MAIL STOP 05-11
March 17, 2005
Mr. Yonglin Du
Level 19, Building C
Tianchuangshiyuan,
Huishongbeili,
Beijing, China 100012
Re: Dahua, Inc.
Registration Statement on Form SB-2
File No. 333-122622
Filed February 8, 2005
Dear Mr. Du:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. Please provide a current consent in any amendment and ensure
that
the financial statements are updated as required by Item 310(g) of
Regulation S-B. Since you do not meet all of the conditions of
Item
310(g)(2) of Regulation S-B, you must provide audited financial
statements for the year ended December 31, 2004 in any amendment
filed after February 15, 2005.
2. Please revise the document to provide additional disclosures
regarding the acquisition of the 80% interest in Beijing Dahua
Real
Estate Development, Ltd. ("Dahua Real Estate") by Bauer Invest
Inc.
("Bauer"). We note that in some places, you describe this
transaction as a reverse merger with a non-operating shell
company,
which would imply that the transaction would be accounted for as a
recapitalization, rather than a business combination under FAS
141.
However, in other places, you describe the transaction as being
accounted for under purchase accounting in accordance with APB 16
(which has since been superseded by FAS 141). Please clarify your
disclosures throughout the document to clearly state whether the
transaction represents a recapitalization or a business
combination.
Cover
3. Please clarify that the sales price will be fixed at $0.05 per
share.
4. Please provide the dealer prospectus delivery obligation on the
outside back cover page of the prospectus. See Item 502(b) of
Regulation S-B.
Financial Summary Information
5. Please revise to clarify the nature of the information
presented,
since the merger between the registrant and the private operating
company was not effective prior to the dates presented.
Risk Factors, page 6
6. Please avoid the generic conclusions you reach in several of
your
risk factor headings and narratives that the risk could have a
"materially adverse effect," "adverse effect," "material adverse
effect" or "impact" on your business, operating results and/or
financial condition. Instead, replace this language with specific
disclosure of how your business, results and operations would be
impacted. See risk factors 4-7, 10 and 12-14.
7. If true, please revise the heading to risk factor 3 to indicate
that you "will" require additional funding as opposed to "may"
require.
8. The last sentence of risk factor 3 regarding dilution appears
to
discuss a risk distinct from the heading. Please revise to
include a
separate heading and expanded narrative discussing the risk posed
by
dilution.
9. Please revise the heading to risk factor 4 to clarify the risk
posed by the regulatory approval process.
10. Risk factor 7 is generic and could apply to any company. In
both
the heading and the narrative, please explain the specific reasons
why loss of any key executive might "severely impact your
operations."
11. Risk factor 13 suggests that you have begun generating
revenue.
Since it does not appear you have, please revise.
12. Please indicate in risk factor 14 whether you plan to
undertake
any hedging activity to minimize exchange rate fluctuations.
13. Revise the disclosure in risk factor 16 to clarify that you
"will" be deemed a penny stock as opposed to "may" be deemed a
penny
stock.
14. Please insert a new risk factor clearly identifying the risks
associated with the fact that your assets and officers and
directors
will be located outside of the US. Include similar disclosure in
the
business section. For guidance, refer to Item 101(g) of
Regulation
S-K.
Selling Security Holders, page 13
15. Please indicate the control person(s) for each selling
shareholder.
16. We note that the shares issued to certain of the selling
shareholders were offered pursuant to the exemption afforded under
Regulation S. Regulation S requires that all offers be made to
non-
US persons, as defined. Supplementally provide the address for
each
selling shareholder.
17. It appears Waywood Investments Ltd. and Comp Hotel
International
Ltd. had a material relationship with the company within the past
3
years. See Item 507 of Regulation S-B.
Organization within Last Five Years, page 22
18. We note your statement that the Form 10-SB filed June 2002
became
effective on or about December 20, 2002. A Form 10-SB goes
effective
automatically upon the lapse of 60 days from the date of filing.
As
such, the Form 10-SB filed on June 10, 2002 went effective on or
about August 10, 2002. The staff cleared the filing of comments
on
December 17, 2002.
19. Please disclose the promoters, control persons and affiliates
of
Norton Industries, Bauer Invest, Inc. and Dahua Real Estate.
20. Please file the merger agreements between Norton and Bauer and
between Bauer and Dahua Real Estate as exhibits and disclose the
material terms of the acquisitions, including the monetary value
of
the shares exchanged along with any other consideration paid.
21. We note that Dahua Real Estate is an 80% owned subsidiary.
Please provide the identity of the person or persons that own the
remaining 20%.
Description of Business, page 23
22. Your attention is directed to the General Instructions to Form
SB-2 and in particular B, General Requirements 2, in which issuers
engaged in real estate activities are advised to consult the
Industry
Guides. Real estate companies also should refer to Items 13, 14
and
15 of Form S-11. As appropriate, please revise the filing.
23. We note that Dahua Real Estate has been given permission to
provide certain services for housing, information consulting and
sales of building, electrical and decorating materials but that it
has not provided such services. Please elaborate on each of these
services and indicate when, if ever, you plan to provide these
services. If you do not plan to provide such services, please
explain. To the extent you do, please discuss in the MD&A section
what the anticipated impact offering these services will have on
your
results of operations going forward.
24. Under "Development Projects" on page 23, you indicate that
through the end of 2004, you sold 34 of the 76 units. If
possible,
please update the number of sales made to present. In addition,
please explain the reason why you have not generated revenue from
these sales. In this regard, and assuming $120 per square foot as
indicated on page 23, it would appear that you have sold somewhere
between $8.16 million and $20.4 million, depending on the size of
the
homes sold.
25. Under "Development Projects" on page 23, you also indicate
that
as of September 30, 2004, you had received deposits from the pre-
sale
of some units totaling $3.75 million. If possible, please update
the
number of such pre-sales made to present. In addition, please
quantify the number of units for which you have actually received
deposits and clarify whether any of these "pre-sales" have been
included in the 34 units "sold."
26. Under "Development Projects" on page 23, please expand on your
discussion of the Second Phase to indicate the location of the
project, the type, size, and resale cost of the units to be
offered,
whether you will serve as the sole developer of the project
(including construction and sales), and what the anticipated time
frame will be before all necessary licenses, permits or approvals
are
granted and, assuming they are, the time frame when construction
will
begin and when sales will commence.
27. Under "Home Construction" on page 23, please indicate whether
Beijing Aocheng Construction Management Ltd. is a related party.
Please disclose the salient issues with respect to your
arrangement
with Beijing Aocheng Construction Management Ltd. and file all
agreements as exhibits.
28. Under "Home Construction" on page 25, you disclose that you
have
not encountered any problems that would affect the delivery date
of
your First Phase units. Please indicate what the anticipated
delivery date will be.
29. Please indicate whether you are subject as a general
contractor
to any bonding and/or insurance requirements and what these are.
In
addition we note the disclosure in Note 8 to the financial
statements
that you have historically not carried property or casualty
insurance. Please advise as to the risks this poses.
30. Under "Acquisition of Land-Use Rights" on page 26, please
indicate the time frame for completing each of the 7 steps in your
development process for the First Phase.
31. It would appear the company must secure four permits as
discussed
on page 26. Please file these permits as exhibits. Upon receipt
we
may have additional comments.
32. Under "Sales and Marketing" on page 26, you refer to your
"cancellation rate." Please disclose this rate and what it is.
33. Under "Sales and Marketing" on page 27, we note that a deposit
is
required upon execution of a binding purchase contract. Please
disclose the deposit amount required and how these funds are
safeguarded until closing.
34. We note that you do not provide financing to prospective
homebuyers but will work closely with mortgage brokers and lenders
to
assist purchasers. Please elaborate on your efforts in this
regard,
including whether the company receives finder fees or referral
fees
from mortgage brokers or lenders. If so, discuss the arrangements
or
understandings. In addition, briefly discuss the mortgage lending
environment in China, including availability of funds for units
similar to those you offer, the interest rate climate, unique
Chinese
mortgage terms and any other material factors that might help
investors in the United States better understand the financing
arrangements and home mortgage environment in China.
35. Please advise what role you will serve, if any, once all homes
have been constructed and sold.
Management`s Discussion and Analysis or Plan of Operation, page 29
36. After providing updated financial statements for the year
ended
December 31, 2004, please revise the presentation to provide a
comparative analysis against the prior year, in accordance with
Item
303(b) of Regulation S-B, as appropriate. To the extent unaudited
financial statements for any interim periods are required to be
presented in any future amendments, the discussion of the results
of
operations for such periods should also include a comparison to
the
same period in the prior year.
Overview
37. Please note that Item 303(a) of Regulation S-B requires that
you
discuss your plan of operation for the next 12 months. In
providing
this information, please allocate the amounts necessary to cover
all
budgeted expenses deemed material. Discuss the anticipated
milestones in implementing your plan of operation and the time
frame
for beginning and completing each.
Liquidity and Capital Resources
38. Please file all material notes entered into to date. Disclose
the total amount of the line of credit, the principal balance and
the
amount available.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
39. Please revise your disclosure to state whether the report
issued
by your former accountant contained an adverse opinion, a
disclaimer
of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles, and if so, describe the nature of
each such adverse opinion, disclaimer of opinion, modification or
qualification. Note that this would include disclosure of
uncertainty regarding the ability to continue as a going concern
in
the accountant`s report. Also, please revise your disclosure to
correct the references to the Public Company Accounting Oversight
Board, or PCAOB.
Audit Opinions
40. Please delete the reference in each opinion to generally
accepted
auditing standards as established by the AICPA`s Auditing
Standards
Board. Such references are unnecessary because the previous
auditing
standards have been incorporated into the standards of the Public
Company Accounting Oversight Board. Please direct your auditor to
revise the reports accordingly.
Certain Relationships and Related Party Transactions, page 35
41. Please include the disclosure required by Item 404(d) of
Regulation S-B for the past 5 years regarding promoters.
42. Please identify the business nature of Waywood Investments and
Comp Hotel and the control persons of such and their affiliation
if
any.
Market for Common Equity and Related Stockholder Matters, page 35
43. We note the disclosure that the shares issued to Waywood and
Comp
Hotel can be sold under Rule 144. Please revise or provide the
staff
supplementally with an analysis as to why the company believes the
securities held by affiliates or promoters of Norton, a shell
company, can be sold under Rule 144. In this regard, please see
the
Ken Worm letter dated January 21, 2000.
Executive Compensation, page 37
44. Please indicate whether you intend to pay compensation to your
officers in the future, and if so, how this compensation will be
calculated.
Financial Statements
45. It is unclear what the financial statements included in the
registration statement represent, as they appear to combine
elements
of both recapitalization accounting and purchase accounting.
Specifically, we note audited financial statements for Bauer are
included for the nine months ended September 30, 2004, and the
financial statements of Dahua Real Estate are included for the
periods ended September 30, 2004, and December 31, 2003 and 2002.
The financial statements for Bauer describe it as a shell company
with minimal operations prior to the acquisition of the 80%
interest
in Dahua Real Estate. If this is the case, the transaction would
be
treated as a recapitalization rather than a business combination
and
accordingly, the financial statements of Bauer would be
retroactively
restated to be those of Dahua Real Estate for periods prior to the
merger, but would reflect the post-merger capital structure of
Bauer.
As a result, the standalone financial statements of Dahua Real
Estate
would not need to be included in the registration statement.
Currently, the financial statements of Bauer appear to imply that
a
business combination occurred, as the results of operations are
only
included from the date of the acquisition forward. Please
supplementally advise us how you determined what financial
statements
should be included, and the relevant accounting literature or SEC
rules on which this conclusion was based. Alternatively, please
revise the financial statements as described above. We may have
additional comments after reviewing your response.
46. Since the merger was consummated in January 2005, after the
date
of the latest balance sheet presented (December 31, 2004 after the
required updating), the Form SB-2 should include the financial
statements of Norton Industries Corp for the years ended December
31,
2004 and 2003. In addition, the restated financial statements of
Bauer should also be included for the same periods as previously
discussed.
47. In the footnotes to the financial statements, please provide
disclosure of the expected impact of accounting pronouncements
that
have been issued but are not yet effective in accordance with
Staff
Accounting Bulleting No. 74.
48. Please disclose in the footnotes to the financial statements
the
nature of your relationship to Dahua Group, as described on page
34.
49. Please provide footnote disclosure of the principal components
of
inventory at the dates presented.
Note 4 - Loans Receivable
50. Please tell us supplementally what the loans receivable relate
to
and why you believe that no valuation allowance is required.
Also,
please tell whether such amounts are due from a related party. If
the amounts are due from a related party, revise the description
on
the balance sheet and footnotes accordingly.
Note 6 - Related Party Transactions
51. We note interest expense for the related party loans was
$98,161
for the year ended December 31, 2003, but no interest expense was
recorded for the nine months ended September 30, 2004, because
"the
note was negotiated to carry no interest during 2004." Please
tell
us supplementally why no interest expense was recorded for the
period. All costs of doing business should be included in the
registrant`s financial statements, including expenses incurred on
its
behalf by its major shareholders. See Staff Accounting Bulletin
Topics 1.B.1 and 5.T. Please revise the financial statements
accordingly, or explain supplementally why you believe that no
revision is required.
52. On page 34, you state that your facilities are provided at no
charge by your affiliate, Dahua Group, and on page 37, you state
that
Dahua Group currently pays all compensation to your executive
officers. As previously discussed, all costs of doing business
should be included in the registrant`s financial statements.
Please
revise the financial statements to record all expenses incurred on
behalf of the company and disclose the nature of these
relationships
in the footnotes.
Part II
Item 26. Recent Sales of Unregistered Securities
53. Please provide the information required by Item 701 of
Regulation
S-B for the stock purchase agreement entered into between Waywood
and
Comp Hotel and file the agreement as an exhibit. In addition,
please
supplementally advise the staff how this transaction was not made
in
contravention to the disclosure set forth in the company`s Form
10-SB
where you state Mr. Zhang will not:
[D]irectly or indirectly, including through Waywood, engage in the
business of buying and selling the Company`s securities for
his/its
own account through a broker or otherwise as part of a regular
business. The proposed transactions as described in this
registration statement will only involve the Company`s own
securities, and will occur only upon consummation of a merger or
acquisition transaction.
54. Please clarify the transaction whereby 19 million shares were
issued to the shareholders of Bauer and disclose the consideration
received.
Item 27. Exhibits
55. Please revise exhibit 21 to include Dahua Real Estate or
advise
why such a revision is not necessary.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
Any questions regarding the accounting comments may be
directed
to Carlton Tartar at (202) 942-2847. Questions on other
disclosure
issues may be directed to William Bennett at (202) 942-0135.
Sincerely,
John Reynolds, Assistant Director
Office of Emerging Growth Companies
cc: William G. Hu
Fax (212) 809-1289