UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 1, 2005
- -----------------------------------------------------------------------------
Date of Report
(Date of Earliest Event Reported)
NORTON INDUSTRIES CORP.
- -----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
- -----------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-49852 04-3616479
- -----------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
Level 19, Building C, Tianchuangshiyuan, Huizhongbeili,
Chaoyang District, Beijing, China, 100012
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices, including ZIP Code)
(8610) 6480-1527
- -----------------------------------------------------------------------------
Registrant's Telephone Number, including Area Code
80 Wall Street, Suite 818, New York, NY 10005
- ------------------------------------------------------------------------------
(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))
FORM 8-K
INDEX
ITEM 2.01 Completion of Acquisition or Disposition of Assets........ 2
ITEM 3.02 Unregistered Sales of Equity Securities................... 14
ITEM 4.01 Changes in Registrant's Certifying Accountant............. 15
ITEM 5.01. Changes in Control of Registrant.......................... 16
ITEM 5.02. Departure of Directors or Principal Officers; Election
of Directors; Appointment of Principal Officers.......... 18
ITEM 8.01 Other Events.............................................. 20
ITEM 9.01 Financial Statements and Exhibits......................... 20-41
Item 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On January 30, 2005, Comp Hotel International Ltd. and Waywood Investment Ltd.
("Selling Stockholders"), who were collectively owned 100% of capital stock
of Norton Industries Corp. (the "Registrant"), entered into a Share Exchange
Agreement with Bauer Invest Inc., a British Virgin Islands corporation
("Bauer"), pursuant to which the Selling Stockholders sold all outstanding
capital shares, or 5,000,000 shares of common stock of the Registrant, owned
by Selling Shareholders, to Bauer in exchange for $100,000 in cash and five
percent (5%) of the capital shares issued and outstanding after the acquisition
("Post-Acquisition Shares"). This transaction was accounted for as a reverse
acquisition.
Concurrently the Registrant issued 19,000,000 shares of its common shares to
108 shareholders of Bauer on pro rata basis, the number of shares received
by each person was proportionate to the number of shares he/she originally
owned in Bauer. Those shares were issued under the exemption from
registration provided by Regulation S of the Securities Act of 1933, as
amended.
As a result, (i) Bauer becomes a wholly owned subsidiary of the Registrant,
and the shareholders of Bauer became the Registrant's controlling shareholders;
(ii) the name of the Registrant will be changed to Dahua Inc., and (iii) all
existing members of the Board of Directors and executive officers of the
Registrant resign, and new Board members and executive officers are appointed
by Bauer.
Prior to the acquisition, the Registrant was a blank check company seeking to
complete a merger or business acquisition, and had virtually conducted no
business. Bauer is a holding company, which conducts its business through its
80% owned subsidiary Beijing Dahua Real Estate Development Ltd., a company
operated in the People's Republic of China ("Dahua Real Estate").
Bauer was incorporated on December 10, 2003, under the laws of the Territory
of the British Virgin Islands. Bauer has no operations other than holding 80%
of capital stock of Dahua Real Estate, which was acquired by Bauer on May 25,
2004 in a reverse merger transaction. Because Bauer has no operations, the
assets and liabilities reflected on the balance sheet are essentially those
of Dahua Real Estate, and the statement of operations reflects the operations
of Dahua Real Estate. Whatever organizational and acquisition costs incurred
by Bauer were recorded on the books of Bauer.
Dahua Real Estate was incorporated on September 24, 2001 to engage in the
development and sale of luxury residential housing units. Bauer was a non-
operating shell company and incurred minimal costs to acquire Dahua Real
Estate, and therefore there was no need for adjustment for any costs incurred
by Bauer to be "pushed down" in the accounts of Dahua Real Estate. Dahua
Real estate did not incur any other costs that required to be "pushed down"
for the completion of the transaction.
The merger transaction between the Registrant and Bauer was accounted for as
a reverse acquisition, whereby, under accounting principles generally accepted
in the United States of America, after completion of the merger, the
Registrant will file prior historical financial information of Bauer, on a
stand-alone basis, for the year prior to the acquisition. The continuing
operations of the Registrant will reflect the consolidated operations of Bauer
and its wholly owned subsidiary Dahua Real Estate. The acquisition of Dahua
Real Estate by Bauer was treated as a reverse merger in accordance with
purchase accounting under APB 16.
Bauer has not been involved in any bankruptcy, receivership or similar
proceedings. Other than the reverse merger mentioned above, there is no
material reclassification, merger, consolidation, or purchase or sale of a
significant amount of assets not in the ordinary course of business.
BAUER'S BUSINESS
Bauer, through its wholly owned subsidiary Beijing Dahua Real Estate
Development Ltd, engages in the business of development, construction and sale
of residential luxury single-family homes in suburban Beijing, China. Dahua
Real Estate has been given permission by Beijing municipal governmental
agencies to provide certain services for housing, information consulting, and
sales of building, electrical, and decorating materials. Since inception
Dahua Real Estate has not provided such services.
Development Projects
In July 2003, we started to develop our first real estate project. The project
is called the first phase of Dahua Garden (the "First Phase"), which consists
of 76 luxury residential units, all of which are single houses ranging from
approximately 2,000 to 5,000 square feet, each with 3 - 4 bedrooms with built
- -in closets and adjacent bathrooms, an open eat-in kitchen, a family room, a
living room, and an attic solarium for indoor sun bathing. Those homes are
within reasonable driving distances from Beijing metropolitan areas. The
project is located at the northern skirt of Beijing, China.
The property being developed sits on a hot spring, spewing10,000 cubic meters
per day providing every house with hot spring water for baths. The water
temperature at the mouth of the hot spring is over 60 degrees centigrade. The
surplus hot spring water is discharged into the surrounding creeks and ponds,
making them unfrozen all year round.
The average sales price is around RMB1,000 (approximately $120) per square
foot. The price does not include interior finishing, light fixtures, plumbing
and appliances, which are custom tailored to suit individual tastes and
preferences of the buyer from a menu of options. The average cost for interior
finishing is approximately RMB 200 per square foot. The interior finishing
can be done by outside contractors of the buyer's choice.
The First Phase is constructed on land licensed from the Government of China
for a period of 70 years, expiring on April 27, 2073. The granting of land
use licenses is a common practice in China as all land is government-owned,
and, at present, no option to purchase land has ever been granted. Pursuant
to the laws of China, all land belongs to the government. Regardless of
whether real estate is purchased or sold for residential or business
purposes, the purchaser will receive the ownership license and a permit to
only use the land, as opposed to owning the land.
The construction began in July 2003 and was completed in December 2004.
Through the end of 2004, we had sold 30 of the 76 units of the First Phase.
These contracts will be closed when construction is completed. As of
September 30, 2004, we had received deposits on the units totaling $3.75
million.
Upon transfer of title of the units to the owners, each unit will be assigned
its portion of the 70-year license and we will not have any interest in such
units that have transferred title. Eventually when construction of all
projects is completed and all units are sold we will not have any interest
in the licensed land or the First Phase.
We have received purchaser deposits from the pre-sale of some of the
residential units. After completion of the First Phase in December 2004,
titles to the units were transferred to the respective owners.
We are currently applying with Beijing municipal and Changping district
governmental agencies for all the requisite licenses, permits, and approvals
to start our Second Phase of Dahua Garden development project. The project
will include 250 homes located on a 267,000-square meter site with community
clubhouse, creeks, ponds, and professionally manicured gardens and landscape.
As of the date of this report, no such licenses, permits or approvals have
been obtained. The Second Phase will not be contingent upon our successful
completion of the First Phase.
Residential Home Construction
We act as the general contractor for our residential home developments and
hire subcontractors for all construction activities. The use of
subcontractors enables us to reduce our investment in direct labor costs,
equipment and facilities. We generally price our housing only after we have
entered into contracts for the construction with subcontractors, an approach
which improves our ability to estimate costs accurately.
As the general contractor, we select our subcontractors for construction
through a competitive bidding process. In addition to the bid price, our
criteria include the bidders' experience, reputation, recommendations and
reference from other developers, etc. The construction prices, which are
capped and cover all materials and labor needed to complete the construction,
are predetermined upon execution of a construction contract between us and
the subcontractors. The bid-winning subcontractor will make advance payments
for all materials and labor. We make payments to the subcontractors over
time upon completion and acceptance of certain phases of construction
according to agreed-upon milestones specified in the construction contract.
Our competitive bidding process include the following steps: (1) Bid
invitation registration, (2) Bid invitation announcement, (3) Bid submission,
(4) Pre-screening of bidders' qualifications, (5) Purchase of bid document
package by the pre-qualified bidders, (6) Opening bids, (7) Assessment of
bids, (8) Selection and determination of the winning bidder, (9) Notice of
award, and (10) execution of the construction contract.
To assure quality, construction is monitored by Beijing Aocheng Construction
Management Ltd. and by construction quality control authorities under the
Changping District government.
We currently employ a licensed architect who directs and oversees the
preparation of design plans for our projects by its design staff. As the
general contractor, we are responsible for all planning, scheduling and
budgeting operations. There is an on-site superintendent who oversees the
subcontractors. We supervise the construction of our project, coordinate the
activities of subcontractors and suppliers, subject their work to quality and
cost controls and assure compliance with zoning and building codes.
Subcontractors typically are retained on a project-by-project basis to complete
construction at a fixed price. Agreements with our subcontractors are
generally entered into after competitive bidding on an individual basis. We
generally obtain information from prospective subcontractors and suppliers with
respect to their financial conditions and abilities to perform under their
agreements prior to commencement of a formal bidding process. The services
performed for us by subcontractors are generally readily available from a
number of qualified subcontractors.
We use, to the extent feasible, standardized materials in our commercial
construction and homebuilding operations in order to permit efficiencies in
construction and material purchasing that can result in higher margins.
Our subcontractors generally negotiate the purchase of major raw material
components such as concrete, lumber and structural steel. They are responsible
for what they purchase and for what they pay for. Raw materials used in our
operations are generally readily available from a number of sources but
prices of such raw materials may fluctuate due to various factors, including
supply and demand.
To date, we have not encountered any problems that would affect the delivery
date of our First Phase units, nor have we experienced a significant increase
in prices of materials.
The First Phase is subject to government inspections prior to transfer of title
to buyers. The purpose of the inspection is to ensure that real estate
developers adhere to government standards of quality and safety.
Other Government regulations that we must adhere to are:
o Any structures being constructed must be for residential and commercial
use;
o All structures must be within certain dimensions;
o Public infrastructures must be in place such as electrical and telephone
poles, underground pipe systems,
o There must be various safety access routes in case of emergencies such
as a fire or earthquake;
o Construction must not violate Environmental Laws in effect; and
o Compliance with certain infrastructure standards.
To date we have not violated any of the above noted regulations.
We typically obtain all necessary development approvals, complete a
satisfactory environmental assessment of the site, secure any necessary
financing and complete other due diligence deemed appropriate by us prior to
becoming obligated to commerce the construction.
Acquisition of Land Use Rights
The residential home development process in China generally consists of three
phases: (1) acquisition of land use rights; (2) land development and
construction; and (3) sale. The development cycles vary depending on the extent
of the government approvals required, the size of the development, necessary
site preparation, weather conditions and marketing results.
The whole development process for our First Phase is set forth as follows:
1. Signing of a land use rights transfer agreement with the owner of
such rights, i.e. Lutuan Village Committee of Beiqijia County, Changping
District, Beijing. Said agreement was then submitted to the Beiqijia County
Government for approval.
2. Preparation of a "Proposal of the First Phase of Dahua Low Density
Residential Development Subdivision, which, after approval by Beiqijia County
Government and Changping District Government, was submitted to the
Development and Reform Commission of Beijing Municipal Government for
approval.
3. Approval of the Proposal by the Development and Reform Commission of
Beijing Municipal Government after consultation with Beijing Construction
Commission and Planning Commission.
4. Submission of the Proposal by the Land Resources Bureau of Changping
District to Beijing National Land Resources Bureau in applying for changing
the nature of the proposed construction site from a collective land to a state
land.
5. Signing of a "Land Use Rights Transfer Agreement" with Beijing
National Land Resources Bureau and Beijing Housing Administration, making
payment of land use fee, and obtaining the "National Land Use Permit".
6. Submission of a detailed development plan to Beijing Planning
Commission to obtain "Development Planning Permit" and "Development
Construction Permit".
7. Upon issuance of the four Permits as set forth above, submission of
an application to Beijing National Land Resource Bureau and Beijing Housing
Administration for the "Residential Housing Pre-sale Permit".
The above-mention five Permits are needed for all real estate development
projects in Beijing. Upon issuance of the "Residential Housing Pre-sales
Permit", we may begin to sell housing units to the public. After signing a
purchase agreement with buyer, the agreement is recorded at the National Land
Resource Bureau and Housing Administration of Changping District, Beijing.
Project Funding
The total amount of financing needed to complete the First Phase of Dahua
Garden residential home development project is approximately RMB 70 million,
or $8.46 million. The construction of the First Phase was initially
financed by Dahua Group, our affiliate, by infusing equity capital and
providing unsecured short-term loans. Mr. Yonglin Du, our President and CEO,
is also the President and CEO of Dahua Group. Additional financing has been
derived from the purchase deposits received from the pre-sale of our First
Phase units.
After receiving the Residential Housing Pre-sale Permit issued by the
government, we, the developer, are permitted to sell the residential units to
be built to the public, which is common practice in China. Upon execution of
a binding purchase contract between the developer and the buyer, a deposit is
required to be made to the developer, which we use to construct our
residential units. As of September 30, 2004, we received $3.75 million of
buyer deposits. We believe that current market demand for the residential
units may generate sufficient deposits to fund our operations.
We estimate that approximately $60.5million is required to complete the Second
Phase. In addition to customer deposits, short-term loans from Dahua Group,
the proceeds generated from the First Phase sales will also be used to finance
the Second Phase development.
Sales and Marketing
Our sales and marketing activities are conducted principally through our ten
(10) sales employees. The salespersons are paid by base salary, plus sales
commission, which is 0.3% of gross sales.
Our sales are made pursuant to a standard sales contract, which generally
requires a customer deposit at the time of execution. Subject to particular
contract provisions, we generally permit purchasers to cancel their contractual
obligations in the event mortgage approvals are unobtainable within a
specified period of time.
Our residential homes are targeted toward buyers who desire luxury property
with many attractive features on which to build primary and secondary homes
for use as primary residences, vacation retreats, retirement residences, or
investments. Our target buyers include upper and middle class Chinese citizens
and foreign nationals working in Beijing and the surrounding area, such as
Shanxi and Hebei provinces, ranging from 30 to 60 years of age, including
private entrepreneurs, senior executives, technology elites, college
professors and self-employed professionals. The foreign nationals are
expatriates of foreign companies based in China. Our strategy for remaining
competitive in this market involves building on our reputation of offering
quality homes; using our own sales offices and personnel; and offering
properties with many appealing features, such as trails, water access, creeks,
and attractive views. We don't depend on one or a few major customers.
We sell our homes through our sales representatives who typically work from
sales offices located in the model homes at the development site. Sales
representatives assist potential buyers by providing them with basic floor
plans, price information, development and construction timetables, preview of
model homes and the selection of options. Our sales representatives are
trained by us and generally have had prior experience selling new homes in
the local market. We also market our homes for sale through direct mailing to
identified population of prospective buyers and, to a lesser extent, through
other media, including newspapers, television and radio advertising,
airplane advertising, product tie-ins, billboards and other signage. From
January 1, 2003 to September 30, 2004, our advertising expenses were
approximately $92,660.
Homes are sometimes sold prior to or during construction using sales contracts
which are accompanied by cash deposits. Purchasers are permitted to cancel
sales contracts if they are unable to qualify for financing and under certain
other circumstances, including rescission rights which may be given under
local law. We believe that our cancellation rate is consistent with that
generally experienced at other similar home developments. Although
cancellations can delay the sale of our homes, they have not had a material
impact on our sales, operations or liquidity.
To assist in the marketing of our homes and to limit our liability for certain
construction defects, we sell our homes subject to a limited warranty that
is provided by our sub-contractors. We don't provide any kind of warranty to
homebuyers. Our sub-contractors are responsible for the cost to repair major
structural defects, roofing, internal walls, heating, tiling problems, if
any, for certain period of time, from one to five years. The foregoing
repair costs are limited by our subcontractors' policy to the repair,
replacement or payment of the reasonable cost of repair or replacement of such
warranted items not to exceed an aggregate amount equal to the final sales
price of the home covered by the warranty.
We do not provide financing to prospective homebuyers, but work closely with
mortgage brokers or lenders who assist our homebuyers in obtaining financing.
We have no single customer that accounts for any substantial portion of our
revenues.
Regulation
Real estate development is a government regulated industry, and we are subject
to extensive local, district, municipal and national rules and regulations
regarding permitting, zoning, subdivision, utilities and water quality, as
well as national rules and regulations regarding air and water quality and
protection of endangered species and their habitats. Regulation is carried
on by municipal, district, and national authorities, of which the municipal
and district governments have the greatest regulatory impact. The City of
Beijing, in which we operate, has been adopting increasingly restrictive
regulations associated with development activities, including the adoption of
more restrictive ordinances, greater emphasis on land use planning, pressure
to increase the number of low density residential developments, and
heightened public concern aimed at limiting development as a means to control
growth. Such regulation may delay development of our properties and result
in higher developmental and administrative costs.
To engage in the business of real estate development and sale of residential
units in Beijing, China, certain government approval is required. We have
obtained all necessary licenses and permits, which include (i) State-Owned
Land Using License issued by Beijing Land Resources and Residential Housing
Management Bureau; (ii) Constructive Lands Planning License issued by Beijing
Planning Committee; (iii) Constructive Project Construction License issued
by Beijing Construction Committee; (iv) Constructive Project Planning License
issued by Beijing Planning Committee; and (v) Commercial Residential House
Pre-Sales License issued by Beijing Land Resources Bureau and Building
Management Bureau.
As of the date of this report, we are in material compliance with these laws
and regulations.
Environmental Matters
We are subject to China's national and local environmental protection laws.
These laws could hold us liable for the costs of removal and remedy of certain
hazardous substances or wastes released on our property regardless of whether
we were responsible for the presence of hazardous substances. The presence
of hazardous substances, or the failure to properly remedy them, may have a
material adverse effect on our results of operations and financial condition.
To date we are not aware of any material noncompliance, liability or claim
relating to hazardous or toxic substances in connection with our property and
operations. We believe that we are in material compliance with these laws and
regulations.
As to date, we did not incur any costs in complying with environmental laws
and regulations. Compliance with environmental laws and regulations is not
expected to have a material effect on our results of operation and financial
condition. However, no assurance can be given that China's environmental
authorities will not impose more stringent regulations which could have a
material adverse effect on our results of operation and financial condition.
Patents and Trademarks
We do not own any patents or trademarks.
Product Research and Development
To date we have not conducted any product research and development. We do not
plan to conduct any product research and development activities in the next
twelve months.
Employees
We currently have 22 full-time employees. We expect that there will be no
significant changes in the number of employees in the coming twelve months.
None of our employees is represented by trade unions. We consider our employee
relation to be satisfactory.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion and analysis in conjunction with our
financial statements, including the notes thereto contained elsewhere in this
report. This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of a
variety of certain risk factors. Our actual results could differ materially
from those discussed here.
Overview
We are engaged in the business of development, construction and sale of
residential luxury single-family homes in suburban Beijing, China. We are
given permission by Beijing municipal governmental agencies to provide certain
services for housing, information consulting, and sales of building,
electrical, and decorating materials. Since inception we have not provided
such services.
We conduct our business through our operating subsidiary Beijing Dahua Real
Estate Development, Ltd. ("Dahua Real Estate"). In July 2003, we started to
develop our first real estate project. The project is the first phase of our
Dahua Garden (the "First Phase"), which consists of 76 luxury residential
units, all of which are single houses ranging from approximately 2,000 to
5,000 square feet, each with 3 - 4 bedrooms. The project is located at the
northern skirt of Beijing, China.
The construction began in July 2003 and was completed in December 2004.
Through the end of 2004, we had sold 30 of the 76 units of the First Phase.
As of September 30, 2004, we had received deposits on 16 units totaling
$3.75 million.
We are currently applying with Beijing municipal and Changping district
governmental agencies for all the requisite licenses, permits, and approvals
to start our Second Phase of Dahua Garden development project. The project
will include 250 homes located on a 267,000-square meter site with community
clubhouse, creeks, ponds, and professionally manicured gardens and
landscape. We have not received such licenses, permits or approvals as of the
date of this report.
There are no seasonal aspects that could have a material effect on our
financial condition or results of operation.
Results of Operations
For the Nine-Month Period Ended September 30, 2004
Revenue. We had no revenue for the nine months ended September 30, 2004.
We started our first construction project on development of real estate luxury
residential single-family homes in July 2003. The project was not completed
until December 20, 2004. No revenue was been recognized for the nine months
ended September 30, 2004.
Operating Expenses. Operating expenses, consisting of selling, general and
administrative expenses, was $270,021 for the nine-month period ended
September 30, 2004. Of which, $87,121, or 32.3%, were payroll expenses, and
$63,992, or 23.7%, was advertising expenses.
Interest Income and Expenses. For the nine months ended September 30, 2004,
we had no interest expenses, and we had interest income of $2,624.
Net Loss
As a result of the factors discussed above, for the nine-month period ended
September 30, 2004, our net loss was $274,858.
For the Year Ended December 31, 2003
Revenue. For the year ended December 31, 2003, we did not generate any
revenue. We started our first construction project on development of real
estate residential single-family homes in July 2003. The project was not
completed until December 20, 2004. Accordingly, there was no revenue that had
been recognized for this period.
Operating Expenses. For the year ended December 31, 2003, our operating
expenses were $167,169. Of which, $58,193, or 34.8%, was payroll expense,
and $28,665, or 17.2%, was advertising expenses.
Interest Income and Expenses. For the year ended December 31, 2003, we
spent $98,161 in interest expenses, and we had interest income of $664.
Net Loss
As a result of the factors discussed above, we had net loss of $271,442 for
the year ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
To date, our operating funds have been provided primarily by contributor
capital ($1,209,190) and unsecured short-term loans ($3,845,326) from Dahua
Group, our affiliate, and by the purchase deposits ($3,749,038) we received
from our pre-sale of residential units.
We started our residential construction project in July 2003. For the year
ended December 31, 2003, Dahau Group provided us $3.96 million of unsecured
short-tern loans, and we received purchase deposits of $65,296. For the nine
months ended September 30, 2004, we received purchase deposits of $3.68
million and made payments of $116,773 to Dahua Group for return a portion of
short-term loans. The unsecured short-term loans provided by Dahua Group
bear annual interest rate of 6%, for a period of three years.
For the nine months ended September 30, 2004, our operating activities
provided us $562,343 of cash, largely as a result of customer deposits
($3,683,742), offset by increase in inventory of $2,665,057. For the year
ended December 31, 2003, our operating activities used cash of $3,341,971,
primarily as a result of net loss and increase in inventory ($2,985,427).
Our investing activities used cash $2,185 and $45,883 for the nine-month
period ended September 30, 2004 and for the year ended December 31, 2003,
respectively, which were used for purchase of property and equipment.
For the nine months ended September 30, 2004, our financing activities used
cash of $93,925, of which we paid $116,773 of short-term loans, offset by net
repayments received from short-term loans receivable. For the year ended
December 31, 2003, our financing activities provided us $3,472,069 of cash,
primarily from short-term loans ($3,610,073) provided by Dahua Group, our
affiliate. We have no bank credit facility.
As of December 31, 2004, the Phase I of our Dahua Garden has been completed.
We are currently applying with Beijing municipal and Changping district
governmental agencies for all the requisite licenses, permits, and approvals
to start our Phase II of Dahua Garden development project. The project will
include 250 homes located on a 267,000-square meter site with community
clubhouse, creeks, ponds, and professionally manicured gardens and landscape.
We have not received such licenses, permits or approvals as of the date of
this report. We estimate that approximately $60.5 million is required to
complete the Phase II. In addition to customer deposits and short-term loans
from Dahua Group, the proceeds generated from the Phase I sales will also be
used to finance the Second Phase development.
As of the date of this report, we have made no material commitments for
capital expenditures.
As of the date of this report, we believe that we don't have to raise
additional funds in the next twelve months. In the event that adequate funding
is not available, we may seek financing from institutional investors or banks
to identify additional sources of financing. While there can be no assurance
that we will have sufficient funds over the next twelve months, we believe
that funds generated from the sale of our Phase I of Dahua Garden, plus
customer deposits from pre-sale contracts will be adequate to meet our
anticipated future operating expenses, capital expenditure and debt
obligations for at least the next twelve months. Nevertheless, our continuing
operating and investing activities may require us to obtain additional sources
of financing. There can be no assurance that any necessary additional
financing will be available to us on commercially reasonable terms, if at all.
Off-balance sheet arrangements
We have entered into an agreement with a bank that extended mortgage loans
to buyers of our residential units, whereby we agree to provide certain
limited guarantee, which cover the risk before the conveyance of title upon
closing. We are required to deposit certain amount of funds into a special
account with the bank.
Critical Accounting Polices and Estimates
Discussion and analysis of our financial condition and results of operations
are based upon financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to bad
debts, inventories, and sales returns. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and
estimates used in the preparation of our financial statements.
Revenue Recognition
We follow the provisions of Staff Accounting Bulletin 104, "Revenue
Recognition" for revenue recognition. Under Staff Accounting Bulletin 104,
four conditions must be met before revenue can be recognized: (i) there is
persuasive evidence that an arrangement exists, (ii) delivery has occurred
or service has been rendered, (iii) the seller's price to the buyer is fixed
or determinable, and (iv) collectibility is reasonably assured.
We recognize revenue from sale of our residential homes when persuasive
evidence of an arrangement exists, the homes are delivered to the buyers
under the terms of the arrangement and title passes, the revenue is fixed or
determinable, and the payment received.
Long-Lived Assets
Long-lived assets used in operations are reviewed periodically as to whether
their carrying value has been impaired, pursuant to the guidelines established
in Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Impairment losses are recorded
when indicators of impairment are present and the assets' carrying value is
greater than the sum of the future undiscounted cash flows, excluding interest,
estimated to be generated by those assets. As of September 30, 2004, no
indicators of impairment existed and no impairment losses have been recorded.
DESCRIPTION OF PROPERTY
We do not own any real estate properties other than the residential units we
develop for sale. Our executive offices are located in an office complex of
approximately 2,000 square feet at Level 19, Building C, Tianchuangshiyuan,
Huizhongbeili, Chaoyang District, Beijing, China, 100012. This office spaces
are provided by Dahua Group Ltd., our affiliate, at no charge. There is no
leasing agreement regarding our office spaces. We believe that these facilities
are adequate for our current and anticipated needs. Dahua Group may repossess
the office facility at any time by giving us six-month notice. As of the date
hereof, we have not received such notice to repossess from Dahua Group.
Investment Policies
As of the date of this report, we have no established policy with respect to
investments on real estate or interests in real estate. However, we intend
that substantially all of our investments will be residential luxury single-
family houses. The purpose of such investments will primarily be generating
sales revenues. There are no limitations on the percentage of assets which
may be invested in any one investment or type of investments. Our board of
directors may set such policy without a vote of our shareholders. We will not
invest in real estate mortgages, and we will not invest securities of or
interests in real estate investment trusts, partnership interests, or other
persons primarily engaged in real estate activities.
We do not plan to limit the geographical area in which we may invest, but we
expect that all of our investments will be made in metropolitan Beijing,
China. We have no current plan to form a joint venture or other arrangements
with third parties to engage in real estate development.
We may finance our investments through both public and private secured and
unsecured debt offerings, as well as public and private placements of our
equity securities. The equity securities may include both common and preferred
equity issues. There are currently no restrictions on the amount of debt that
we may incur. For the past three years, our operating activities were
primarily financed by Dahua Group, our affiliate, by infusing equity capital
and providing short-term unsecured loans. Additional financing has been
derived from the purchase deposits received from our pre-sale of our Dahua
Garden units.
Description of Real Estate and Operating Data
Our only real estate project currently being developed is the first phase of
Dahua Garden, which is located in the northern suburb of Beijing, China,
approximately 20 kilometers from the downtown areas of Beijing. It consists
of 76 luxurious residential units, each ranging from 2,000 to 5,000 square
feet in size with 3 to 4 bedrooms. The residential units are constructed on
a piece of land of approximately 100 acres. The construction of all the
units have been completed and being sold to the public. As the developer,
we do not have title to the land, the use of which is licensed from the
Chinese government for a period of 70 years expiring on April 27, 2073, but
we own all the residential units constructed thereon. There are no material
mortgages, liens or other encumbrances against the land or residential units.
Upon conveyance of title to the residential units to the buyer, the land use
rights will be passed to the buyer.
The second phase of Dahua Garden development includes 250 homes located on a
267,000-square meter site with community clubhouse, creeks, ponds, and
professionally manicured gardens and landscape. We are currently applying with
the Chinese government for all the requisite licenses, permits, and approvals.
As of the date of this report, no such licenses, permits or approvals have been
obtained.
LEGAL PROCEEDINGS
There are no legal actions pending against Bauer nor are any legal actions
contemplated by Bauer.
Item 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
Pursuant to the Share Exchange Agreement as reported herein, on January 30,
2005, Waywood Investment Ltd. and Comp Hotel International Ltd. sold all,
or 5,000,000 shares, of the Registrant's capital stock to Bauer for
retirement in exchange for $100,000 in cash and 5%, or 1,000,000 shares, of
the Registrant's issuance of its post-merger common stock. As a result of
the reverse acquisition, the Registrant issued 19,000,000 shares of its
common shares to 108 shareholders of Bauer on pro rata basis, the number of
shares received by each person is proportionate to the number of shares he/she
originally owned in Bauer.
All shares were issued under the exemption from registration provided by
Regulation S of the Securities Act of 1933, as amended. All share recipients
are residents outside of the United States; the transaction took place
outside the United States; and no directed selling efforts were made in the
United States. We have never utilized an underwriter for an offering of our
securities. Other than the securities mentioned above, we have not issued
or sold any securities.
Item 4.01. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
As a result of our acquisition of Bauer Invest Inc., we dismissed Stan J. H.
Lee, CPA, a member firm of DMHD Hamilton Clark & Co., as our independent
public accountant, and engaged Child, Sullivan & Company, the auditors of
Bauer, as our certifying accountants. Bauer engaged Child, Sullivan & Company
as its independent public accountants in September 2004. The decision to
dismiss Stan J.H. Lee, CPA and appoint Child, Sullivan & Company was approved
by the whole board of directors of the Registrant.
Stan J.H. Lee, CPA served as our independent public accountants for the
period from March 8, 2002 (inception) to October 2003, when Stan J. H. Lee,
CPA became unqualified because he did not register with the Public Accounting
Oversight Board ("PAOB") as required by the Sarbares - Oxley Act of 2002 (the
"Act"). Pursuant to the Act, accounting firms that are not registered with
PAOB are prohibited from preparing or issuing audit reports on U.S. public
companies and from participating in such audits. During the period as our
independent public accountant, Stan H. Lee, CPA issued a report for the period
from March 8, 2002 (date of inception) to December 31, 2002.
During the period from March 8, 2002, to October 2003, there were no
disagreements between us and Stan J.H. Lee, CPA on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of
Stan J.H. Lee, CPA would have caused Stan J.H. Lee, CPA to make reference to
the matter of the disagreement(s) in connection with its reports. In addition,
during the period from March 8, 2002 to October 2003, there were no reportable
events as that term is described in Item 304(a)(1)(iv) of Regulation S-B.
In fiscal 2003 and until January 30, 2005, we were an inactive entity.
Pursuant to Section 3-11 of Regulation S-X, our financial statements required
for purposes of reports pursuant to the Securities Act of 1934 were unaudited.
At no time prior to January 30, 2005, did we (or anyone on behalf of us)
consult with Child, Sullivan & Company on matters regarding (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
its financial statements, or (ii) any matter that was the subject of a
disagreement with Stan J.H. Lee, CPA or a reportable event, as defined in
Item 304(a)(2) of Regulation S-B.
We have provided Stan J.H. Lee, CPA, our former accountants, with a copy of a
Current Report on Form 8-K prior to our filing with the SEC. We requested
that Stan J.H. Lee, CPA furnish us with a letter addressed to the SEC
stating whether he agrees with the above statements. Such letter from Stan
J.H. Lee, CPA is herewith filed as Exhibit 16.1.
Item 5.01. CHANGES IN CONTROL OF REGISTRANT
On January 30, 2005, Comp Hotel International Ltd. and Waywood Investment Ltd.
("Selling Stockholders"), which were collectively owned 100% of capital stock
of Norton Industries Corp. (the "Registrant"), entered into a Share Exchange
Agreement with Bauer Invest Inc., a British Virgin Islands corporation
("Bauer"), pursuant to which Selling Stockholders sold all outstanding capital
shares, or 5,000,000 shares of common stock of the Registrant, owned by
Selling Shareholders to Bauer in exchange for $100,000 in cash and five
percent (5%), or 1,000,000 shares, of the capital shares issued and
outstanding after the acquisition ("Post-Acquisition Shares"). This
transaction was accounted for as a reverse acquisition.
As a result of this transaction, (i) Bauer becomes a wholly owned subsidiary
of the Registrant, and the shareholders of Bauer became the Registrant's
controlling shareholders; (ii) the name of the Registrant shall be changed
to Dahua Inc., and (iii) all existing members of the Board of Directors and
executive officers of the Registrant resign, and new Board members and
executive officers are appointed by Bauer.
Prior to the acquisition, the Registrant was a blank check company seeking
to complete a merger or business acquisition, and had virtually conducted no
business. Bauer is a holding company, which conducts its business through its
80% owned subsidiary Beijing Dahua Real Estate Development Ltd., a company
operating in the People's Republic of China ("Dahua Real Estate").
Prior to the exchange, the Registrant had 5,000,000 shares of common stock
outstanding. Upon consummation of the share exchange, the Registrant has an
aggregate of 20,000,000 shares of common stock outstanding.
The Share Exchange Agreement was adopted and approved by the respective Boards
of Directors and shareholders of the Registrant and Bauer.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 30, 2005, each person who is
known by us to own beneficially more than five percent of our outstanding
common stock. We have only one class of securities outstanding. Except as
otherwise indicated, we believe that the beneficial owners of the common
stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
Name and Address of Amount & Nature of Percent of
Title of Class Beneficial Owner Beneficial Owner Class
- ----------------- --------------------- --------------------- ------------
Common Stock Yonglin Du 1,520,000 shares 7.60%
Level 19, Building C,
Tianchuangshiyuan,
Huizhongbeili,
Beijing, China, 100012
- ----------------------------------------------------------------------------
Security Ownership of Management
The following table sets forth certain information, as of January 30, 2005, as
to each class of our equity securities beneficially owned by all of our
directors and nominees, each of the named executive officers, and our directors
and executive officers as a group.
Name and Address of Amount & Nature of Percent of
Title of Class Beneficial Owner Beneficial Owner Class
- ----------------- --------------------- --------------------- ------------
Common Stock Yonglin Du 1,520,000 shares 7.60%
Level 19, Building C,
Tianchuangshiyuan,
Huizhongbeili,
Beijing, China, 100012
Common Stock Qinna Zeng 58,000 shares * (ii)
Level 19, Building C,
Tianchuangshiyuan,
Huizhongbeili,
Beijing, China, 100012
Common Stock Hua Meng 12,000 shares *
Level 19, Building C,
Tianchuangshiyuan,
Huizhongbeili,
Beijing, China, 100012
Common Stock Wang Wulong Nil Nil
c/o Level 19,
Building C,
Tianchuangshiyuan,
Huizhongbeili,
Beijing, China, 100012
All officers and directors 1,590,000 shares 7.95%
as a group
- -----------------------------------------------------------------------------
The persons named above do not have any specified rights to acquire, within 60
days of the date of this report any options, warrants or rights and no
conversion privileges or other similar obligations exist.
* Less than one percent of the total number of shares outstanding.
We do not have any securities that are convertible into common stock.
Changes in Control
There are no arrangements that management is aware of that may result in
changes in control as that term is defined by the provisions of Item 403(c)
of Regulation S-B. There are no provisions within our Articles or Bylaws
that would delay or prevent a change of control.
Item 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
In connection with the acquisition, on January 30, 2005, Mr. Jianjun Zhang,
the Registrant's sole executive officer and director resigned. New directors
and officers were elected and appointed. The following table sets forth
certain information regarding the executive officers and directors of the
Registrant as of the date of this report.
Directors and Executive Officers
Each of our directors is elected by the shareholders to a term of one (1)
year and serves until his or her successor is elected and qualified, or until
he or she resigns or is removed from office. Each of our officers is elected
by the board of directors to a term of one (1) year and serves until his or
her successor is duly elected and qualified, or until he or she resigns or is
removed from office. The board of directors has no nominating or compensation
committees. The board of directors does not have an audit committee financial
expert.
The name, address, age and position of our officers and directors are as set
forth below:
Name Age Position Held
- ----------------- ------ -------------------------------------------------
Du Yonglin 62 President, Chief Executive Officer and Director
Wang Wulong 64 Director
Meng Hua 28 Chief Financial Officer
Zeng Qinna 26 Corporate Secretary
The following is a brief description of business experience of each of our
directors and executive officers during the past five years.
Mr. Yonglin Du has been our Chairman, Chief Executive Officer and President
since January 30, 2005. From 1982 to 2003, Mr. Du held various prominent
positions in China's petroleum and petrochemical industries, including Deputy
Director of the Research Institute of Daqing Oilfield, Head of Petroleum
and Petrochemical Division of the State Planning Commission, Deputy Director
of the Energy Institute of the State Planning Commission, President of
Shanghai Petroleum and Natural Gas Company. In 2003, he founded Dahua
(Engineering) Management Group, China's first engineering management company.
Mr. Wulong Wang has been our Director since January 30, 2005. A graduate of
Beijing Post and Telecommunication University, Mr. Wang is a senior engineer
and China's registered Consulting Engineer. Mr. Wang joined China's State
Planning Commission in 1979, and served as its Deputy Chief of Investment
Bureau from 1988 to 1992, Chief of Key Construction Bureau from 1992 to 1994,
Chief of Investment Bureau from 1994 to 1995. From 1995 to 2002, Mr. Wang
served as the President of China International Engineering Consulting Company,
and from 2002 to the present as a member of the Expert Committee of China
Engineering Consulting Company, as well as a member of the Economic Commission
of Chinese National People's Political Consultative Conference.
Ms. Hua Meng has been our Chief Financial Officer since January 30, 2005. She
graduated from the Central University of Finance and Economics of China in
July 2003 with a master degree in accounting. She is a Certified Public
Accountant in China. From July 1999 to May 2000, Ms. Meng worked for Beijing
Baisheng Light Industry Development Co. Ltd. Since July 2003, Ms. Meng has
been Chief Financial Officer of Dahua Project (Engineering) Management (Group)
Company Limited.
Ms. Qinna Zeng has been our Corporate Secretary since January 30, 2005. She
graduated from the Central University of Finance and Economics in China in
July 2003 with a master degree in finance. From July 1999 to August 2000,
Ms. Zeng worked for the Lichuan Branch of People's Bank of China as a
statistician. Ms. Zeng has been Corporate Secretary of Dahua Project
(Engineering) Management (Group) Company Limited since July 2003.
None of our directors and officers has ever held any position in a reporting
company.
Significant Employees
There are no significant employees other than our executive officers.
Family Relationships
There are no family relationships among directors or officers.
Involvement in Certain Legal Proceedings
During the past five years, none of our officers, directors, promoters or
control persons has had any of the following events occur:
o any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
o any conviction in a criminal proceeding or being subject to a pending
criminal proceeding, excluding traffic violations and other minor offenses;
o being subject to any order, judgment or decree, not substantially
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking business; and/or
o being found by a court of competent jurisdiction, in a civil action, the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
Item 8.01. OTHER EVENTS
As a consequence of the reverse acquisition as described in Items 2.01 and
5.01, we relocate our offices to Level 19, Building C, Tianchuangshiyuan,
Huizhongbeili, Chaoyang District, Beijing, China, 100012, and our telephone
number at this address is 86-10-6480-1527.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, Bauer becomes the successor issuer to
Norton Industries Corp. for reporting purposes under the Securities Exchange
Act of 1934 and elects to reports under the Act effective as of the date of
this report.
Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
(1) Audited Financial Statements of Bauer Invest Ltd. for the Nine Months
Ended September 30, 2004;
(2) Audited Financial Statements of Beijing Dahua Real Estate Development
Ltd. for the Nine Months Ended September 30, 2004, the Year Ended
December 31, 2003, and for the Period from September 24, 2001
(Inception) to December 31, 2002.
(b) Pro forma financial information: None
(c) Exhibits
2.1. Share Exchange Agreement among Bauer Invest Inc., Comp Hotel
International Limited and Waywood Investment Limited dated
January 30, 2005.
16.1 Letter from Stan J. H. Lee, CPA.
Bauer Invest Inc.
Financial Statements
For the Nine Months Ended September 30, 2004,
Report of Independent Registered Public Accounting Firm
To The Stockholders
Bauer Invest Inc.
We have audited the accompanying balance sheet of Bauer Invest Inc. as of
September 30, 2004, and the related statements of operations, changes in
equity, and cash flows for the nine months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the AICPA's Auditing Standards Board and 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bauer Invest Inc. as of
September 30, 2004, and the results of its operations and its cash flows for
the nine months then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Child, Sullivan & Company
- -----------------------------
Child, Sullivan & Company
Salt Lake City, Utah
December 5, 2004
BAUER INVEST INC.
BALANCE SHEET
September 30,
2004
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 570,932
Inventory....................................... 7,579,601
Loans receivable (note 4)....................... 56,943
--------------
Total Current Assets....................... 8,207,476
Property, Plant, & Equipment:
Computer equipment.............................. 3,450
Office equipment................................ 43,464
Telephones...................................... 1,026
Vehicles........................................ 11,498
--------------
Total Property, Plant, & Equipment......... 59,438
Less: Accumulated depreciation.......... (17,541)
--------------
Net Fixed Assets........................... 41,897
Total Assets.................................... $ 8,249,373
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 25,393
Customer deposits............................... 3,749,038
Short-term loans (note 5)....................... 34,134
Short-term loans - related parties (note 6)..... 3,845,326
Accrued interest - short-term loans,
related parties (note 6)...................... 98,161
Other accruals.................................. 4,215
-------------
Total Current Liabilities.................. 7,756,267
Minority interest............................... 98,621
Equity:
Common stock; $1.00 par; 50,000 shares authorized;
1 share issued and outstanding................ 1
Additional paid-in capital...................... 492,211
Accumulated deficit............................. (97,727)
-------------
Total Equity............................... 394,485
Total Liabilities and Equity.................... $ 8,249,373
=============
See accompanying notes to financial statements
BAUER INVEST INC.
STATEMENT OF OPERATIONS
Nine Months
Ended
September 30,
2004
--------------
Revenue
Sales........................................ $ -
Cost of goods sold........................... -
--------------
Gross profit (loss) -
Expenses:
Advertising..................................... 28,442
Depreciation.................................... 3,049
Office supplies................................. 4,356
Payroll expense................................. 38,720
Legal fees...................................... 8,061
Utilities....................................... 10,296
Meals, travel, & entertainment.................. 5,066
Telephone....................................... 2,541
Automobile...................................... 4,971
Taxes........................................... 7,809
Other general and administrative................ 6,698
--------------
Total Expenses.................................. 120,009
Net Loss From Operations........................ (120,009)
Other Income (Expense)
Other expenses.................................. (3,477)
Interest expense................................ -
Interest income................................. 1,166
Other income.................................... 161
-------------
Total Other Income (Expense).................... (2,150)
Net Loss Before Income Taxes.................... (122,159)
Provision for income taxes.................... -
Minority interest in loss of subsidiary......... (24,432)
Net Loss........................................ $ (97,727)
==============
See accompanying notes to financial statements
BAUER INVEST INC.
STATEMENTS OF CASH FLOWS
Nine Months
Ended
September 30,
2004
-----------------
Cash Flows from Operating Activities
Net loss.................................... $ (97,727)
Adjustments to reconcile net loss to
net cash provided by (used in) operations:
Depreciation............................. 3,049
Changes in operating assets and liabilities:
Inventory................................ (1,184,470)
Accounts payable......................... (81,472)
Customer deposits........................ 1,637,219
Accrued interest......................... -
Other accruals........................... (2,236)
---------------
Cash Provided by (Used in) Operating Activities 274,363
Cash Flows from Investing Activities
Purchase of property, plant, & equipment..... (971)
---------------
Cash Used in Investing Activities............ (971)
Cash Flows from Financing Activities
Repayments received from short-term loans receivable 22,848
Payments on short-term loans payable - related parties (116,773)
Contributed capital for subsidiary acquisition 391,465
---------------
Cash Provided by (Used in) Financing Activities 297,540
Net Increase in Cash and Cash Equivalents..... 570,932
Cash and Cash Equivalents at the Beginning of the Period -
Cash and Cash Equivalents at the End of the Period $ 570,932
==============
Supplemental Disclosures:
Interest paid in cash....................... $ -
==============
Supplemental Disclosures of Noncash Investing
and Financing Activities:
Acquisition of subsidiary with equity......... $ 100,747
==============
See accompanying notes to financial statements
BAUER INVEST INC.
STATEMENT OF CHANGES IN EQUITY
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------------- ----------------- ------------- ------------
<s> <c> <c> <c> <c>
Balance, January 1, 2004 $ - $ - $ - $ -
Acquisition of subsidiary 1 492,211 - 492,212
Net loss - - (97,727) (97,727)
----------- ------------- ------------ -------------
Balance, September 30, 2004 $ 1 $ 492,211 $(97,727) $ 394,485
=========== ============= ============ =============
See accompanying notes to financial statements
BAUER INVEST INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
1. Nature of operations
Bauer Invest Inc. (the Parent) was incorporated on December 10, 2003, under the
laws of the Territory of the British Virgin Islands (BVI).
The Parent has had no operations other than the acquisition of 80% of Beijing
Dahua Real Estate Development, Ltd. (the Subsidiary), a corporation with
operations in the People's Republic of China (PRC), on May 25, 2004. Because
the Parent has no operations, the assets and liabilities reflected on the
balance sheet are essentially those of the Subsidiary, and the statement of
operations reflects the operations of the Subsidiary from the date of
acquisition to September 30, 2004. These financial statements should be read
in conjunction with the full set of financial statements of the Subsidiary as
of and for the periods ended September 30, 2004, and December 31, 2003 and
2002. The consolidated entity is referred to as the Company.
The Company engages in the development of real estate and the sale of commodity
housing. The Company also provides management for its housing, information
consulting, and sales of building, electrical, and decorating materials. The
Company has been in the process of acquiring and developing land and housing
for sale, and is now prepared for sales of those items to begin.
2. Basis of Presentation
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
(US GAAP). This basis differs from that used in the statutory accounts of the
Subsidiary, which were prepared in accordance with the accounting principles
and relevant financial regulations applicable to enterprises in the PRC.
All necessary adjustments have been made to present the financial statements
in accordance with US GAAP.
3. Summary of Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges as a result of having
primary operations and markets in the PRC. Changing political climates in the
PRC could have a significant effect on the Company's business.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
includes cash on hand and demand deposits held by banks.
Trade Accounts Receivable
Trade accounts receivable are recognized and carried at original invoice
amount less an allowance for any uncollectible amounts. An estimate for
doubtful accounts is made when collection of the full amount becomes
questionable. The Company had no trade accounts receivable during the audit
periods presented.
Inventories
Inventories consist primarily of land acquisition and development costs, and
engineering, infrastructure, and construction work-in-progress costs. The
inventories are valued at cost based on the level of completion. No provision
for potential obsolete inventory has been made.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated
depreciation, which is computed using the straight-line method over the useful
lives of the assets. Upon disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included
in income. Property and equipment are depreciated over their estimated useful
lives as follows:
Computer equipment 3 years
Office equipment 7 years
Vehicles 7 years
Long-term assets of the Company are reviewed annually to assess whether the
carrying value has become impaired, according to the guidelines established in
Statement of Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Company also evaluates the
periods of amortization to determine whether subsequent events and
circumstances warrant revised estimates of useful lives. No impairment of
assets was recorded in the periods reported.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete. Such
completion is identified when a home is sold and payment received, or when
services are provided.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense amounted to
$28,442 for the nine months ended September 30, 2004.
Foreign Currency and Comprehensive Income
The accompanying financial statements are presented in United States (US)
dollars. The functional currency is the Renminbi (RMB). The financial
statements are translated into US dollars from RMB at year-end exchange rates
for assets and liabilities, and weighted average exchange rates for revenues
and expenses. Capital accounts are translated at their historical exchange
rates when the capital transactions occurred.
The exchange rate for RMB to US dollars has varied by only 100ths during 2004,
2003, and 2002. Thus, the consistent exchange rate used has been 8.27 RMB per
each US dollar. Since there have been no greater fluctuations in the exchange
rate, there is no gain or loss from foreign currency translation and no
resulting other comprehensive income or loss.
RMB is not freely convertible into the currency of other nations. All such
exchange transactions must take place through authorized institutions. There
is no guarantee the RMB amounts could have been, or could be, converted into
US dollars at rates used in translation.
Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain. Nearly all differences
in tax bases and financial statement carrying values are permanent
differences. Therefore, the Company has recorded no deferred tax assets or
liabilities.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
4. Loans Receivable
The Company is owed $56,943 at September 30, 2004. The advances are non-
interest bearing and due on demand. Interest has not been imputed due to
its minimal amount.
5. Short-term Loans
Notes payable had a balance of $34,134 at September 30, 2004. The notes are
non-interest bearing and due on demand. Interest has not been imputed due to
its minimal amount.
6. Related Party Transactions
Notes payable to related parties had a balance of $3,943,487 at September 30,
2004. The notes carry an annual interest rate of 6 percent and are due on
demand. Interest expense was $98,161 for the year ended December 31, 2003,
which remained accrued at September 30, 2004. The note was negotiated to carry
no interest during 2004.
7. Income Taxes
The Company is currently not subject to income taxes according to applicable
tax laws in the PRC.
8. Contingencies
The Company has not, historically, carried any property or casualty insurance.
No amounts have been accrued for any liability that could arise from the lack
of insurance. Management feels the chances of such an obligation arising are
remote.
Beijing Dahua Real Estate Development, Ltd.
Financial Statements and Schedule
For the Nine Months Ended September 30, 2004,
the Year Ended December 31, 2003, and for
the Period from September 24, 2001 (inception) to December 31, 2002
INDEPENDENT AUDITORS' REPORT
To The Stockholders
Beijing Dahua Real Estate Development, Ltd.
We have audited the accompanying balance sheets of Beijing Dahua Real Estate
Development, Ltd. as of September 30, 2004, and as of December 31, 2003 and
2002, and the related statements of operations, changes in equity, and cash
flows for the nine months ended September 30, 2004 the year ended December 31,
2003, and the period from September 24, 2001 (inception) to December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and in accordance with the standards
of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Beijing Dahua Real
Estate Development, Ltd. as of September 30, 2004, and as of December 31,
2003 and 2002, and the results of its operations and its cash flows for the
periods then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Child, Sullivan & Company
- ------------------------------
Child, Sullivan & Company
Salt Lake City, Utah
October 29, 2004
BEIJING DAHUA REAL ESTATE DEVELOPMENT, LTD.
BALANCE SHEETS
September 30, December 31,
2004 2003 2002
-------------- -------------- ------------
ASSETS
<s> <c> <c> <c>
Current Assets:
Cash and cash equivalents................ $ 570,932 $ 104,699 $ 20,484
Inventory................................ 7,579,601 4,914,544 1,929,117
Loans receivable (note 4)................ 56,943 79,791 90,662
-------------- ------------ -----------
Total Current Assets.................. 8,207,476 5,099,034 2,040,263
Property, Plant, & Equipment:
Computer equipment....................... 3,450 2,813 1,790
Office equipment......................... 43,464 41,916 8,554
Telephones............................... 1,026 1,026 1,026
Vehicles................................. 11,498 11,498 -
-------------- ------------- -------------
Total Property, Plant, & Equipment..... 59,438 57,253 11,370
Less: Accumulated depreciation....... (17,541) (10,680) (1,965)
-------------- ------------- -------------
Net Fixed Assets....................... 41,897 46,573 9,405
-------------- ------------- -------------
Total Assets.............................. $ 8,249,373 $ 5,145,607 $ 2,049,668
============== ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................... $ 25,393 $ 208,706 $ 471,584
Customer deposits........................ 3,749,038 65,296 -
Short-term loans (note 5)................ 34,134 34,134 183,009
Short-term loans - related parties (note 6) 3,845,326 3,962,099 352,026
Accrued interest - short-term loans,
related parties (note 6)............... 98,161 98,161 -
Other accruals........................... 4,215 9,247 3,643
------------- ------------- -----------
Total Current Liabilities.............. 7,756,267 4,377,643 1,010,262
Equity:
Registered capital........................ 1,209,190 1,209,190 1,209,190
Accumulated deficit....................... (716,084) (441,226) (169,784)
------------- ------------- ------------
Total Equity............................ 493,106 767,964 1,039,406
------------- ------------- ------------
Total Liabilities and Equity.............. $ 8,249,373 $ 5,145,607 $ 2,049,668
============= ============= ============
See accompanying notes to financial statements
BEIJING DAHUA REAL ESTATE DEVELOPMENT, LTD.
STATEMENTS OF OPERATIONS
September 24
Nine Months 2001 (inception)
Ended Year Ended Through
September 30 December 31 December 31
2004 2003 2002
-------------- -------------- ---------------
<s> <c> <c> <c>
Revenue
Sales................................. $ - $ - $ -
Cost of goods sold.................... - - -
-------------- -------------- --------------
Gross profit (loss)................... - - -
Expenses:
Advertising........................... 63,992 28,665 266
Depreciation.......................... 6,861 8,715 1,965
Office supplies....................... 9,801 10,481 15,695
Payroll expense....................... 87,121 58,193 17,934
Legal fees............................ 18,138 - -
Utilities............................. 23,167 9,629 2,552
Meals, travel, & entertainment........ 11,398 17,313 49,768
Telephone............................. 5,718 7,399 4,565
Automobile............................ 11,185 8,590 4,646
Taxes................................. 17,570 1,507 -
Other general and administrative...... 15,070 16,677 72,562
-------------- ----------- ------------
Total Expenses......................... 270,021 167,169 169,953
-------------- ----------- ------------
Net Loss From Operations............... (270,021) (167,169) (169,953)
Other Income (Expense)
Other expenses........................ (7,823) (6,776) (58)
Interest expense...................... - (98,161) -
Interest income....................... 2,624 664 227
Other income.......................... 362 - -
-------------- ------------ ------------
Total Other Income (Expense)........... (4,837) (104,273) 169
Net Loss Before Income Taxes........... (274,858) (271,442) (169,784)
Provision for income taxes............ - - -
--------------- ------------ ------------
Net Loss............................... $ (274,858) $ (271,442) $ (169,784)
================ ============ ============
See accompanying notes to financial statements
BEIJING DAHUA REAL ESTATE DEVELOPMENT, LTD.
STATEMENTS OF CASH FLOWS
September 24
Nine Months 2001 (inception)
Ended Year Ended Through
September 30 December 31 December 31
2004 2003 2002
-------------- -------------- ---------------
<s> <c> <c> <c>
Cash Flows from Operating Activities
Net loss............................. $ (274,858) $ (271,442) $ (169,784)
Adjustments to reconcile net loss
to net cash provided by (used in) operations:
Depreciation..................... 6,861 8,715 1,965
Changes in operating assets and liabilities:
Inventory........................ (2,665,057) (2,985,427) (1,929,117)
Accounts payable................. (183,313) (262,878) 471,584
Customer deposits................ 3,683,742 65,296 -
Accrued interest................. - 98,161 -
Other accruals................... (5,032) 5,604 3,643
-------------- ------------- ------------
Cash Provided by (Used in)
Operating Activities.............. 562,343 (3,341,971) (1,621,709)
Cash Flows from Investing Activities
Purchase of property, plant, & equipment (2,185) (45,883) (11,370)
-------------- -------------- ------------
Cash Used in Investing Activities..... (2,185) (45,883) (11,370)
Cash Flows from Financing Activities
Net repayments received from
(advances made on) short-term
loans receivable................ 22,848 10,871 (90,662)
Net proceeds from (payments on)
short-term loans payable............ - (148,875) 183,009
Net proceeds from (payments on)
short-term loans payable - related parties (116,773) 3,610,073 352,026
Contributed capital................... - - 1,209,190
-------------- ------------- -----------
Cash Provided by (Used in)
Financing Activities............. (93,925) 3,472,069 1,653,563
Net Increase in Cash and Cash Equivalents 466,233 84,215 20,484
Cash and Cash Equivalents at
the Beginning of the Period......... 104,699 20,484 -
-------------- -------------- -------------
Cash and Cash Equivalents at
the End of the Period............... $ 570,932 $ 104,699 $ 20,484
============= ============= ============
Supplemental Disclosures:
Interest paid in cash................. $ - $ - $ -
============= ============= ============
See accompanying notes to financial statements
BEIJING DAHUA REAL ESTATE DEVELOPMENT, LTD.
STATEMENT OF CHANGES IN EQUITY
FROM SEPTEMBER 24, 2001 (INCEPTION) TO SEPTEMBER 30, 2004
Registered Accumulated
Capital Deficit Total
-------------- -------------- ------------
<s> <c> <c> <c>
Balance, February 24, 2001 (inception)....... $ - $ - $ -
Capital contributions........................ 1,209,190 - 1,209,190
Net loss..................................... - (169,784) (169,784)
------------- ------------ ------------
Balance, December 31, 2002................... 1,209,190 (169,784) 1,039,406
Net loss..................................... - (271,442) (271,442)
------------- ------------ ------------
Balance, December 31, 2003................... 1,209,190 (441,226) 767,964
Net loss..................................... - (274,858) (274,858)
------------- ------------ ------------
Balance, September 30, 2004.................. $ 1,209,190 $ (716,084) $ 493,106
============= ============ ============
See accompanying notes to financial statements
BEIJING DAHUA REAL ESTATE DEVELOPMENT, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 AND 2002
1. Nature of operations
Beijing Dahua Real Estate Development, Ltd. (the Company) was incorporated on
September 24, 2001, under the laws of the People's Republic of China (the PRC).
In the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the
United States (US).
The Company engages in the development of real estate and the sale of
commodity housing. The Company also provides management for its housing,
information consulting, and sales of building, electrical, and decorating
materials. The Company has been in the process of acquiring and developing
land and housing for sale, and is now prepared for sales of those items to
begin.
2. Basis of Presentation
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP). This basis differs from that used in the statutory accounts of the
Company, which were prepared in accordance with the accounting principles
and relevant financial regulations applicable to enterprises in the PRC. All
necessary adjustments have been made to present the financial statements in
accordance with US GAAP.
3. Summary of Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges as a result of having
primary operations and markets in the PRC. Changing political climates in the
PRC could have a significant effect on the Company's business.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
includes cash on hand and demand deposits held by banks.
Trade Accounts Receivable
Trade accounts receivable are recognized and carried at original invoice
amount less an allowance for any uncollectible amounts. An estimate for
doubtful accounts is made when collection of the full amount becomes
questionable. The Company had no trade accounts receivable during the audit
periods presented.
Inventories
Inventories consist primarily of land acquisition and development costs, and
engineering, infrastructure, and construction work-in-progress costs. The
inventories are valued at cost based on the level of completion. No provision
for potential obsolete inventory has been made.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated
depreciation, which is computed using the straight-line method over the
useful lives of the assets. Upon disposal of assets, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss
is included in income. Property and equipment are depreciated over their
estimated useful lives as follows:
Computer equipment 3 years
Office equipment 7 years
Vehicles 7 years
Long-term assets of the Company are reviewed annually to assess whether the
carrying value has become impaired, according to the guidelines established
in Statement of Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Company also evaluates the
periods of amortization to determine whether subsequent events and
circumstances warrant revised estimates of useful lives. No impairment of
assets was recorded in the periods reported.
Registered Capital
Companies in the PRC are not held by stock ownership as is the case in the US.
Those creating a company register and pay in a given amount of required
registered capital at formation of the company, as required by laws in the PRC
governing business entity formation.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete. Such
completion is identified when a home is sold and payment received, or when
services are provided.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense amounted to
$63,992, $28,665 and $266 for the nine months ended September 30, 2004, the
year ended December 31, 2003 and the period from September 24, 2001
(inception) to December 31, 2002, respectively.
Foreign Currency and Comprehensive Income
The accompanying financial statements are presented in United States (US)
dollars. The functional currency is the Renminbi (RMB). The financial
statements are translated into US dollars from RMB at year-end exchange rates
for assets and liabilities, and weighted average exchange rates for revenues
and expenses. Capital accounts are translated at their historical exchange
rates when the capital transactions occurred.
The exchange rate for RMB to US dollars has varied by only 100ths during 2004,
2003, and 2002. Thus, the consistent exchange rate used has been 8.27 RMB
per each US dollar. Since there have been no greater fluctuations in the
exchange rate, there is no gain or loss from foreign currency translation
and no resulting other comprehensive income or loss.
RMB is not freely convertible into the currency of other nations. All such
exchange transactions must take place through authorized institutions. There
is no guarantee the RMB amounts could have been, or could be, converted into
US dollars at rates used in translation.
Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
statement of operations in the period that includes the enactment date. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to
realize their benefits, or that future deductibility is uncertain. Nearly
all differences in tax bases and financial statement carrying values are
permanent differences. Therefore, the Company has recorded no deferred tax
assets or liabilities.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
4. Loans Receivable
The Company is owed $56,943, $79,791, and $90,662 at September 30, 2004 and
December 31, 2003 and 2002, respectively. The advances are non-interest
bearing and due on demand. Interest has not been imputed due to its minimal
amount.
5. Short-term Loans
Notes payable had balances of $34,134 at September 30, 2004 and December 31,
2003, and $183,009 at December 31, 2002. The notes are non-interest bearing
and due on demand. Interest has not been imputed due to its minimal amount.
6. Related Party Transactions
Notes payable to related parties had balances of $3,943,487, $4,060,260, and
$352,026 (including accrued interest) at September 30, 2004 and December 31,
2003 and 2002, respectively. The notes carry an annual interest rate of 6
percent and are due on demand. Interest expense was $98,161 for the year ended
December 31, 2003, which remained accrued at September 30, 2004. Interest for
the period of September 24, 2001 (inception) through December 31, 2002 was
minimal and, therefore, not expensed.
7. Income Taxes
The Company is currently not subject to income taxes according to applicable
tax laws in the PRC.
8. Contingencies
The Company has not, historically, carried any property or casualty insurance.
No amounts have been accrued for any liability that could arise from the lack
of insurance. Management feels the chances of such an obligation arising are
remote.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
NORTON INDUSTRIES CORP.
By: /s/ Yonglin Du
- -----------------------------
Yonglin Du, President and CEO
Date: February 3, 2005