.1 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
3.1 |
Memorandum of Association of the Company
[incorporated by reference to Exhibit 3.2 to the Companys Registration
Statement on Form 10 filed on July 14, 2006] |
3.2 |
Articles of Association of the
Company [incorporated by reference to Exhibit 3.3 to the Companys
Registration Statement on Form 10 filed on July 14, 2006] |
4.1 |
Form of Investor Warrant, issued April 14, 2010
[incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.32 |
Form of Subscription Agreement,
dated April 14, 2010 [incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.33 |
Make Good Escrow Agreement, dated April 14,
2010, by and among the Company, Longhai Holdings Company Limited, Access
America Investments, LLC and Collateral Agents, LLC, as escrow agent
[incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.34 |
Holdback Escrow Agreement,
dated April 14, 2010, by and among the Company, Brean Murray, Carret &
Co., LLC, Access America Investments, LLC and Collateral Agents, LLC, as
escrow agent [incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.35 |
Investor Relations Escrow Agreement, dated
April 14, 2010, by and among the Company, Brean Murray, Carret & Co.,
LLC, Access America Investments, LLC and Collateral Agents, LLC, as escrow
agent [incorporated by reference to Exhibit 10.4 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
10.36 |
Form of Lockup Agreement, dated
April 14, 2010 [incorporated by reference to Exhibit 10.5 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.37 |
Share Purchase Agreement, dated September 5,
2007, between Zhang Weiqing and Leewell Investment Group Limited (English
Translation) [incorporated by reference to Exhibit 10.6 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.38 |
Share Purchase Agreement, dated
September 5, 2007, between Cheng Xiaoyan and Leewell Investment Group
Limited (English Translation) [incorporated by reference to Exhibit 10.7
to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.39 |
Share Purchase Agreement, dated January 19,
2008, among Cheng Defeng, Wang Yingchun and Qingdao Oumei Real Estate
Development Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.8 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.40 |
Share Purchase Agreement, dated
January 22, 2008, between Zhang Weiqing and Qingdao Oumei Real Estate
Development Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.9 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.41 |
Share Purchase Agreement, dated January 23,
2008, among Cheng Defeng, Miao Shuangji and Qingdao Oumei Real Estate
Development Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.10 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.42 |
Share Purchase Agreement, dated
January 24, 2008, among Li Jie, Li Keyu, Liu Fangyu, Wang Meiling, Jiang
Guo, Qingdao Longhai Investment Group and Qingdao Oumei Real Estate
Development Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.11 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.43 |
Share Purchase Agreement, dated August 27,
2008, among Qingdao Longhai Investment Group, Qingdao Longhai Luqiao Co.,
Ltd, Gao Xuling and Qingdao Oumei Real Estate Development Co., Ltd.
(English Translation) [incorporated by reference to Exhibit 10.12 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
Exhibit No. |
Description |
10.44 |
Share Purchase Agreement, dated
August 28, 2008, between Qingdao Pingdu Xinyuan Real Estate Development
Co., Ltd and Qingdao Oumei Real Estate Development Co., Ltd. (English
Translation) [incorporated by reference to Exhibit 10.13 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.45 |
Share Purchase Agreement, dated August 29,
2008, among Qingdao Hexiang Fuzhuang Ltd, Qingdao Fuhai Fangzhi Ltd and
Qingdao Oumei Real Estate Development Co., Ltd. (English Translation)
[incorporated by reference to Exhibit 10.4 to the Companys Current Report
on Form 8-K filed on April 19, 2010] |
10.46 |
Share Purchase Agreement, dated
June 25, 2009, among Qingdao Longhai Investment Group, Wang Hongde and
Qingdao Oumei Real Estate Development Co., Ltd. (English Translation)
[incorporated by reference to Exhibit 10.15 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
10.47 |
Share Purchase Agreement, dated September 25,
2009, among Wang Yingchun, Wang Jinghua and Qingdao Oumei Real Estate
Development Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.16 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.48 |
Construction Contact, dated
April 11, 2009, between Weihai Economic & Technology Development Zone
Longhai Properties Co., Ltd. and Shanghai Baogang Construction Engineering
Corporation (English Translation) [incorporated by reference to Exhibit
10.17 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.49 |
Construction Contract, dated October 8, 2006,
between Qingdao Xudong Real Estate Development Co., Ltd. and Qingdao
Longhai Construction Group Co., Ltd. (English Translation) [incorporated
by reference to Exhibit 10.18 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.50 |
Construction Contract, dated
July 26, 2006, between Weihai Economic & Technology Development Zone
Longhai Properties Co., Ltd. and Qingdao Longhai Construction Group Co.,
Ltd. (English Translation) [incorporated by reference to Exhibit 10.19 to
the Companys Current Report on Form 8-K filed on April 19, 2010] |
10.51 |
Construction Contract, dated April 23, 2004,
between Weifang Longhai Zhiye Co., Ltd. and Qingdao Zhongxin Construction
Group Co., Ltd. (English Translation) [incorporated by reference to
Exhibit 10.20 to the Companys Current Report on Form 8-K filed on April
19, 2010] |
10.52 |
Construction Supervision
Contract, dated August 21, 2009, between Weihai Economic & Technology
Development Zone Longhai Properties Co., Ltd. and Weihai Tianhen Project
Consulting Management Co., Ltd. (English Translation) [incorporated by
reference to Exhibit 10.21 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.53 |
Form of Construction Contract (English
Translation) [incorporated by reference to Exhibit 10.22 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.54 |
Form of Sales Agent Agreement
(English Translation) [incorporated by reference to Exhibit 10.23 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.55 |
Loan Agreement, dated November 30, 2009,
between Weihai Economic & Technology Development Zone Longhai
Properties Co., Ltd. and China Construction Bank, Weihai Branch (English
Translation) [incorporated by reference to Exhibit 10.24 to the Companys
Current Report on Form 8-K filed on April 19, 2010] |
10.56 |
Loan Agreement, dated November
21, 2008, between Caoxian Industrial Properties Co., Ltd. and China
Construction Bank, Caoxian Branch (English Translation) [incorporated by
reference to Exhibit 10.25 to the Companys Current Report on Form 8-K
filed on April 19, 2010] |
10.57 |
Loan Agreement, dated May 28, 2007, between
Qingdao Xudong Real Estate Development Co., Ltd. and Industrial and
Commercial Bank of China, Qingdao Chengyang Branch (English Translation)
[incorporated by reference to Exhibit 10.26 to the Companys Current
Report on Form 8-K filed on April 19, 2010] |
Exhibit No. |
Description |
10.58 |
Form of Employment Agreement
(English Translation) [incorporated by reference to Exhibit 10.27 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.59 |
Employment Agreement, dated June 28, 2007,
between Qingdao Oumei Real Estate Development Co., Ltd. and Weiqing Zhang
(English Translation) [incorporated by reference to Exhibit 10.28 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.60 |
Employment Agreement, dated
July 23, 2007, between Qingdao Oumei Real Estate Development Co., Ltd. and
Yang Chen (English Translation) [incorporated by reference to Exhibit
10.29 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
10.61 |
Employment Agreement, dated August 25, 2007,
between Qingdao Oumei Real Estate Development Co., Ltd. and Zhongbo Zhou
(English Translation) [incorporated by reference to Exhibit 10.30 to the
Companys Current Report on Form 8-K filed on April 19, 2010] |
10.62 |
Employment Agreement, dated
August 20, 2007, between Qingdao Oumei Real Estate Development Co., Ltd.
and Yalei Chen (English Translation) [incorporated by reference to Exhibit
10.31 to the Companys Current Report on Form 8-K filed on April 19, 2010]
|
21 |
Subsidiaries of the Company [incorporated by
reference to Exhibit 21 to the Companys Current Report on Form 8-K filed
on April 19, 2010] |
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