Powerus Corp S-1/A, filed Oct 16, 2024
Powerus Corp (PUSA)
As filed with the United States Securities and Exchange Commission on October 16, 2024
Registration No. 333-280340
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Aureus Greenway Holdings Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 7997 | 99-0418678 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
2995 Remington Boulevard
Kissimmee, Florida 34744
Tel: (407) 344 4004
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Vcorp Services, LLC
701 S. Carson Street, Ste. 200
Carson City, NV 89701
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a Copy to:
William Rosenstadt, Esq. Mengyi “Jason” Ye, Esq. Ortoli Rosenstadt LLP 366 Madison Avenue, 3rd Fl. New York, NY 10017 Tel: 212-588-0022 |
Benjamin Tan, Esq. Sichenzia Ross Ference Carmel LLP 1185 Avenue of the Americas, 31st Fl. New York, NY 10036 Telephone: (212) 930 9700 |
Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We and the Selling Stockholders may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED OCTOBER 16, 2024 |
AUREUS GREENWAY HOLDINGS INC.
3,000,000 Shares of Common stock being offered by the Company
750,000 Shares of Common Stock being offered by the Selling Stockholders
This is an initial public offering of Aureus Greenway Holdings Inc, a Nevada corporation (the “Company”) on a firm commitment basis of 3,000,000 shares of our common stock, par value $0.001 per share and an additional 750,000 shares of our common stock, par value $0.001 per share held by certain Selling Stockholders . We will not receive any proceeds from the sale of common stock by the Selling Stockholders. We expect the initial public offering price to be in the range of $4.00 to $6.00 per share.
The shares of common stock offered in this prospectus are shares of Aureus Greenway Holdings Inc., a Nevada holding company, which has no material operations of its own and conducts substantially all of its operations through its operating entities in the United States. For a description of our corporate structure, see “Corporate History and Structure” beginning on page 64. Our corporate structure involves unique risks to investors. See “Risk Factors – Risks Related to Our Corporate Structure”.
Prior to this offering, there has been no public market for our common stock. We have reserved the symbol “AGH” for purposes of listing our common stock on the Nasdaq Capital Market (“Nasdaq”) and have applied to list our common stock on the Nasdaq. At this time, Nasdaq has not yet approved our application to list our common stock. The closing of this offering is conditional upon Nasdaq’s final approval of our listing application, and there is no guarantee or assurance that our common stock will be approved for listing on Nasdaq.
As of the date of this prospectus, the Company is authorized to issue 500,000,000 shares of capital stock, consisting of 450,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, par value $0.001. 20,000,000 shares of our preferred stock are designated into shares of series A preferred stock (the “Series A Preferred Stock”). Each share of our common stock is entitled to one vote, and each share of Series A Preferred Stock is entitled to twenty (20) votes on any matter on which action of the stockholders of the corporation is sought, respectively. Shares of our Series A Preferred Stock vote together with shares of our common stock. Shares of our common stock and Series A Preferred Stock are not convertible into each other. Holders of Series A Preferred Stock are not entitled to receive dividends.
Additionally, we are, and following the completion of this offering, will continue to be a “controlled company” as defined under Nasdaq Marketplace Rules 5615(c). This “controlled company” status is due to the fact that Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, each of which are controlled in part by Mr. S. Cheung our designated executive director, Mr. Y. C. Cheung and Ms. C. Lee, and Mr. C. P. Cheung our executive director, respectively beneficially own Series A Preferred Stock and common stock of the Company and will each be able to exercise 49.2%, 9.6%, and 39.4% of our voting power and will be able to determine all matters requiring approval by our stockholders, immediately after the consummation of this offering, assuming the sale of 3,000,000 and 750,000 shares of common stock by us and the Selling Stockholders respectively. For further information, see “Principal and Selling Stockholders.” We do not intend to avail ourselves of the corporate governance exemptions afforded to a “controlled company” under the Nasdaq Marketplace Rules. However, our decision not to rely on the “controlled company” exemption could change. See “Risk Factors” and “Management — Controlled Company.”
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”
Investing in our common stock involves significant risks. See “Risk Factors” beginning on page 9 to read about factors you should consider before buying our common stock.
| Per Share | Total | |||||||
| Initial public offering price (1) | $ | 4.00 | $ | 15,000,000 | (4) | |||
| Underwriting discount (7.0%) (2) | $ | 0.28 | $ | 1,050,000 | ||||
| Proceeds to us, before expenses (3) | $ | 3.72 | $ | 11,160,000 | ||||
| Proceeds to the Selling Stockholders, before expenses (3) | $ | 3.72 | $ | 2,790,000 | ||||
| (1) | Assuming the public offering price is $4.00, which is the bottom of the estimated initial public offering price range set forth on the cover page of this prospectus. |
| (2) | We have agreed to pay the underwriter a fee equal to 7.0% of the gross proceeds of the offering. This table does not include a non-accountable expense allowance equal to 1.0% of the gross proceeds of this offering payable to the underwriter. For a description of the other compensation to be received by the underwriter, see “Underwriting” See “Underwriting” for additional disclosure regarding underwriting compensation payable by us. |
| (3) | The total estimated fees and expenses related to this offering are set forth in the section entitled “Underwriting–- Discounts and Expenses”. |
| (4) | Includes $12,000,000 gross proceeds from the sale of 3,000,000 shares of common stock offered by our Company and $3,000,000 gross proceeds from the sale of 750,000 shares of our common stock offered by the Selling Stockholders. |
The
underwriter is selling the shares of common stock in this offering on a firm-commitment basis. This prospectus also relates to the sale of
an aggregate of 750,000 shares of our common stock by the Selling Stockholders named in this prospectus.
If we complete this offering, net proceeds will be delivered to us and the Selling Stockholders on the closing date. The underwriter expects to deliver the shares of our common stock against payment as set forth under the section entitled “Underwriting” on or about [●], 2024.
Neither the U.S. Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Prospectus dated [●], 2024
TABLE OF CONTENTS
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We are responsible for the information contained in this prospectus We, the Selling Stockholder, and the underwriter have not authorized anyone to provide you any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses that may be prepared by us or on our behalf or to which we have referred you to. Neither we, nor the Selling Stockholder, take any responsibility for and cannot provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We and the Selling Stockholder are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or the sale of any of our shares of common stock. It may be the case that our business, financial condition, results of operations, and prospects may have changed since that date.
For Investors Outside the United States: The underwriter is offering to sell, and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. Neither we, the Selling Stockholder nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.
Until and including [●], 2024 (25 days after the date of this prospectus), all dealers that buy, sell or trade our shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Basis of Presentation
In connection with the consummation of this offering, we have effected certain reorganizational transactions, which we refer to collectively as the “Reorganization Transactions.” Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the Reorganization Transactions and the consummation of this offering. See “Corporate History and Structure” in this prospectus for a description of the Reorganization Transactions and a diagram depicting our organizational structure after giving effect to the Reorganization Transactions and the consummation of this offering.
As a result of the Reorganization Transactions, we are a holding company that owns 100% of the equity interest in Pine Ridge. Pine Ridge holds the entire issued common stock of Chrome I and Chrome II which in turn holds the entire issued common stock of FSC I and FSC II respectively. Pine Ridge is considered the predecessor of Aureus Greenway Holdings Inc. for accounting purposes, and its historical consolidated financial statements are our historical consolidated financial statements.
You should rely only on the information contained in this prospectus or contained in any free writing prospectus that may be filed with the U.S. Securities and Exchange Commission (the “SEC”). We and the underwriter have not authorized anyone to provide you with additional information or information different from that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources we believe to be reliable, although we do not guarantee the accuracy or completeness of such information. We believe these industry publications and third-party research, surveys and studies are reliable, however you are cautioned not to give undue weight to the information contained or cited therein.
Numerical figures included in this prospectus may have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
This prospectus may contain additional trademarks, service marks and trade names of others. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other person.
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CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless otherwise indicated or the context requires otherwise, references in this prospectus to:
“Association” refers to the Kissimmee Bay Community Association, Inc. a not-for-profit corporation homeowners association;
“Aureus Greenway” “our business”, “our Company”, “Company”, “we”, “us”, “our” and “Group” refers to Aureus Greenway Holdings Inc., a corporation incorporated under the laws of the State of Nevada and, unless the context requires otherwise, its subsidiaries;
“BVI” refers to the British Virgin Islands;
“CCR” refers to the master declaration of covenants, conditions, restrictions, easements, and reservations of the Kissimmee Bay Community Association;
“Chrome I” refers to Chrome Fields I, a corporation formed in the State of Delaware and an indirect wholly-owned subsidiary of the Company;
“Chrome II” refers to Chrome Fields II, a corporation formed in the State of Delaware and an indirect wholly-owned subsidiary of the Company;
“FSC I” refers to FSC Clearwater LLC, a limited liability company formed in the State of Florida and an indirect wholly-owned subsidiary of the Company;
“FSC II” refers to FSC Clearwater II LLC, a limited liability company formed in the State of Florida and an indirect wholly-owned subsidiary of the Company;
“Kissimmee Bay” refers to Kissimmee Bay Country Club in Florida and which is owned by FSC I;
“Mr. C. P. Cheung” refers to Mr. ChiPing Cheung, our executive director, Chief Executive Officer and stockholder indirectly holding 31.4% of our listed common stock and 40% of our class A preferred stock after this offering and the brother of Mr. S. Cheung and the son of Mr. Y. C. Cheung and Ms. C. Lee;
“Mr. S. Cheung” refers to Mr. Stephen Ching Ping Cheung, our designated executive director, Executive Chairman and stockholder indirectly holding 38.1% of our issued common stock and 50% of our class A preferred stock after this offering and the brother of Mr. C. P. Cheung and the son of Mr. Y. C. Cheung and Ms. C. Lee;
“Mr. Y. C. Cheung” refers to Mr. Yick Chung Cheung, a stockholder indirectly holding 3.5% of our issued common stock and 10% of our class A preferred stock after this offering, the father of Mr. C. P. Cheung and Mr. S. Cheung;
“Ms. C. Lee” refers to Ms. Chan Lee, a stockholder indirectly holding 9.6% of our issued common stock and 10% of our class A preferred stock after this offering, the mother of Mr. C. P. Cheung and Mr. S. Cheung;
“Pine Ridge” refers to Pine Ridge Group Limited, a company formed in the BVI on May 3, 2013, a direct wholly-owned subsidiary of the Company;
“Remington” refers to Remington Golf Club in Florida and which is owned by FSC II;
“Selling Stockholders” refers to Trendy View Assets Management, a company formed under the laws of the BVI which owns 10% of our outstanding common stock prior to this offering and Ace Champion Investments Limited, a company formed under the laws of the BVI which owns 50% of our outstanding common stock prior to this offering; and
“U.S. dollars,” “$,” and “dollars” refers to the legal currency of the United States.
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The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our common stock, discussed under “Risk Factors,” before deciding whether to buy our common stock.
Business Overview
We own and operate two public golf country clubs in Florida that each features a golf-club, consisting of over 289 acres of multi-service recreational property. Our golf country clubs include two golf-courses with over 13,000 yards of combined fairways, clubhouses boasting food and beverage options, aquatic golf ranges, and pro shops to assist any level of golfer. We believe our golf country clubs are a serene combination of approachable golf and nature that are designed to appeal to local residents and tourists alike. The property underlying both of our golf country clubs and the owner of that property are part of and subject to the Association, a not-for-profit corporation homeowners association. Leveraging our two golf country clubs, we plan to (i) continue to develop customer loyalty and capture a greater share of the golf-players who live in,. or visit the greater Orlando region and (ii) increase our revenue from the operation of our golf country clubs. We believe the quality of our golf-courses and the amenities we offer will continue to enhance our ability to attract and retain golf-players across a number of demographic groups and skill levels
Each of our golf country clubs is organized into four principal business sectors: (i) golf recreation, retail golf products, and equipment and facilities rental, (ii) membership dues, (iii) food and beverage services. and (iv) ancillary services and amenities. Each of the golf-courses featured at our golf country clubs present a different set of physical and strategic challenges depending on the layout and where we place the position of a ball-hole and flagstick on a green from time to time during the golf-season. We believe this variation helps to create an enjoyable experience for our customers, no matter how many times they have visited our golf-courses before.
We acquired both of our golf country clubs in 2014, and since then, our management team has grown alongside the business. Similarly, our revenue has increased steadily during the last five years due to efforts from our greens superintendent as well as the executive management team. We believe recent capital improvements at both golf country clubs will help the facilities and our golf-courses progressively grow in stature and reputation in order to keep up to date with future infrastructure needs that can meet future demand and structural wherewithal. As a result of these upgrades and our management’s plans for growth, we believe they have gained valuable experience and are well-equipped to take on additional assets and continue to enhance the performance of both golf country clubs since our initial acquisition in 2014.
Our Business Model
We are the manager and operator of golf country clubs just south of Orlando, Florida. We believe that our golf country clubs are designed to appeal to a wide-ranging population that attracts customers across a number of local and tourism-driven demographic groups. We believe the combination of our geographic location and approachable golf-courses allow us to capture a greater share of a broad base of customers’ discretionary leisure spending. We believe our golf country clubs are designed to provide customers with lush and serene backdrops where they can enjoy leisure and social activities.
Both of our golf-courses are conveniently located just south of Orlando, Florida and both Remington and Kissimmee Bay are an approximate 23-minute drive to popular attractions such as Walt Disney World Resort. Similarly, both our golf-courses are easily accessible via major highways and in close proximity to Orlando International Airport. According to Frost & Sullivan Limited, who we commissioned in December 2023 to produce the “The Golf Country Clubs Market Research Report” that covers and analyzes the golf club industry for a period of 2018-2022 (the “Frost & Sullivan Report”), Orlando, Florida is one of the most visited cities in the world for leisure travelers with domestic and international visitors combined rising from 111.8 million in 2018 to 137.4 million in 2022.
Our Operational and Competitive Strengths
Accessible and Convenient Locations. Kissimmee Bay and Remington are located near Orlando, which we believe is one of Florida’s major cities known for its tourist attractions and populations, commerce, and densely populated residential areas. Because our golf country clubs are close to Orlando and major theme parks nearby, we believe both golf country clubs are in a better position to attract both local residents and tourists visiting the city than other golf country clubs located far beyond city-centers.
Aesthetically Appealing Grounds. We believe both of our golf country clubs boast natural beauty due to their intentional design near and around bodies of waters and inclusion of mature trees. We believe that these aesthetic design considerations contribute to the allure of both of our golf-courses due to their scenic backdrops. Ultimately, we believe that if customers enjoy their surroundings while playing a round of golf, it will enhance their golfing experience and encourage future visits. In fact, Remington was built in the mid-1990s and designed by the Clifton, Ezell & Clifton Golf Design Group. We have uniquely designed both golf-courses with their own features such as abundant water, generous landing areas and scenic landscaping. For instance, Remmington uses a layout cut from an oak forest which makes its 6,830-yard, par-71 length not as long as some of the newer golf-courses.
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Ownership and Control of Golf- and Country-Clubs. As the fee simple real estate owner of our golf country clubs, we believe that we have an advantage over other competing golf country clubs that do not own the land they operate on. Because we own the land we operate on outright, we retain the ability to maximize the value of our golf country clubs and business. Because we own the real estate underlying our golf country clubs, over the years we have been able to implement capital plans that inure to our benefit and generate positive returns on our investments without sacrificing equity in the underlying property.
Membership and in Public Golf-course Revenue Streams. As of June 30, 2024 we have a combined 100 members at both Kissimmee Bay and Remington. For the six months ended June 30, 2023 and 2024, membership dues totaled $142,548 and $150,380, representing 5.67% and 6.83% of our total revenues, respectively. For the fiscal year ended December 31, 2022 and 2023, membership dues totaled $230,874 and $168,723, representing 7.67% and 4.75% of our total revenues, respectively. Unlike traditional membership clubs, our members pay an annual golf membership fee and enjoy unlimited golf. A significant portion of our members are residents of the Kissimmee Bay community, which is comprised of 297 households, with approximately 20% of those residents being club members. Because many of our club members live so close to our facilities, we believe our golf country clubs are an integral part of many of our members’ lives which has resulted in a high membership retention rate. Aside from individual member play, we organize a member-only league at Kissimmee Bay, which hosts several matches throughout each week.
Hosting large golf leagues, outings and tournaments. We host weekly golf leagues at both of our golf country clubs, and annually accommodate dozens of small privately sponsored or hosted outings and large private tournaments, especially during our off-season. We charge each golfer participating in each of the leagues, outings, and tournaments that we host which plays a significant role in generating year-round revenue for our golf country clubs. Pricing for sponsoring outings, and tournaments is variable, with rates subject to the golf season each outing, or tournament is hosted in. To that end, we charge higher prices during peak seasons, and lower prices during low season. However, we often provide tournament discounts to our regular league participants who play at our golf country clubs year-round or return for tournaments on an annual basis, fostering long-term relationships with our clients. To maintain the quality of our services and avoid unnecessary interruption of free play, we typically avoid scheduling tournaments during peak season unless the tournament our outing host or sponsor is willing to pay a more premium price.
Committed Management Team and Specialized Consultancy Services. Our management team, led by Mr. S. Cheung our designated Executive Chairman, Mr. C. P. Cheung our Chief Executive Officer, and Mr. Austin St. John our director of golf, brings a wealth of management experience. We believe this experience has been demonstrated through our management’s commitment to excellence and its vital role in driving the Company’s growth since acquiring our golf country clubs in 2014. To bolster the management of our golf country clubs we have engaged SSS Down to Earth, LLC (“DTE”) an independently contracted country club consultancy and golf maintenance company.
Our Growth Strategies
We plan to continue to promote, market, manage and operate our golf country clubs with the intent to (i) attract and retain customers across a number of demographic groups to further develop customer loyalty and capture a greater share of customers in the greater Orlando Florida region and (ii) increase revenue from managing and operating our golf country clubs.
Club Renovation
Over fiscal years 2014 through 2022, we invested certain of our total revenues in our golf country clubs to maintain existing facilities and upgrade, replace, and build new facilities and amenities that focus on enhancing our customer experience. Through capital investment we have sought to renovate our facilities to provide customers with a modern golf-club experience to enhance our facilities. We believe that enhancing our facilities will promote higher usage, and customer engagement to ultimately result in additional ancillary spend, such as food and beverage purchases, and improved customer and brand loyalty.
Long-term Growth of Residential Community
Residential communities surround both of our golf country clubs and we believe they often refer one another via word of mouth after a positive experience at our golf country clubs. Based on our experience, word-of-mouth advertising has the lowest customer acquisition cost and is most effective way of attracting new customers. Anecdotally, we have noticed many of our customers have social media platforms to share information of their experiences at our golf country clubs. If our customers positively report our golf-course conditions and their experience on their social media platforms, we believe this segment of organic social media content is very powerful in terms of our marketing purposes. This strategic position provides us with a local customer base, allowing nearby residents to become regular patrons and contribute to our golf country clubs consistent revenue.
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Acquisitions
We believe the growth of residential population provides us a significant growth opportunity in pursuing acquisitions to expand our portfolio of clubs and variety of amenities. We believe our management team is capable of running multiple golf country clubs because they have grown alongside our company since 2014. We believe that the unique benefits we have to offer, such as a policy which does not assess members for capital improvements as well as our ability to consummate acquisitions and improve operations, provide us a unique competitive advantage in pursuing potential transactions. We believe there are many attractive acquisition opportunities available, and we continually evaluate and selectively pursue these opportunities to expand our business.
Organizational Structure
We were incorporated under the laws of the State of Nevada as a corporation on December 22, 2023, in contemplation of our initial public offering. For more details on our corporate history, please refer to “Business — Corporate History and Structure.”
The following diagram illustrates our corporate structure as of the date of this prospectus and upon completion of this offering based on a proposed number of 3,000,000 and 750,000 shares of common stock by us and the Selling Stockholders respectively. All percentages reflect the voting ownership interests instead of the equity interests held by each of our stockholders given that each holder of common stock is entitled to one vote per one share of common stock and each holder of Series A Preferred Stock is entitled to twenty (20) votes per one share of Series A Preferred Stock.
| (1) | Mr. C. P. Cheung has sole voting and dispositive power over the shares held by Chrome Fields Asset Management LLC. |
| (2) | Mr. S. Cheung has sole voting and dipositive power over the shares held by Ace Champion Investments Limited. |
| (3) | Mr. Y. C. Cheung and Ms. C. Lee have joint voting and dipositive power over the shares held by Trendy View Assets Management. |
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Corporate Information
Our principal executive office is located at 2995 Remington Boulevard, Kissimmee, Florida 34744. Our telephone number is (407) 344 4004 and our website address is www.aureusgreenway.com. The information contained in, or that can be accessed through, our website is not incorporated by reference into, and is not part of, this prospectus.
Reverse Stock Split
On June 11, 2024, our board of directors and shareholders holding a majority of the voting power of our issued and outstanding voting capital stock implemented a reverse stock split in a ratio of 1.25-for-1 (the “Reverse Stock Split”) upon approval of which we filed articles of amendment to the articles of incorporation of the Company (the “Articles of Incorporation”), in order to implement the Reverse Stock Split.
Unless otherwise indicated, all information in this prospectus reflects a 1.25-for-1 reverse split of our issued and outstanding shares of common stock, effected on June 12, 2024.
After completion of the Reverse Stock Split, all references to our common stock, share data, per share data and related information has been adjusted for the Reverse Stock Split ratio of 1-for-1.25 as if it had occurred at the beginning of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split. The prospective Reverse Split will decrease each one and one quarter (1.25) share of common stock of our outstanding common stock into one (1) share of common stock, without any change in the par value per share. Upon completion of the Reverse Stock Split, no fractional shares were issued, and any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share.
Summary of Risk Factors
Investing in our common stock involves significant risks. You should carefully consider all of the information in this prospectus before making an investment in our common stock. Below please find a summary of the principal risks we face, organized under relevant headings. These risks are discussed more fully in the section titled “Risk Factors.”
Risks Related to Our Corporate Structure
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
| ● | Aureus Greenway Holdings Inc. is a holding company and may rely on dividends paid by its subsidiaries for its cash needs. Any limitation on the ability of its subsidiaries to make dividend payments to the Company, or any tax implications of making dividend payments to the Company, could limit the Company’s ability to pay its expenses or pay dividends to holders of its common stock (see page 10 of this prospectus); |
Risks Related to Our Business
Risks and uncertainties related to our business include, but are not limited to, the following:
| ● | Severe weather patterns may adversely affect the ability for our customers play at our golf courses, create damage to our course greens and properties and may adversely affect the value of our golf courses or negatively impact our business and results of operations (see page 10 of this prospectus); | |
| ● | Economic downturns could negatively affect our business, financial condition and results of operations (see page 10 of this prospectus); | |
| ● | We have a limited operating history and may not be able to operate our business successfully or generate sufficient cash flows to accomplish our business objectives (see page 11 of this prospectus); | |
| ● | Increasing property taxes, Association fees, and insurance costs may negatively affect results of operations (see page 11 of this prospectus); | |
| ● | Our property is subject to a CCR that may unreasonably restrict our ability to operate on and use our property (see page 12 of this prospectus); | |
| ● | We may not be able to attract and retain customers that consistently utilize our golf country clubs and pay green fees, which could harm our business, financial condition and results of operations (see page 12 of this prospectus); | |
| ● | Our property is part of the Association, and we are subject to the rules and regulations the Association, which are subject to change and which may be arbitrary or restrictive, and violations of such rules may subject us to additional fees and penalties and litigation with the Association, which would be costly (see page 12 of this prospectus); | |
| ● | Changes in consumer spending patterns, particularly discretionary expenditures for leisure, recreation and travel, are susceptible to factors beyond our control that may reduce demand for our products and services (see page 12 of this prospectus); | |
| ● | We have significant operations concentrated in a specific geographic state and any disruptions or highly successful competitor in this limited region could harm our results of operations (see pages 12-13 of this prospectus); | |
| ● | Our business operation is subject to seasonality (see page 13 of this prospectus); | |
| ● | Our golf course maintenance is highly dependent on a third-party golf-club consultant which subjects us to risks, including disruptions in our business and increased costs (see page 13 of this prospectus); | |
| ● | Our golf courses and facilities are subject to future renovation projects which may result in in an extended period of continued partial or full business disruption and timing, budgeting and other risks could delay our efforts to renovate our properties all of which could reduce our profits or impair our ability to compete effectively (see page 13-14 of this prospectus); | |
| ● | Negative publicity could reduce sales at some or all of our golf country clubs and adverse litigation against us could materially affect our financial condition and results of operations (see page 14 of this prospectus); | |
| ● | We rely on a small number of suppliers, supplier concentration may expose us to significant financial credit or performance risk (see page 14 of this prospectus); | |
| ● | Increases in our cost of equipment rentals, consultant services, insurance premiums, Association fees, food vendors and taxes could reduce our operating margins and harm our business, financial condition and results of operations (see page 14 of this prospectus); | |
| ● | Timing, budgeting and other risks could delay our efforts to develop, redevelop or renovate the properties that we own, or make these activities more expensive, which could reduce our profits or impair our ability to compete effectively (see page 15 of this prospectus); |
| 4 |
| ● | Our success is dependent on the continued service of our senior management and key employees (see page 15 of this prospectus); | |
| ● | Competition in the industry may have a material adverse effect on our business and results of operations (see page 15 of this prospectus); | |
| ● | Certain market opportunity data and forecasts in the Frost & Sullivan Report, contained in this prospectus were obtained from third-party sources and were not independently verified by us. We believe the estimates of market opportunity data and forecasts of market growth included in this prospectus are reliable, but may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all. (see page 15 of this prospectus); | |
| ● | Navigating workforce challenges is an inherent aspect of our operations, exposing us to potential risks associated with the historical rise in labor costs (see page 15 of this prospectus); | |
| ● | We may seek to expand through acquisitions of, or investments in, other businesses and properties each of which may divert our management’s attention, result in additional dilution to our stockholders, increase expenses, disrupt our operations and harm our results of operations (see page 16 of this prospectus); | |
| ● | Accidents or injuries at our golf country clubs or in connection with our operations may subject us to liability, negatively affect our reputation and attendance at our golf country clubs, which could harm our business, financial condition and results of operations (see page 16 of this prospectus); | |
| ● | We may need to defend ourselves against patent or trademark infringement, or other intellectual property claims, which may be time-consuming and cause us to incur substantial costs (see page 17 of this prospectus); | |
| ● | Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and damage to our business relationships, all of which could negatively impact our business and results of operations (see page 17 of this prospectus); | |
| ● | Our insurance coverage may be inadequate for the claims asserted or in relation to the risks associated with our business operations (see page 17 of this prospectus); | |
| ● | Our properties are subject to environmental regulation (see page 17 of this prospectus); | |
| ● | Our current debt obligations may limit our ability to secure additional capital, hinder adaptability to economic and industry changes, which may impede meeting such debt obligations (see page 18 of this prospectus); | |
| ● | We may experience material weaknesses in our internal controls and financial reporting may limit our ability to prevent or detect financial misstatements or omissions. As a result, our financial reports may not be in compliance with U.S. GAAP. Any material weakness, misstatement or omission in our financial statements will negatively affect the market and the price of our stock, which could result in significant loss to our investors (see page 18 of this prospectus); | |
| ● | We will incur substantial costs as a result of being a public company and become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which will require us to incur audit fees and legal fees in connection with preparation of reports. These additional costs could reduce or eliminate our ability to operate profitability (see pages 19-20 of this prospectus); | |
| ● | We are controlled by Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, whose interests may be different than the interests of other investors (see page 20 of this prospectus); |
Risks Related to this Offering and Our Common Stock
In addition to the risks described above, we are subject to general risks and uncertainties relating to this offering, including, but not limited to, the following:
| ● | We cannot predict the impact our multi-class structure may have on the stock price of our common stock (see page 20 of this prospectus); | |
| ● | Holders of our Series A Preferred Stock will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders of our common stock (see pages 20-21 of this prospectus); | |
| ● | There has been no public market for our common stock prior to this offering, and you may be unable to resell our common stock at or above the price you pay for them, or at all (see page 21 of this prospectus); | |
| ● | The market price of our common stock may be volatile, may not be indicative of prices that will prevail in the trading market, or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price (see page 21 of this prospectus); | |
| ● | The price of the shares of our common stock could be subject to rapid and substantial volatility (see page 22 of this prospectus); | |
| ● | Because our public offering price per share is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution (see page 22 of this prospectus); | |
| ● | We may be unable to maintain the listing of our shares on the Nasdaq Capital Market (see page 22 of this prospectus); |
| 5 |
| ● | Substantial future sales of our common stock or the anticipation of future sales of our shares of common stock in the public market could cause the price of our shares of common stock to decline (see page 22 of this prospectus); | |
| ● | If securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding our common stock, the price of our common stock and trading volume could decline (see page 23 of this prospectus); | |
| ● | Our management has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the price of our shares (see page 23 of this prospectus); | |
| ● | We do not intend to pay dividends for the foreseeable future (see page 23 of this prospectus); | |
| ● | We are an “emerging growth company” and a “smaller reporting company” under the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors (see page 23 of this prospectus); | |
| ● | As a “controlled company” under the Nasdaq Listing Rules, we may choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public stockholders (see page 24 of this prospectus); and | |
| ● | Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock (see page 24 of this prospectus). |
Implications of Being a Smaller Reporting Company
We qualify as a “smaller reporting company” as defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K. A smaller reporting company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
| ● | the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure; | |
| ● | the reduced disclosure obligation regarding executive compensation under Item 402 of Regulation S-K; and | |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002. |
We may take advantage of these provisions for so long as we remain a smaller reporting company. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.
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Implications of Being an “Emerging Growth Company”
As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to larger public companies. In particular, as an emerging growth company, we:
| ● | may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives, and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”; |
| ● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; |
| ● | are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements; |
| ● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer (“CEO”) pay ratio disclosure; and |
| ● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions until we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” at the end of the fiscal year in which the fifth anniversary of our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act occurred, if we have more than $1.235 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.
Implications of Being a Controlled Company
Upon completion of this offering, will continue to be a “controlled company” as defined under Nasdaq Marketplace Rules 5615(c). This “controlled company” status is due to the fact that Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, each of which are controlled in part by each of Mr. S. Cheung, Mr. Y. C. Cheung and Ms. C. Lee, and Mr. C. P. Cheung, respectively will each be able to exercise 49.2%, 39.4%, and 9.6% of our voting power and will be able to determine all matters requiring approval by our stockholders, immediately after the consummation of this offering, assuming the sale of 3,000,000 and 750,000 shares of common stock by us and the Selling Stockholders respectively. As a result, we will be deemed a “controlled company” for the purpose of the Nasdaq Marketplace Rules. As a controlled company, we are permitted to elect to rely on certain exemptions from the obligations to comply with certain corporate governance requirements, including:
| ● | the requirement that a majority of our board of directors must be independent directors; |
| ● | the requirement that our director nominees must be selected or recommended to the board for determination, by either a Nominating Committee comprised solely of independent directors or by a majority of the independent directors; | |
| ● | the requirement that we have a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws; and | |
| ● | the requirement that compensation of the chief executive officer must be determined, or recommended to the board for determination, either by a Compensation Committee comprised of independent directors or by a majority of the independent directors on its board of directors and that compensation for all other officers must be determined, or recommended to the board for determination, either by such Compensation Committee or a majority of the independent directors on the company’s board of directors. |
Although we do not intend to rely on the controlled company exemptions under the Nasdaq Marketplace Rules even if we are deemed a controlled company, we could elect to rely on these exemptions in the future, and if so, you would not have the same protection afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Marketplace Rules.
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| Shares of common stock offered: | 3,000,000 shares of common stock offered by us and 750,000 shares of common stock offered by the Selling Stockholders.
| |
| Assumed Public Offering Price: | We currently estimate that the initial public offering price will be in the range of $4.00 to $6.00 per share.
| |
Capital stock outstanding prior to completion of this offering:
|
10,880,000 shares of common stock.
10,000,000 shares of Series A Preferred Stock
| |
| Capital stock outstanding immediately after this offering: | 13,880,000 shares of common stock.
10,000,000 shares of Series A Preferred Stock
| |
| Listing: | We have applied to have our common stock listed on the Nasdaq Capital Market. At this time, Nasdaq has not yet approved our application to list our common stock. The closing of this offering is conditioned upon Nasdaq’s final approval of our listing application, and there is no guarantee or assurance that our common stock will be approved for listing on Nasdaq.
| |
Proposed Nasdaq Capital Market symbol:
|
“AGH”
| |
| Transfer Agent: | VStock Transfer LLC | |
Underwriter:
|
Dominari Securities, LLC or the representative, acting as the lead managing underwriter and book-runner
| |
| Use of proceeds: | We plan to use the net proceeds we receive from this offering (i) approximately $1.4 million, or 15% of the net proceeds we receive from this offering, for renovation and upgrading of our golf courses, clubhouse and facilities; (ii) approximately $0.2 million, or 2.5% of the net proceeds we receive from this offering, for repayment of two loans due to South State Bank and two promissory notes due to the Kissimmee Bay Community Association, Inc.; (iii) approximately $1.0 million, or 11% of the net proceeds we receive from this offering, for marketing, promotion and brand building activities; (iv) approximately $1.3 million in an aggregate, or 13.5% of the net proceeds for repayment of balances with shareholders including (1) two loans made by each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung to us in connection with the acquisition of Kissimmee Bay and Remington (the “2014 Loans”) (As of June 30, 2024, we had an outstanding balance under the 2014 Loans with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for amounts of $617,272, $493,917, and $123,454, respectively.); and (2) a loan made by each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung to us in connection with the repayment of a Paycheck Protection Program (the “PPP Loan”) due to the United States Small Business Administration (the “2024 Loan”) (As of the date of this prospectus, the outstanding amount due to Mr. S. Cheung, Mr. C. P. Cheung, and Mr. Y. C. Cheung under the 2024 Loans is an aggregate amount of approximately $500,000, which is interest-free and due to each of the three parties in proportions of 50%, 40% and 10%.) and (v) the balance, or approximately 58% to fund working capital and for other general corporate purposes. We will not receive any proceeds from the sale of common stock by the Selling Stockholders. See “Use of Proceeds” on page 26 for more information.
| |
| Lock-up Agreement: | We, each of our directors and executive officers and 5% or greater stockholders, except for the Selling Stockholders with respect to their shares of our common stock sold in this offering, have agreed, subject to certain exceptions, for a period of 180 days after the date of this prospectus, not to, except in connection with this offering, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any other securities convertible into or exercisable or exchangeable for shares of our common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock. See “Shares Eligible for Future Sale” and “Underwriting — Lock-Up Agreements”. | |
| Dividend policy: | We do not intend to pay any dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings, if any, will be used for the operation and growth of our business. See “Dividend Policy” on page 27 for more information. | |
| Risk Factors: | Investing in these securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our common stock. |
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our financial data. We derived the summary financial statement data set forth below for the years ended December 31, 2023 and 2022 from our audited financial statements, and for the three months and for the six months ended June 30, 2024 and 2023 from our unaudited condensed consolidated financial statements. Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the information presented below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for our financial statements, the notes to those statements and the other financial information contained in this prospectus.
Statement of Income Data:
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 3,554,712 | $ | 3,008,654 | ||||
| Total Operating Costs | 3,301,554 | 2,540,408 | ||||||
| Income from Operations | 253,158 | 468,246 | ||||||
| Total Other Expense, net | (2,295 | ) | (27,296 | ) | ||||
| Income before income tax | 250,863 | 440,950 | ||||||
| Income tax (benefits) expenses | (135,265 | ) | 117,757 | |||||
| Net Income | 386,128 | 323,193 | ||||||
| Basic and Diluted Earnings per Share of Common Stock | $ | 0.04 | $ | 0.03 | ||||
| Basic and Diluted Weighted Average No. of Shares of Common Stock Outstanding | 10,880,000 | 10,880,000 | ||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | 648,537 | 694,621 | $ | 2,202,172 | $ | 2,513,462 | ||||||||||
| Total Operating Costs | 743,312 | 732,219 | 1,816,837 | 1,608,898 | ||||||||||||
| (Loss) Income from Operations | (94,775 | ) | (37,598 | ) | 385,335 | 904,564 | ||||||||||
| Total Other Income (Expenses), net | 3,529 | (704 | ) | 12,785 | (32 | ) | ||||||||||
| (Loss) Income before income tax | (91,246 | ) | (38,302 | ) | 398,120 | 904,532 | ||||||||||
| Income tax expense (benefits) | (22,145 | ) | (10,059 | ) | 137,837 | (34,012 | ) | |||||||||
| Net (Loss) Income | (69,101 | ) | (28,243 | ) | 260,283 | 938,544 | ||||||||||
| Basic and Diluted (Loss) Earnings per Share of Common Stock | (0.006 | ) | (0.003 | ) | $ | 0.024 | $ | 0.086 | ||||||||
| Basic and Diluted Weighted Average No. of Shares of Common Stock Outstanding | 10,880,000 | 10,880,000 | 10,880,000 | 10,880,000 | ||||||||||||
Balance Sheet Data:
| As of June 30, | As of December 31, | |||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 799,078 | $ | 646,294 | $ | 693,151 | ||||||
| Total current assets (including cash and cash equivalents) | 1,428,020 | 991,386 | 781,732 | |||||||||
| Total Assets | $ | 4,941,638 | $ | 4,749,169 | $ | 4,514,993 | ||||||
| Total current liabilities (including bank and other borrowings) | 3,162,009 | 2,664,011 | 2,676,291 | |||||||||
| Bank and other borrowings | 246,644 | 785,315 | 661,715 | |||||||||
| Total liabilities | 3,434,719 | 3,502,533 | 3,654,485 | |||||||||
| Total stockholders’ equity | 1,506,919 | 1,246,636 | 860,508 | |||||||||
| Total Liabilities and stockholders’ equity | $ | 4,941,638 | $ | 4,749,169 | $ | 4,514,993 | ||||||
| Working capital deficit | $ | (1,733,989 | ) | $ | (1,672,625 | ) | $ | (1,894,559 | ) | |||
An investment in our common stock involves a high degree of risk. Before deciding whether to invest in our common stock, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations, or cash flow could be materially and adversely affected, which could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment. The risks described below and discussed in other parts of this prospectus are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our common stock if you can bear the risk of loss of your entire investment.
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Risks Related to Our Corporate Structure
Aureus Greenway Holdings Inc. is a holding company and may rely on dividends paid by its subsidiaries for its cash needs. Any limitation on the ability of its subsidiaries to make dividend payments to the Company, or any tax implications of making dividend payments to the Company, could limit the Company’s ability to pay its expenses or pay dividends to holders of its common stock.
Because Aureus Greenway Holdings Inc. is a holding company, we conduct substantially all of our business through our subsidiaries in the United States, and Aureus Greenway Holdings Inc. may rely on dividends to be paid by its subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our stockholders, to service any debt we may incur and to pay its operating expenses. If any of the subsidiaries incurs debt on its behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to the Company.
There are no restrictions in our Articles of Incorporation or bylaws of the Company (the “Bylaws”) that prevent the Company from declaring dividends. The Nevada Revised Statutes, however, prohibit the Company from declaring dividends where, after giving effect to the distribution of the dividend:
| ● | the Company would not be able to pay its debts as they become due in the usual course of business; or |
| ● | the total assets of the Company would be less than the sum of the total liabilities of the Company plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our Articles of Incorporation. |
Risks Related to Our Business
Severe weather patterns may adversely affect the ability for our customers to play at our golf courses, create damage to our course greens and properties and may adversely affect the value of our golf courses or negatively impact our business and results of operations.
As the game of golf is an outdoor activity, our business is susceptible to extreme weather conditions such as heavy rains, extreme or prolonged heat waves and high winds, all of which could reduce the playability of our golf courses and thereby reduce our revenues causing material adverse impact on our business and results of operations.
We regularly keep our golf courses irrigated and groomed in order to ensure a quality course for our customers to enjoy. Our ability to irrigate and groom our golf courses could be adversely impacted by a drought or other causes of water shortage. On the other hand, too much water or a flooding of the courses or the failure to properly aerate could result in soggy turf leading to inability to play, groom, maintain or run maintenance machinery or golf carts over the courses. A severe drought of extensive duration or extensive flooding due to non-seasonal and severe weather patterns could adversely affect our business and results of operations.
Our golf clubs are based in Florida which can experience periods of unusually or extremely weather conditions due to a variety of global climate phenomenon, such as the El Niño. If these phenomena and their impacts on weather patterns persist for extended periods of time causing the inability to play at our golf courses, our business and results of operations could be materially and adversely affected.
Economic downturns could negatively affect our business, financial condition and results of operations.
A majority of our revenue is derived from discretionary or leisure spending by our customers and such spending can be particularly affected by changes in general economic conditions. An economic downturn or recession may lead to unemployment, decreased business and consumer confidence, reduced corporate spending etc. which in turn may adversely affect the spending culture of our customers and patrons and may result in a material adverse affect on our business, financial condition and results of operations. With the current high interest rates and a perceived economic bubble in the United States, this may lead to a loss of consumer confidence which translates into fewer customers playing golf and reduction in functions and activities held at our golf country clubs. As a result, we may be unable to increase green fees, membership dues or the price of our products and services, and our business, financial condition and results of operations may be materially adversely affected.
In an unfavorable economic situation, we may also find it difficult to access funding through the financial markets or face increased funding costs, which could make it more difficult or more expensive for us to obtain additional funding and therefore have a negative affect on our results of operations.
| 10 |
We have a limited operating history and may not be able to operate our business successfully or generate sufficient cash flows to accomplish our business objectives.
We have a limited operating history. As a result, an investment in our common stock entails more risk than an investment in the common stock of a company with a substantial operating history. If we are unable to operate our business successfully, you could lose all or a portion of your investment in our common stock. Our ability to successfully operate our business and implement our operating policies and investment strategy depends on many factors, including:
| ● | our ability to effectively manage any renovation, maintenance, marketing and other operating costs for our golf country clubs; | |
| ● | economic conditions in our markets, including changes in employment and household earnings and expenses, as well as the condition of the financial and golf country club industry and the economy, in general; | |
| ● | our ability to maintain high customer loyalty; | |
| ● | the availability of, and our ability to identify, attractive acquisition opportunities consistent with our strategy; | |
| ● | our ability to compete with other regional golf country clubs; | |
| ● | costs that are beyond our control, litigation with customers, the Association, legal compliance, real estate taxes, Association assessments and insurance; | |
| ● | judicial and regulatory developments affecting the golf clubs industry that may affect or delay our ability to operate in the normal course of business; | |
| ● | reversal of population growth, employment or homeownership trends in central Florida or similar regional markets; and | |
| ● | interest rate levels and volatility, such as the accessibility of short-term and long-term financing on desirable terms. |
In addition, we face significant competition in acquiring attractive golf country clubs on advantageous terms, and the value of the golf country clubs that we acquire may decline substantially after we purchase them.
Increasing property taxes, Association fees, and insurance costs may negatively affect results of operations.
Property taxes and the costs of insuring our property are components of our expenses. Our property is subject to real property taxes that may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. If real property taxes increase, expenses will increase. In addition, our property is subject to Association rules and regulations under the CCR. Powers under the CCR include the annual levy of regular property assessments, capital property expenditure assessments, and special property assessments for common expenses incurred by the Association in performance of its duties and obligations. The Association has the power to increase annual charges and make assessments for capital improvements, the establishment of reasonable reserves for the maintenance and replacement of and repairs to common property, and the Association’s surface water management system.
Similarly, property taxes, and insurance premiums are subject to significant increases, which may be outside of our control. If we fail to pay any such taxes, or annual assessments the applicable taxing authority or Association may place a lien on our property which could make it more difficult or more expensive for us to make improvements to our property, and therefore could harm our business and results of operations.
In particular, under a Florida statutory scheme implemented by certain Florida jurisdictions, a violation of the relevant building codes, zoning codes or other similar regulations applicable to a property may result in a lien on that property and all other properties owned by the same violator and located in the same county as the property with the code violation, even though the other properties might not be in violation of any code. Until a municipal inspector verifies that the violation has been remedied and any applicable fines have been paid, additional fines accrue on the amount of the lien and lien may not be released, in each case even at those properties that are not in violation. As a practical matter, it might be possible to obtain a release of these liens without remedying the property in violation through other methods, such as payment of an amount to the relevant county, although no assurance can be given that this will necessarily be an available option or how long such a process would take.
| 11 |
Our property is subject to a CCR that may unreasonably restrict our ability to operate on and use our property.
Our property is subject to a CCR that restrict certain uses of operation of such property, enforces certain conditions and restrictions on our property owner and property on which the Company operates. The CCR further subjects our property to easements, and regulates the design- and requirements-of any physical improvements or alterations on our property. Moreover, the operation and ownership of the contiguous properties within the subdivision the Association is situated in may impact the use of our property. Non-compliance with the CCR may result in or constitute default under our lease agreement with the Association and adversely affect our operating costs.
We may not be able to attract and retain customers that consistently utilize our golf country clubs and pay green fees, which could harm our business, financial condition and results of operations.
The engagement by customers of our golf-club facilities that the Florida golfing market determines to be desirable and willing to repeatedly utilize is critically important to our success. Our success will depend on our ability to attract and retain customers at our golf country clubs and maintain or increase usage of our golf courses and club facilities. Changes in consumer tastes and preferences, particularly those affecting the popularity of golf, and other social and demographic trends could adversely affect our business.
Our property is part of the Association, and we are subject to the rules and regulations the Association, which are subject to change and which may be arbitrary or restrictive, and violations of such rules may subject us to additional fees and penalties and litigation with the Association, which would be costly.
Our property is part of the Association, which is a private non-for-profit entity that regulates the activities of owners and occupants of, and levy assessments on, properties in the subdivision our property is a part of. The Association in which we own our property may have enacted or may, from time to time enact onerous or arbitrary rules that restrict our ability to use, design, renovate, or operate our property in accordance with our business strategy or require us to restore or maintain such properties at standards or costs that are in excess of our planned budgets. Additionally, the governing bodies of the Association in which we own property may not make important disclosures about our property or may block our access to Association records, initiate litigation, restrict our ability to freely use portions of our properties, impose assessments or arbitrarily change the Association rules. We may be unaware of or unable to review or comply with Association rules after their change, and any such excessively restrictive or arbitrary regulations may cause us to sell such property at a loss or prevent us from renting such property to a third party or otherwise reduce our cash flow from such property, which would have an adverse effect on our business and results of operations.
Changes in consumer spending patterns, particularly discretionary expenditures for leisure, recreation and travel, are susceptible to factors beyond our control that may reduce demand for our products and services.
Consumer spending patterns, particularly discretionary expenditures for leisure, recreation and travel, are particularly susceptible to factors beyond our control that may reduce demand for our products and services, including demand for golf, vacation and business travel and food and beverage sales. These factors include:
| ● | low consumer confidence; | |
| ● | changes in the desirability of particular locations, residential neighborhoods, office space or travel patterns of customers; | |
| ● | deferrals or renegotiations of group business (e.g., tournaments and golf outings); | |
| ● | natural disaster, such as earthquakes, tornadoes, hurricanes, wildfires and floods; | |
| ● | outbreaks of pandemic or contagious diseases, such as COVID-19; | |
| ● | war, terrorist or threats and heightened travel security measures instituted in response to these events; and | |
| ● | the financial condition of the airline, automotive and other transportation-related industries and its impact on travel. |
These factors and other global, national and regional conditions can adversely affect, and from time to time have adversely affected, individual properties, particular regions or our business as a whole. Any one or more of these factors could limit or reduce demand or the rates our golf country clubs are able to charge for green fees or services, which could harm our business and results of operations.
We have significant operations concentrated in a specific geographic state and any disruptions or highly successful competitor in this limited region could harm our results of operations.
We currently operate our golf country clubs solely in the state of Florida. If there is any prolonged disruption in the operations of our golf country clubs in this state, whether due to internal or external factors, club locations may become unsuitable and we may be forced to close clubs. Similarly, our concentration in the Florida market increases our exposure to adverse developments related to competition, as well as economic and demographic changes in these areas in response to heightened competition.
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Our approach to identifying clubs in suitable locations typically favors locations where our facilities are or can become a part of the community. As a result, our golf country clubs are typically located near residential centers that we believe are consistent with our visitors’ lifestyle choices. Sales at these locations are derived, in part, from proximity to key local landmarks, business centers, facilities and residential areas. We may be forced to close clubs or club locations may become unsuitable due to, and such clubs’ results of operations may be harmed by, among other things:
| ● | economic downturns in a particular area; | |
| ● | competition from nearby recreational or entertainment venues; | |
| ● | changing demographics in a particular market or area; | |
| ● | changing lifestyle choices of consumers in a particular market; | |
| ● | weather conditions, technical difficulties, power failures or destruction or damage to the region as a result of a natural disaster, or fire; and | |
| ● | the closing or declining popularity of other businesses and entertainment venues located near our golf country clubs. |
Our business operation is subject to seasonality.
Given that golf is an outdoor sport, our financial results fluctuate as a result of seasonal factors. Usage of our golf country clubs and golf facilities decline during the second and third quarters, because of hotter and humid temperatures that cause less tourist and customers to seek outdoor recreational activities. As a result of these factors, we usually generate a disproportionate share of our revenues and cash flows during a calendar year. This seasonality means our business and results of operations are disproportionately vulnerable to the occurrence of other risks during the periods of increased customer usage due to the larger percentage of revenues we generate during such times.
Our golf course maintenance is highly dependent on a third-party golf-club consultant which subjects us to risks, including disruptions in our business and increased costs.
We have engaged DTE, an independently contracted golf consultancy and maintenance company to manage both of our golf country clubs. Our engagement with DTE includes core consultancy services for DTE to advise on, manage, and maintain our golf-club facilities which include, but are not limited to capital, staffing, accounting, marketing, landscaping, regulatory, and other operations at our golf country clubs on a weekly basis. In the future, we may outsource other functions to achieve cost savings and efficiencies. If the service providers to which we outsource these functions do not perform effectively, we may not be able to achieve the expected cost savings and may have to incur additional costs in connection with such failure to perform. Depending on the skillset involved, such failures may also lead to business disruption, management errors, inefficiencies of our golf facilities, the loss of sales and customers, the loss of or damage to intellectual property through security breach, and the loss of sensitive data through security breach or otherwise. Any such damage or interruption could have a material adverse effect on our business, cause us to face significant fines, customer notice obligations or costly litigation, harm our reputation with our customers or prevent us from paying our collective suppliers or employees or receiving payments on a timely basis. Moreover, the failure to renew our contract with DTE or find an alternative golf-club consultant on a timely basis could have an adverse effect on our business and results of operations.
Our golf courses and facilities are subject to future renovation projects which may result in in an extended period of continued partial or full business disruption and timing, budgeting and other risks could delay our efforts to renovate our properties all of which could reduce our profits or impair our ability to compete effectively.
We may regularly expend capital to construct, maintain and renovate our properties in order to remain competitive, pursue our business strategies, maintain and build the value and brand standards of our properties and comply with applicable laws and regulations. The ultimate impact of renovations of our facilities or gold courses in the future on our operations is unknown and will depend on future developments, including the duration which may result in an extended period of continued business disruption. Disruptions during renovation periods may include reduced customer traffic, damage to our reputation and reduced operations, any of which could have a material adverse effect on our business, financial condition and results of operations.
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In addition, periodic upgrades to our facilities, greens, furniture, fixtures and equipment necessary to operate our business are subject to a number of risks, including:
| ● | construction delays or cost overruns (including labor and materials) that may increase project costs; | |
| ● | obtaining occupancy and other required permits or authorizations; | |
| ● | force majeure events, including hurricanes or floods; | |
| ● | design defects that could increase costs; and | |
| ● | environmental concerns which may create delays or increase costs. |
These projects create an ongoing need for cash, which if not generated by operations or otherwise obtained is subject to the availability of credit in the capital markets. Our ability to spend cash necessary to maintain the quality of our properties is significantly impacted by the cost and availability of capital, over which we have little control. The timing of capital improvements can affect our golf-country club performance, including green fees, retention and usage, particularly if we need to close portions of golf courses or a significant number of other facilities, such as meeting spaces or dining areas. Moreover, the investments that we make may fail to improve the performance of the properties in the manner that we expect. If we are not able to begin operating properties as scheduled, or if investments harm or fail to improve our performance, our ability to compete effectively would be diminished and our business and results of operations could be adversely affected.
Negative publicity could reduce sales at some or all of our golf country clubs and adverse litigation against us could materially affect our financial condition and results of operations.
We may, from time to time, be faced with negative publicity relating to our golf country clubs, food quality, the safety, sanitation and welfare of our club facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing and other policies, practices and procedures, employee relationships and welfare or other matters at one or more of our golf country clubs. Negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held to be responsible. In addition, the negative impact of adverse publicity relating to one of our golf-club may extend far beyond the sole golf-club involved, especially due to the proximity of our golf country clubs to one another.
During the normal course of our business, we may be involved in various legal proceedings. If any of these proceedings were to be determined adversely against us or a settlement involving a payment of a material sum of money, this could have a material adverse impact on our financial condition and results of operations. Similarly, employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. A significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, financial condition, results of operations and cash flows.
We rely on a small number of suppliers, supplier concentration may expose us to significant financial credit or performance risk.
Our golf country clubs rely on the supply of services, equipment, or products which we may contract to purchase from a small number of third-party suppliers. As we continue to grow our business, we may need to establish a more diverse supplier network, while attempting to continue to leverage our purchasing power to obtain favorable pricing and delivery terms. The failure to diversify our supplier network could have an adverse effect on our results of operations, financial condition and cash flows.
Furthermore, despite our efforts to maintain good relationships with our existing suppliers, we could lose one or more of our existing suppliers at any time. The loss of one or more key suppliers could increase our reliance on higher cost or lower quality supplies, which could negatively affect our profitability. Any interruptions to, or decline in, the amount or quality of our supplies could materially disrupt our golf country clubs and adversely affect our business, financial condition and financial prospects.
Increases in our cost of equipment rentals, consultant services, insurance premiums, Association fees, food vendors and taxes could reduce our operating margins and harm our business, financial condition and results of operations.
Increases in operating costs due to inflation, property taxes, or Association fees and other factors may not be directly offset by increased revenue. Our most significant operating costs, other than labor, and our engagement with DTE are our cost of equipment leases, insurance premiums, food vendors, Association fees, and property taxes. Many, and in some cases all, of the factors affecting these costs are beyond our control. If certain of these significant operating costs of increase significantly and we are not able to pass along those increased costs to our customers in the form of higher prices or otherwise, our operating margins would suffer, which would have an adverse effect on our business, financial condition and results of operations.
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Timing, budgeting and other risks could delay our efforts to develop, redevelop or renovate the properties that we own, or make these activities more expensive, which could reduce our profits or impair our ability to compete effectively.
We must regularly expend capital to construct, maintain and renovate our properties in order to remain competitive, pursue our business strategies, maintain and build the value and brand standards of our properties and comply with applicable laws and regulations. Our ability to spend the money necessary to maintain the quality of our properties is significantly impacted by the cost and availability of materials and capital, over which we have little control over. In addition, we must periodically upgrade or replace the furniture, fixtures and equipment necessary to operate our business. These capital intensive efforts are subject to a number of risks, including:
| ● | construction delays or cost overruns (including labor and materials) that may increase project costs; | |
| ● | obtaining zoning, occupancy and other required permits or authorizations; | |
| ● | governmental restrictions on the size or kind of development; | |
| ● | force majeure events, including earthquakes, tornadoes, hurricanes or floods; | |
| ● | design defects that could increase costs; and | |
| ● | environmental concerns which may create delays or increase costs. |
If we are not able to keep up with the capital demands of our golf courses as scheduled, or if such capital investments harm or fail to improve our performance, our ability to compete effectively would be diminished and our business and results of operations could be adversely affected.
Our success is dependent on the continued service of our senior management and key employees.
The loss of the services of any of our senior management could affect our operation and ability to achieve our business goals. We also may be unable to retain existing management and key employees, including club managers and maintenance staff, which could result in harm to our relationships with our members and customers and unanticipated recruitment and training costs. In addition, we have not obtained key man life insurance policies for any of our senior management team. As a result, it may be difficult to cover the financial loss if we were to lose the services of any members of our senior management team. The loss of members of our senior management team or key employees could have an adverse affect on our business and results of operations.
Competition in the industry may have a material adverse effect on our business and results of operations.
Our industry is competitive and compete primarily on the basis of reputation, quality and comprehensives of facilities, location and price. As a result, competition for market share in the industry in which we compete is significant. In order to succeed, we must increase our market share from local and regional competitors and sustain our customer base in the face of increasing recreational alternatives available to our prospective customers and current members.
Our golf and club facilities compete on a local and regional level with other golf country clubs, and at a regional level with restaurants and social clubs for leisure activities. The level of competition in the golf and country club business varies from region to region and is subject to change as existing facilities are renovated or new facilities are developed. According to the Frost & Sullivan Report, in 2022 there were more than 1,200 golf courses within the State of Florida most if not all of which have similar service offerings to those of ours. If we cannot differentiate ourselves from our competitor and provide more superior or better quality courses and facilities as compared to them, our financial performance could be materially affected. An increase in the number or quality of similar clubs and other facilities in a particular region could significantly increase competition, which could have a negative impact on our business and results of operations.
Certain market opportunity data and forecasts in the Frost & Sullivan Report, contained in this prospectus were obtained from third-party sources and were not independently verified by us. We believe the estimates of market opportunity data and forecasts of market growth included in this prospectus are reliable, but may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
The Frost & Sullivan Report contained in this prospectus reflects certain data and information covering and analyzing the golf club industry for a period of 2018-2022 that were obtained from various industry and private entity publications and reports. There is no guarantee that any particular number or percentage of market participants covered by the market opportunity estimates will generate any particular level of revenue for us. While we have not independently verified the data and information contained therein and such data and information may have been collected using third-party methodologies, we believe that the data and information, including projections based on a number of assumptions, from these third-party publications and reports used in the Frost & Sullivan Report is reliable. The expansion of the golf country club market is subject to a number of factors, including the cost and perceived value associated with our services and golf country club offerings and those of our competitors. Even if the markets in which we compete meet the size estimates and growth forecast in Frost & Sullivan Report, our business could fail to grow at the rate we anticipate, if at all, which could adversely affect our business, financial condition, results of operations and prospects. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in the Frost & Sullivan Report should not be taken as indicative of our future growth. For more information regarding the estimates of market opportunity and forecasts of market growth included in this prospectus, see the section titled “Business— Golf Industry Overview.”
Navigating workforce challenges is an inherent aspect of our operations, exposing us to potential risks associated with the historical rise in labor costs.
We face workforce challenges which may arise from heightened competition for skilled employees, increased turnover rates, mandatory wage hikes, health benefit coverage, or potential legal issues.
Potential labor shortages or increased labor costs could emerge due to intensified competition for talent, elevated turnover rates, or regulatory changes such as increases in minimum wages or other employee benefit expenses. The ongoing evaluation of the impact of regulatory reforms on benefit costs, like healthcare, is a part of our proactive approach. A surge in labor-related expenses might result in an overall increase in operating costs, potentially affecting our business, financial well-being, and operational outcomes.
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We may seek to expand through acquisitions of, or investments in, other businesses and properties each of which may divert our management’s attention, result in additional dilution to our stockholders, increase expenses, disrupt our operations and harm our results of operations.
Our business strategy may, from time to time, include acquiring or investing in additional golf country clubs, technologies or businesses. We cannot assure you that we will successfully identify suitable acquisition candidates, integrate or manage disparate technologies, lines of business, personnel and corporate cultures, realize our business strategy or the expected return on our investment. Any such acquisition or investment could materially and adversely affect our results of operations. Acquisitions and other strategic investments involve significant risks and uncertainties, including:
| ● | the potential failure to achieve the expected benefits of the combination or acquisition; | |
| ● | unanticipated costs and liabilities; | |
| ● | difficulties in integrating branding, services and products, businesses, operations and technology infrastructure in an efficient and effective manner; | |
| ● | difficulties in maintaining customer relations; | |
| ● | the potential loss of key employees of the acquired businesses; | |
| ● | the diversion of the attention of our senior management from the operation of our daily business; | |
| ● | the potential adverse effect on our cash position to the extent that we use cash for the purchase price; | |
| ● | the potential significant increase of our interest expense, leverage, and debt service requirements if we incur additional debt to pay for an acquisition; | |
| ● | the potential issuance of securities that would dilute our stockholders’ percentage ownership; | |
| ● | the potential to incur large and immediate write-offs and restructuring and other related expenses; and | |
| ● | the inability to maintain uniform standards, controls, policies and procedures. |
Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that we will realize the anticipated benefits of any acquisition or investment. In addition, our inability to successfully operate and integrate newly acquired businesses appropriately, effectively, and in a timely manner could impair our ability to take advantage of future growth opportunities and other advances in technology, as well as on our revenues, gross margins and expenses. We continually evaluate opportunities to expand our business through strategic and complementary acquisitions. In many cases, we will be competing for these opportunities with third parties that may have substantially greater financial resources than we do.
We cannot assure you that we will be able to identify opportunities or complete transactions on commercially reasonable terms or at all, or that we will actually realize any anticipated benefits from such acquisitions, investments or alliances. In addition, we cannot assure you that we will be able to obtain financing for acquisitions or investments on attractive terms or at all.
Accidents or injuries at our golf country clubs or in connection with our operations may subject us to liability, negatively affect our reputation and attendance at our golf country clubs, which could harm our business, financial condition and results of operations.
There are inherent risks of accidents or injuries at our properties or in connection with our operations including injuries from slips, trips and falls. If accidents or injuries occur at our properties, we may be held liable for costs related to the injuries. Although we maintain liability insurance, which we believe is commercially reasonable, there can be no assurance that our liability insurance will be adequate to cover all circumstances or the entire amount of liability. Our business, financial condition and results of operations could be materially and adversely affected to the extent claims and associated costs resulting from accidents or injuries exceed our insurance recoveries. Even if our insurance coverage were sufficient, any claims made by us could increase the premium payable in the future.
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We may need to defend ourselves against patent or trademark infringement, or other intellectual property claims, which may be time-consuming and cause us to incur substantial costs.
Companies, organizations or individuals, including our competitors, may own or obtain trademarks or other proprietary rights that would prevent or limit our ability to market our golf country clubs, which could make it more difficult for us to operate our business. We may receive inquiries from trademark owners inquiring whether we infringe on their proprietary rights. Companies owning intellectual property related to golf-services in Florida, or elsewhere may allege infringement of such rights. In response to a determination that we have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:
| ● | cease marketing, sales, or use of materials that incorporate the asserted trademarks or intellectual property; | |
| ● | pay substantial damages; | |
| ● | obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or at all; | |
| ● | or redesign one or more aspects or systems of our marketing plans. |
A successful claim of infringement against us could materially adversely affect our business, prospects, operating results and financial condition. Any litigation or claims, whether valid or invalid, could result in substantial costs and diversion of resources.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and damage to our business relationships, all of which could negatively impact our business and results of operations.
Cyber incidents may result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs and litigation and damage to us. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that our financial results, operations, business relationships, confidential information or price of the common stock will not be negatively impacted by such an incident.
Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Moreover, social engineering and phishing are a particular concern for companies with employees including ours.
As a smaller company, we use third-party vendors to assist us with our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, cyber-attacks and security breaches at a point-of-sale system or via our wireless internet network, could adversely affect our business and results of operations.
We may not be able to adequately address these additional risks. If we were unable to do so, our operations might suffer, which may adversely impact our results of operations and financial condition.
Our insurance coverage may be inadequate for the claims asserted or in relation to the risks associated with our business operations.
We maintain insurance coverage for our major assets and operations, including insurance covering for fire, flood, natural disasters etc. However, we do not have or are unable to obtain insurance in respect of losses arising from certain operating risks, such as acts of terrorism. Our insurance policies may be insufficient to cover all of our losses in all events. The occurrence of certain incidents, including fraud, confiscation by investigating authorities or misconduct committed by our employees or third parties, severe weather conditions, war, flooding and power outages may not be covered adequately, if at all, by our insurance policies. If our losses exceed the insurance coverage or are not covered by our insurance policies, we may be liable to bear such losses. Our insurance premiums may also increase substantially due to claims made. In such circumstances, our business, financial condition, results of operations and prospects may be materially and adversely affected. Similarly, if we incur any loss not covered by such insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations could be materially and adversely affected.
Our properties are subject to environmental regulation.
Our properties and operations are subject to compliance with a number of environmental laws. As a result, we may be required to incur costs to comply with the requirements of these laws, such as those relating to water resources, environmental discharges; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by discharge of regulated materials. Certain of the foregoing environmental laws may impose clean up responsibility and liability on us without regard to whether we were aware of the discharge or waste or knew of or caused the presence of the environmental hazard at issue. We may use certain substances and generate certain wastes that may be deemed hazardous or toxic pursuant to such laws, and in the future we may incur costs related to cleaning up contamination resulting from historic uses of our golf country clubs when they were owned by others and for our treatment, storage or disposal of any waste from such use. The costs of investigation, remediation, or removal of regulated materials may be substantial, and the presence of any such substances, or the failure to remediate any golf property properly, may impair our ability to use that golf property. We may be required to incur costs to remediate potential environmental hazards, mitigate environmental risks in the future, or comply with other environmental requirements. Failure to comply with these environmental laws could result in temporary or permanent cessation of the use of our golf country clubs and/or facilities.
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Our current debt obligations may limit our ability to secure additional capital, hinder adaptability to economic and industry changes, which may impede meeting such debt obligations.
The extent of our debt obligations may pose challenges including our capacity to secure additional capital for operational needs, ability to quickly adapt to economic, industry, or business changes, and impede our ability to meet debt obligations.
Our debt obligations may hold material implications for our investors, encompassing the following considerations:
| ● | Limitation of our financing options: Existing debt obligations may constrain our ability to secure additional debt or equity financing for various purposes, such as working capital, capital expenditures, debt servicing, acquisitions, or general corporate needs. | |
| ● | Allocation of Cash Flows: Certain of our operational cash flows is committed to servicing principal and interest on our debt obligations, thereby limiting funds available for operations, strategic initiatives, capital expenditures, acquisitions, and additional business opportunities. | |
| ● | Challenges in Debt Servicing: The debt service requirements associated with our debt obligations could potentially complicate our ability to meet other of our financial obligations. | |
| ● | Vulnerability to Economic Conditions: We could be more susceptible to downturns in general economic conditions or within our specific business sector than our competitors without similar debt obligations which could hinder crucial capital spending essential for our growth. |
Our growth strategy contemplated by our business plan may not be achievable or successful
We may not be able to implement the growth strategy contemplated in our business plan. Our growth strategy is dependent on a number of factors, including continued market acceptance of our golf country clubs and stable revenue. We can provide no assurance that customers will continue to utilize the facilities of our properties or that those customers will utilize the facilities of our golf country clubs at the prices and on the terms assumed in our business plan.
Among other things, implementation of our growth strategy would be adversely affected if:
| ● | we are unable to continue to attract sufficient customers to utilize the facilities of our golf country clubs, considering the price and other terms required for us to attain the level of profitability that will enable us to continue to pursue our growth strategy; | |
| ● | we fail to generate revenue sufficient to fund our operations; | |
| ● | we are forced to significantly adapt our business plan to meet changes in our markets; and | |
| ● | for any reason, we are unable to attract, hire, retain and motivate qualified personnel. |
We can provide no assurance that we will be able to manage our growth effectively or successfully. Our failure to meet the encountered challenges could cause us to lose money and investments in us could be lost.
We may experience material weaknesses in our internal controls and financial reporting may limit our ability to prevent or detect financial misstatements or omissions. As a result, our financial reports may not be in compliance with U.S. GAAP. Any material weakness, misstatement or omission in our financial statements will negatively affect the market and the price of our stock, which could result in significant loss to our investors.
Our current management has no experience managing and operating a public company, and we rely in many instances on the professional experience and advice of third parties. Therefore, we may, in turn, experience “weakness” and potential problems in implementing and maintaining adequate internal controls as required under Section 404 of the “Sarbanes-Oxley” Act. This “weakness” also includes a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we fail to achieve and maintain the adequacy of our internal controls, as such requirements are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
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Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to include in our annual reports our assessment of the effectiveness of our internal control over financial reporting as of the end of each of our fiscal years. We have not yet completed any assessment of the effectiveness of our internal control over financial reporting. We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification.
Because we are an emerging growth company and have elected not to opt out of the extended transition period created by the provisions of the JOBS Act of 2012. During that transition period, our independent auditor shall not attest to, and report on, the assessment made by our management regarding the effectiveness of our internal control structure and procedures for financial reporting.
We will incur substantial costs as a result of being a public company and become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which will require us to incur audit fees and legal fees in connection with preparation of reports. These additional costs could reduce or eliminate our ability to operate profitability.
Upon consummation of this offering, we will incur significant legal, accounting, and other expenses as a public company that we did not incur as a private company. These additional costs could negatively affect our financial results. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies. Similarly, following the effective date of this registration statement of which this prospectus is a part, we will be required to file periodic reports with the SEC pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. In order for us to be compliant with our reporting requirements of the Exchange Act, we will require future revenues to pay the cost of the required filings, which could comprise a substantial portion of our available cash resources.
There can be no assurances that we will be able to acquire capital from any other source to pay for these expenses other than through shares of our common stock sold under this offering. If we are unable to generate sufficient revenues to remain in compliance, it may be difficult for you to resell any shares of common stock you may purchase, if at all. These costs will, obviously, be expenses of our operations and, therefore, have a negative effect on our ability to pay our other costs and expenses and earn a profit.
Compliance with these laws, rules, and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. These laws, regulations, and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.
We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior December 31, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
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After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.
We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
We are controlled by Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, whose interests may be different than the interests of other investors.
Immediately following this offering, Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, which are controlled by each of Mr. S. Cheung, Mr. Y. C. Cheung and Ms. C. Lee, and Mr. C. P. Cheung, respectively. The foregoing three entities will collectively beneficially own approximately 98.3% of the voting rights of our common stock, or approximately 98.0% if the underwriter exercises in full its option to purchase additional shares. As a result, they will have the ability to elect all of the members of our board of Directors and thereby may be able to indirectly control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our amended and restated articles of incorporation and amended and restated bylaws and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests. In addition, Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC may collectively have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you. In addition to Mr. C. P. Cheung’s stock ownership through Chrome Fields Asset Management LLC, and Mr. S. Cheung’s stock ownership through Ace Champion Investments Limited, each has been appointed as our executive director and Chief Executive Officer, and as our executive director and Executive Chairman of the board, respectively. Mr. Y. C. Cheung and Ms. C. Lee, as the joint shareholders of Trendy View Assets Management, hold no roles in the Company. Thus, in addition to Mr. C. P. Cheung’s and Mr. S. Cheung’s shareholding of the Company, each is key to our operations and will have significant influence regarding our key decisions. This concentration of ownership and influence over our decision-making may also discourage, delay or prevent a change in control of the Company, which could deprive our other stockholders of an opportunity to receive a premium for their shares as part of a sale of the Company and might reduce the price of our common stock. These actions may be taken even if they are opposed by our other stockholders.
Risks Related to this Offering and Our Common Stock
We cannot predict the impact our multi-class structure may have on the stock price of our common stock.
We cannot predict whether our multi-class structure will result in a lower or more volatile market price of our common stock or in adverse publicity or other adverse consequences. For example, certain index providers have policies that restrict or prohibit the inclusion of companies with multiple-class share structures in certain of their indices, including the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices. However, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under the announced policies, our multi-class capital structure will make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices will not be investing in our stock. These policies may depress the valuations of publicly traded companies that are excluded from the indices compared to those of other similar companies that are included. Because of our multi-class structure, we will likely be excluded from certain of these indices and we cannot assure you that other stock indices will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from stock indices would likely preclude investment by many of these funds and could make shares of our common stock less attractive to other investors. As a result, the market price of shares of our common stock could be adversely affected.
Holders of our Series A Preferred Stock will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders of our common stock.
Upon consummation of this offering, the holders of our Series A Preferred Stock will control, in the aggregate, approximately 98.3% of the voting power represented by all our outstanding shares of capital stock. As a result, the holders of our Series A Preferred Stock will continue to exercise significant influence over all matters on which holders of common stock are entitled to vote, including the election and removal of directors, amendments to our amended and restated articles of incorporation or amended and restated bylaws, and any approval of significant corporate transactions (including a sale of all or substantially all of our assets), and will continue to have significant control over our business, affairs, and policies, including the appointment of our management, through their influence over the board composition. The directors, whom the holders of our Series A Preferred Stock will have the ability to elect through their voting power, will have the authority to incur additional debt, issue or repurchase stock, declare dividends, and make other decisions that could be detrimental to stockholders.
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We expect that certain members of our board will continue to be holders of our Series A Preferred Stock. The holders of our Series A Preferred Stock can take actions that have the effect of delaying or preventing a change of control of us or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. The concentration of voting power with the holders of our Series A Preferred Stock may have an adverse effect on the price of our common stock. The holders of our Series A Preferred Stock may have interests that are different from yours and may vote in a way with which you disagree and that may be adverse to your interests.
As a result, for so long as certain members of our board will continue to be holders of our Series A Preferred Stock own a controlling or significant voting power in our issued and outstanding share capital, they generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including:
| ● | the election of directors; | |
| ● | determinations with respect to our business direction and policies, including the appointment and removal of officers; | |
| ● | determinations with respect to corporate transactions, such as mergers, business combinations, change in control transactions or the acquisition or the disposition of assets; | |
| ● | our financing and dividend policy; | |
| ● | determinations with respect to our tax returns; and | |
| ● | compensation and benefits programs and other human resources policy decisions. |
There has been no public market for our common stock prior to this offering, and you may be unable to resell our common stock at or above the price you pay for them, or at all.
Prior to this offering, there has not been a public market for our common stock. We have applied for the listing of our common stock on the Nasdaq Capital Market. An active public market for our common stock, however, may not develop or be sustained after the offering, in which case the market price and liquidity of our common stock will be materially and adversely affected.
The market price of our common stock may be volatile, may not be indicative of prices that will prevail in the trading market, or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The initial public offering price will be determined through negotiations between the underwriter and us and may vary from the market price of shares following our initial public offering. If you purchase our shares of common stock in our initial public offering, you may be unable to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● | actual or anticipated fluctuations in our revenue and other operating results; |
| ● | the financial projections we may provide to the public, and any changes in these projections or our failure to meet these projections; |
| ● | actions of securities analysts who initiate or maintain coverage of us, and changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; |
| ● | announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; |
| ● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; |
| ● | lawsuits filed or threatened against us; and |
| ● | other events or factors, such as those resulting from war or incidents of terrorism, or responses to these events. |
In addition, the financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the price of our common stock may be caused by factors outside of our control and may be unrelated or disproportionate to changes in our results of operations. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
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The price of the shares of our common stock could be subject to rapid and substantial volatility.
There have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with recent initial public offerings, especially among those with relatively smaller public floats. As a relatively small-capitalization company with a relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume, and less liquidity than large-capitalization companies. In particular, our common stock may be subject to rapid and substantial price volatility, low volumes of trades, and large spreads in bid and ask prices. Such volatility, including any stock run-ups, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our common stock.
In addition, if the trading volumes of our shares are low, persons buying or selling in relatively small quantities may easily influence the price of our shares. This low volume of trades could also cause the price of our shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our shares of common stock may also be unable to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. As a result of this volatility, investors may experience losses on their investment in our common stock. A decline in the market price of our shares of common stock also could adversely affect our ability to issue additional shares of common stock or other of our securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our shares will develop or be sustained. If an active market does not develop, holders of shares of our common stock may be unable to readily sell the shares they hold or may be unable to sell their shares at all.
Because our public offering price per share is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution
The initial public offering price of our shares is substantially higher than the (pro forma) net tangible book value per share of shares. Consequently, when you purchase shares of our common stock in the offering, upon completion of the offering you will incur immediate dilution of $3.28 per share, assuming an initial public offering price of $4.00. See “Dilution.” In addition, you may experience further dilution to the extent that additional shares of common stock are issued upon exercise of outstanding options we may grant from time to time.
We may be unable to maintain the listing of our shares on the Nasdaq Capital Market.
Even if our common stock is approved for listing on the Nasdaq Capital Market, there can be no assurance that we will be able to maintain the listing standards of that exchange, which includes requirements that we maintain our stockholders’ equity, total value of shares held by unaffiliated stockholders, and market capitalization above certain specified levels. If we fail to conform to the Nasdaq listing requirements on an ongoing basis, our common stock might cease to trade on the Nasdaq Capital Market exchange, and may move to the OTCQB or OTC Pink Markets operated by OTC Markets Group, Inc. These quotation services are generally considered to be markets that are less efficient and that provide less liquidity in the shares than the Nasdaq Capital Market.
Substantial future sales of our common stock or the anticipation of future sales of our shares of common stock in the public market could cause the price of our shares of common stock to decline.
Sales of substantial amounts of our shares of common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our shares to decline. An aggregate of 10,880,000 shares of common stock are outstanding before the consummation of this offering. An aggregate of 13,880,000 shares of common stock will be outstanding immediately after the consummation of this offering. Sales of these shares into the market could cause the market price of our shares of common stock to decline.
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If securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding our common stock, the price of our common stock and trading volume could decline.
Any trading market for our common stock may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our common stock would likely decline. If one or more of these analysts cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our common stock and the trading volume to decline.
Our management has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the price of our shares.
We anticipate we will use the net proceeds from this offering to renovate and upgrade our golf courses, clubhouse and facilities; to repay loans; for marketing, promotion and branding; for acquisitions of new properties; and for working capital and general corporate purposes Our management will have significant discretion as to the use of the net proceeds to us from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the market price of our shares.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
We are an “emerging growth company” and a “smaller reporting company” under the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.
We are an “emerging growth company” and a “smaller reporting company” as defined in the JOBS Act, and we have the ability to advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” and “smaller reporting companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards.
We will remain an “emerging growth company” until the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, although we will lose that status sooner if our revenue exceeds $1.235 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our most recently completed second fiscal quarter.
We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our common stock held by non-affiliates is equal to or less than $250 million as of the last business day of the most recently completed second fiscal quarter, or (ii) our annual revenue is equal to or less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is equal to or less than $700 million as of the last business day of the most recently completed second fiscal quarter.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, taking advantage of reduced disclosure obligations may make comparison of our financial statements with other public companies difficult or impossible. If investors are unable to compare our business with other companies in our industry, we may not be able to raise additional capital as and when we need it, which may materially and adversely affect our financial condition and results of operations.
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As a “controlled company” under the Nasdaq Listing Rules, we may choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public stockholders.
As of the date of this prospectus, each of Ace Champion Investments Limited, Trendy View Assets Management, and Chrome Fields Asset Management LLC, each which are controlled in part by each of Mr. S. Cheung, Mr. Y. C. Cheung and Ms. C. Lee, and Mr. C. P. Cheung, respectively will beneficially own Series A Preferred Stock and common stock of the Company and will each be able to exercise over a majority of our voting power after the offering. Under the Nasdaq Marketplace Rules 5615(c), a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company”. A “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq Marketplace Rules, the requirement that our director nominees must be selected or recommended to the board of directors for determination, by either a Nominating Committee comprised solely of independent directors or by a majority of the independent directors, the requirement that we have a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws, and the requirement that compensation of the chief executive officer must be determined, or recommended to the board of directors for determination, either by a Compensation Committee comprised of independent directors or by a majority of the independent directors on its board of directors and that compensation for all other officers must be determined, or recommended to the board of directors for determination, either by such Compensation Committee or a majority of the independent directors on the company’s board of directors. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq Marketplace Rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time while we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq Marketplace Rules corporate governance requirements. Our status as a controlled company could cause our common stock to look less attractive to certain investors or otherwise harm our trading price.
Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
We are a Nevada corporation, and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. An interested stockholder is a person who, together with the affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) ten percent or more of the Company’s capital stock entitled to vote.
In addition, our Articles of Incorporation and Bylaws may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our Articles of Incorporation and our Bylaws (i) provide that vacancies on our board, including newly created directorships, may be filled by a majority vote of directors then in office, (ii) authorize the issuance of preferred stock that could be issued by our board to thwart a takeover attempt; and (iii) provide that the board shall have the sole power to amend, modify or repeal the Bylaws.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may,” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results, and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | assumptions about our future financial and operating results, including revenue, income, expenditures, cash balances, and other financial items; |
| ● | market conditions in Florida; |
| ● | our ability to execute our growth strategies, including our ability to meet our goals; |
| ● | increases in the inflation rate; |
| ● | fluctuations in our quarterly operating results due to the seasonal nature of our business; |
| ● | changes in, or the failure or inability to comply with, federal, state and local laws, regulations and ordinances, including those dealing with the environment; |
| ● | current and future economic and political conditions; |
| ● | our capital requirements and our ability to raise any additional financing which we may require; |
| ● | our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business; |
| ● | trends and competitive conditions in the golf country club industry; and |
| ● | other assumptions described in this prospectus underlying or relating to any forward-looking statements. |
We describe certain material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied, or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.
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Based upon an assumed initial public offering price of $4.00 per share of our common stock, which is the bottom of the estimated initial public offering price range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us, of approximately $9.4 million. We will not receive any proceeds from the sale of common stock by the Selling Stockholders.
We plan to use the net proceeds we receive from this offering for the following purposes:
| ● | approximately $1.4 million, or 15% of the net proceeds we receive from this offering, for renovation and upgrading of our golf courses, clubhouse and facilities; |
| ● | approximately $0.2 million, or 2.5% of the net proceeds we receive from this offering, for repayment of two loans due to South State Bank and two promissory notes due to the Kissimmee Bay Community Association, Inc.; |
| ● | approximately $1.0 million, or 11% of the net proceeds we receive from this offering, for marketing, promotion and brand building activities; |
| ● | approximately $1.3 million in an aggregate, or 13.5% of the net proceeds for repayment of balances with shareholders including: - two loans made by each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung to us in connection with the acquisition of Kissimmee Bay and Remington (the “2014 Loans”) (As of June 30, 2024, we had an outstanding balance under the 2014 Loans with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for amounts of $617,272, $493,917, and $123,454, respectively.); and - a loan made by each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung to us in connection with the repayment of a Paycheck Protection Program (the “PPP Loan”) due to the United States Small Business Administration (the “2024 Loan”) (As of the date of this prospectus, the outstanding amount due to Mr. S. Cheung, Mr. C. P. Cheung, and Mr. Y. C. Cheung under the 2024 Loans is an aggregate amount of approximately $500,000, which is interest-free and due to each of the three parties in proportions of 50%, 40% and 10%.). |
| ● | the balance, or approximately 58% to fund working capital and for other general corporate purposes. |
The above-mentioned promissory notes due to the Kissimmee Bay Community Association, Inc. have (i) a maturity date of July 1, 2031 and accrues interest equal to 6.5% per annum until paid on the unpaid principal of the initial principal amount of $87,198.85 which is to be repaid in equal successive monthly installments for a period of 96 months, and (ii) a maturity date of August 1, 2025 and accrues interest equal to 5.5% per annum until paid on the unpaid principal of the initial principal amount of $25,050 which is to be repaid in equal successive monthly installments for a period of 36 months. The proceeds received from each of the promissory notes due to the Kissimmee Bay Community Association, Inc. were used for working capital purposes.
The above-mentioned PPP Loan due to the United States Small Business Administration has a maturity date of May 13, 2050, and accrues interest equal to 3.75% per annum on the principal amount of $500,000. The proceeds received were used for working capital purposes to alleviate economic injury caused by disaster occurring in the month of January, 2020.
Both of the 2014 Loans due to each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for a principal amount of $1,447,739.16 and $1,307,619.69, are due to each of the three parties in proportions of 50%, 40% and 10% of the outstanding principal. Both of the 2014 Loans are interest free, repayable upon listing of our common stock on Nasdaq, and were used for working capital purposes.
The 2024 Loan due to each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for a principal amount of $500,000, are due to each of the three parties in proportions of 50%, 40% and 10% of the outstanding principal. The 2024 Loan is interest free, repayable upon listing of our common stock on Nasdaq, and was used to repay the PPP Loan.
The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering, which could change in the future as our plans and business conditions evolve. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.
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As of the date of this prospectus, we have not paid any cash dividends on our common stock, and our board of directors intends to continue a policy of retaining earnings, if any, for use in our operations. We are organized under the Nevada Revised Statutes (the “NRS”), which prohibits the payment of a dividend if, after giving it effect, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities. Our board of Directors shall take into account, among other things, the following factors when deciding whether to propose a dividend and in determining the dividend amount: (a) operating and financial results; (b) cash flow situation; (c) business conditions and strategies; (d) future operations and earnings; (e) taxation considerations; (f) interim dividend paid, if any; (g) capital requirement and expenditure plans; (h) interests of stockholders; (i) statutory and regulatory restrictions; (j) any restrictions on payment of dividends; and (k) any other factors that our board of Directors may consider relevant.
The following table sets forth our capitalization. Such information is set forth on the following basis:
| ● | on an actual basis for June 30, 2024; and |
| ● | on a pro forma, as adjusted basis to reflect (i) the issuance and sale of 3,000,000 shares of common stock by us in this offering at the assumed initial public offering price of $4.00 per share with gross proceeds of $12,000,000, after deducting the estimated discounts to the underwriter of $840,000, non-accountable expense allowance of $120,000, and the estimated offering expenses borne by us of $1,596,104 (among which $559,373 was paid before June 30, 2024 and recognized as deferred offering cost in the consolidated financial statements as of June 30, 2024), resulting in net proceeds of $9,443,896, leading to a $3,000 increase in common stock and $9,440,896 increase in additional paid-in capital; (ii) the receipt of subscription receivables of $18,160 on an as adjusted basis from original shareholders on the time of listing. There will be an aggregate increase in cash and cash equivalents of $10,021,429. |
The pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this capitalization table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this prospectus.
As of June 30, 2024 | ||||||||
| Actual | Pro Forma As Adjusted | |||||||
| Cash and cash equivalents | 799,078 | 10,820,507 | ||||||
| Bank and other borrowings | 246,644 | 246,644 | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock: 50,000,000 shares authorized; $0.001 par value, 20,000,000 shares of series A preferred stock designated; 10,000,000 shares issued and outstanding as of June 30, 2024 and outstanding per pro forma as adjusted | 10,000 | 10,000 | ||||||
| Common stock: 450,000,000 shares authorized; $0.001 par value, 10,880,000 shares issued and outstanding as of June 30, 2024 and 13,880,000 shares issued and outstanding per pro forma as adjusted | 10,880 | 13,880 | ||||||
| Additional paid-in capital | 2,082,456 | 11,523,352 | ||||||
| Subscription receivables | (18,160 | ) | - | |||||
| Accumulated deficit | (578,257 | ) | (578,257 | ) | ||||
| Total Stockholders’ Equity | 1,506,919 | 10,968,975 | ||||||
| Total Capitalization | $ | 1,753,563 | $ | 11,215,619 | ||||
A $1.00 increase (decrease) in the assumed initial public offering price of $4 per share would increase (decrease) each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $2.7 million, assuming the number of the common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and estimated expenses payable by us. An increase (decrease) of one million in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of total capitalization by approximately $3.7 million, assuming no change in the assumed initial public offering price per common stock as set forth on the cover page of this prospectus.
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the net tangible book value per share of common stock upon completion of this offering. Dilution results from the fact that the initial public offering price per share is substantially in excess of the net tangible book value per share attributable to the existing stockholders for our presently outstanding shares of common stock.
Our net tangible book value attributable to stockholders as of June 30, 2024 was $600,842, or $0.06 per share of common stock. Net tangible book value represents the amount of our total consolidated tangible assets (excluding deferred offering costs, operating lease right-of-use assets and deferred tax assets), less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangible book value per share common stock (as adjusted for the offering) from the initial public offering price per share and after deducting the estimated underwriting discounts and the estimated offering expenses payable by us.
After giving effect to the issuance of 3,000,000 shares of common stock offered in this offering since June 30, 2024 based on the initial public offering price of $4.00 per share after deduction of the estimated underwriting discounts and the estimated offering expenses payable by us and excluding amounts from the offering due to the Selling Stockholder, our pro forma as adjusted net tangible book value as of June 30, 2024, would have been $10,062,898, or $0.72 per outstanding share of common stock. This represents an immediate increase in net tangible book value of $0.66 per share of common stock to the existing stockholders, and an immediate dilution in net tangible book value of $3.28 per share to investors purchasing the common stock in this offering. The as adjusted information discussed above is illustrative only.
The following table sets forth the estimated net tangible book value per share after the offering and the dilution to persons purchasing shares of our common stock based on the foregoing firm commitment offering assumptions.
| Offering | ||||
| Assumed initial public offering price per share of common stock | $ | 4.00 | ||
| Net tangible book value per share of common stock as of June 30, 2024 | $ | 0.06 | ||
| Pro forma increase per share of common stock attributable to this offering | $ | 0.66 | ||
| Pro forma as adjusted net tangible book value per share immediately after this offering | $ | 0.72 | ||
| Dilution per share of common stock to new investors in this offering | $ | 3.28 | ||
The following tables summarize, on an as adjusted basis described under this section above, the differences between existing stockholders and the new investors with respect to the number of shares of our common stock purchased from us, the total consideration paid and the average price per share before deducting the estimated underwriting discounts and the estimated offering expenses payable by us.
Shares purchased | Total consideration | Average price per share | ||||||||||||||||||
| Number | Percent | Amount | Percent | $ | ||||||||||||||||
| Existing stockholders | 10,880,000 | 78.39 | % | 2,093,336 | 14.85 | % | 0.19 | |||||||||||||
| New investors | 3,000,000 | 21.61 | % | 12,000,000 | 85.15 | % | 4.00 | |||||||||||||
| Total | 13,880,000 | 100.00 | % | 14,093,336 | 100.00 | % | 1.02 | |||||||||||||
The dilution information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our common stock and other terms of this offering determined at the pricing.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those financial statements included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Disclosure Regarding Forward-Looking Statements.” All amounts included herein with respect to the fiscal years ended December 31, 2023 and 2022 are derived from our audited consolidated financial statements and for the three months and for the six months ended June 30, 2024 and 2023 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus, each of which we prepared in accordance with U.S. Generally Accepted Accounting Principles or U.S. GAAP.
General Overview of Operations
We own and operate two public golf country clubs in Florida that we acquired in 2014. Our golf country clubs include two golf-courses with over 13,000 yards of combined fairways, clubhouses boasting food and beverage options, aquatic golf ranges, and pro shops to assist any level of golfers. Our two golf country clubs are situated on over 289 acres of multi-service recreational property.
Each of our golf country clubs is organized into four revenue streams: (i) golf operations, (ii) sales of food and beverage; (iii) sales of merchandise; and (iv) ancillary income.
Management’s Plans
Over the next twelve months, we plan to continue to promote, market, manage and operate our golf country clubs with the intent to (i) attract and retain customers across a number of demographic groups to further develop customer loyalty and capture a greater share of customers in the greater Orlando Florida region and (ii) increase revenue from managing and operating our golf country clubs.
We believe attracting and retaining customers while increasing customer engagement and loyalty by providing what we believe to be a high quality golfing experience will drive our revenue. Drivers of our revenue growth will require further steps to maintain and build on quality experiences at our golf country clubs. To achieve the foregoing, we intend to focus on:
| ● | Renovating and modernizing our golf country clubs to promote more enjoyable use of our facilities; | |
| ● | Retaining new regional customers from the growth of the surrounding greater Orlando Florida region through marketing efforts; and | |
| ● | Expanding our portfolio through regional country club acquisitions. |
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Key Factors Affecting our Results of Operations
| a. | Seasonality and weather |
Our businesses are subject to seasonality and typically the first quarter of each year is our busiest season of the year. Then, even during our busy season, our business activities are affected by weather conditions. In 2023, we believe that we experienced very few rainy days during the first quarter making almost every day of the busiest season a suitable day for playing golf.
| b. | Cost of maintenance due to inflation |
Our maintenance contract with our major vendor, DTE, was only renewed in 2022 and the renewed contractual price did not fully reflect the inflationary environment that subsequently impacted the labor, fertilizer and chemical markets. In order to maintain our golf courses at a quality level that is consistent with our price points, after thorough discussions with the management of DTE, we had agreed to increase our contract price with DTE by a total of $200,000 starting in October 2023. This increase did not fully impact our cost basis in 2023 but will be in 2024. The maintenance cost and contract with DTE may be subject to further increases in 2024 if the inflationary environment continues to impact our maintenance needs.
Basis of Presentation
The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States. They include the financial statements of the Company and its subsidiaries. All transactions and balances among these entities have been eliminated upon consolidation.
Critical Accounting Policies, Judgments and Estimates
We have identified certain accounting policies that are significant to the preparation of our Group’s financial information. Some of our accounting policies involve subjective assumptions and estimates, as well as complex judgements relating to accounting items. In each case, the determination of these items requires management judgements based on information and financial data that may change in future periods. When reviewing our financial statements, you should consider: (i) our selection of accounting policies; and (ii) the results to changes in conditions and assumptions. We set forth below those accounting policies that we believe are of critical importance to us or involve the most significant estimates and judgements used in the preparation of our Group’s financial statements.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates and assumptions made by management include allowance for expected credit losses, allowance for deferred tax assets, the useful lives and impairment assessment of property and equipment and estimated incremental borrowing rate of lease. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Revenue Recognition
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers in accordance with Accounting Standards Codification (“ASC”) 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
| ● | identification of performance obligations in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
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The Company recognizes revenue when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of promised goods or services are transferred to customers. Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues.
In addition, the Company defers certain costs to fulfill the Company’s contracts with customers to the extent such costs relate directly to the contracts, are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contracts, and are expected to be recovered through revenue generated under the contracts. Contract fulfillment costs are incurred as the Company satisfies the related performance obligations.
Revenue from golf operations
There are two types of service charges maintained by the Company, the players can either (1) subscribe to the golfing services for a period of time of one year at a discount (i.e. annual membership dues); or (2) purchase the services at the counter by one-time payment (i.e. one-time green fees). The golf courses are open to public and hence our customers include both local and overseas citizens. The charges comprise of both the cart fee and fees for playing in the golf course, which is fixed without variable consideration, and the customers either pay via cash or credit card. The entire service fee from customers is non-refundable and required to be paid in advance.
The Company sells annual memberships to local patrons. The performance obligation of the annual membership is for the Company to provide a patron with access to the golf course and cart, subject to availability of a tee time for a patron to play a single round on the 18-hole course; the round of golf is expected to be completed before sunset of the day of the booking of that tee time. The Company recognizes revenue from these annual memberships on a monthly basis over twelve months. The annual memberships are non-refundable. Payments for memberships in the form of cash or credit card are received in advance, and are recorded as contract liabilities-deferred revenue, and recognized to revenue at the end of each month. Management believes that the services provided each month are substantially similar and result in the transfer of substantially similar services to the customers each month. That is, the benefit consumed by the customers is substantially similar for each month, even though the exact volume of services may vary. The Company concludes that the annual membership dues satisfies the requirements of ASC 606-10-25-14(b) to be accounted for as a single performance obligation. The annual membership dues are fixed and there is no variable consideration, significant financing components or noncash consideration. There is no contract asset related to these annual membership dues. As of December 31, 2023 and 2022 and June 30, 2024, the Company recorded contract liabilities - deferred revenue of $158,429 and $19,456 and $180,058, respectively.
One-time green fees require the Company to provide to a patron access to a designated 18-hole golf course and cart to play a single round of golf subject to non-hazardous weather conditions that is expected to be completed before sunset of the day of booking of that tee time. Management believes access to the golf course and the card constitute a single performance obligation as either service is not available to be purchased separately. Payments for tee times are non-refundable and are received via cash or credit card immediately prior to the initiation of the patron playing the round of 18-hole golf; therefore, and one-time green fees are not refundable. Typically, in the event that weather is not expected to permit the patron to play and complete the single round of golf, the Company will not undertake the transaction and take payment from the patron. The one-time green fees are fixed and there is no variable consideration.
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Sales of merchandise, food and beverage
Golf course patrons regularly buy golf balls, clothing, paraphernalia, and gloves, or will enjoy food and beverage offered at the clubhouses. Patrons make orders at the counter. The price is fixed without variable consideration. The Company recognizes revenue when the merchandise or food and beverage are delivered, net of discounts, if any and control of the product has been passed to the customer. If the clothing or wearables have product defects, they are subject to exchange, but all sales are final and not subject to return. Product delivery is evidenced by a payment receipt record. Payments are settled via cash or credit card. The respective revenue is recognized at a point in time. There are no warranties, sales returns and refunds after the orders are delivered to the customers at the counter.
Ancillary revenue
Ancillary revenue represented the lease of its clubhouse for several hours for events held by associations or individuals such as golf tournaments and lease of golf club to individuals for one day playing golf in the Company’s golf course. The revenue was recognized upon services were rendered (i.e. on daily basis when the venue or golf club was used that day). Deposit was received in advance for booking of clubhouse and recognized as contract liabilities – deferred income upon receipt and recognized as revenue in the statements of income when service was rendered or no show after booking. Deposit received is non-refundable.
Accounts Receivable, net
Accounts receivable mainly represent amounts due from customers paid by credit cards for provision of golf operations services and sales of merchandise and food and beverages which are recorded net of allowance for expected credit losses. The credit cards payment is to be settled either within few days after the year end date due to the timing difference for the payment transfer from credit card center to the bank accounts of the Company or within one month after the services were utilized by the customers who have authorized the Company to make the payment through their credit cards. The Company reviews accounts receivable periodically for collectability and establishes an allowance for expected credit losses and records allowance for expected credit losses expense when deemed necessary. The Company records an allowance for expected credit losses that is based on historical trends, customer knowledge, any known disputes, future expectation, future economic situation consideration and considers the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Our accounts receivable are written off against the allowance after all attempts to collect a receivable have failed. As of December 31, 2023 and 2022 and June 30, 2024, the Company had no allowance for expected credit losses due to no experiences on default from customers or failure of transfer from credit card center after payment authorization was made by customers and all outstanding accounts receivable as of December 31, 2023 and 2022 and June 30, 2024 were subsequently settled before the report date.
Leases
ASC 842 supersedes the lease requirements in ASC 840 “Leases”, and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. All leases in the Group as of December 31, 2023 and 2022 and June 30, 2024 are accounted for as operating leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
Any lease with a term of 12 months or less is considered short-term. As permitted by ASC 842, short-term leases are excluded from the ROU assets and lease liabilities on the consolidated balance sheets. Consistent with all other operating leases, short-term lease expense is recorded on a straight-line basis over the lease term.
The Company determines the present value of minimum future lease payments for operating leases by estimating a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments and a similar economic environment (the “incremental borrowing rate” or “IBR”).The Company determines the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances.
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Income Tax
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
As of December 31, 2023 and 2022 and June 30, 2024, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements, respectively.
The Company recognizes interest and penalties related to uncertain income tax positions in other expenses. No interest and penalties related to uncertain income tax positions were recorded during the years ended December 31, 2023 and 2022 and during the six months ended June 30, 2024 and 2023, respectively.
Recently adopted accounting pronouncements
See the discussion of the recent accounting pronouncements contained in Note 2 to the consolidated financial statements, “Summary of Significant Accounting Policies”.
Results of Operations (For the Years Ended December 31, 2023 and 2022)
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Golf operations | $ | 2,643,856 | $ | 2,310,615 | ||||
| Sales of food and beverage | 682,281 | 517,694 | ||||||
| Sales of merchandise | 138,450 | 99,366 | ||||||
| Ancillary revenue | 90,125 | 80,979 | ||||||
| Total revenue | 3,554,712 | 3,008,654 | ||||||
| Operating costs: | ||||||||
| Golf operating costs (exclusive of depreciation and salaries and benefits shown separately below) | 1,189,889 | 1,015,852 | ||||||
| Cost of food and beverage sales (exclusive of depreciation and salaries and benefits shown separately below) | 209,226 | 167,614 | ||||||
| Cost of merchandise sales (exclusive of depreciation and salaries and benefits shown separately below) | 92,675 | 56,228 | ||||||
| Salaries and benefits | 683,941 | 556,880 | ||||||
| Depreciation | 174,207 | 163,371 | ||||||
| Other general and administration expenses | 951,616 | 580,463 | ||||||
| Total operating costs | 3,301,554 | 2,540,408 | ||||||
| Income from operations | 253,158 | 468,246 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (30,393 | ) | (36,196 | ) | ||||
| Other income | 28,098 | 8,900 | ||||||
| Total other expense | (2,295 | ) | (27,296 | ) | ||||
| Income before income tax | 250,863 | 440,950 | ||||||
| Income tax (benefits) expenses | (135,265 | ) | 117,757 | |||||
| Net Income | $ | 386,128 | $ | 323,193 | ||||
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Revenue
Revenues disaggregated by major revenue streams for the years ended December 31, 2023 and 2022 are disclosed in the table below:
| For the Years Ended | ||||||||||||||||
| December 31, | Changes | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Golf operations | ||||||||||||||||
| – annual membership dues | $ | 168,723 | $ | 230,874 | $ | (62,151 | ) | (27 | )% | |||||||
| – one-time green fees | 2,475,133 | 2,079,741 | 395,392 | 19 | % | |||||||||||
| Sales of food and beverage | 682,281 | 517,694 | 164,587 | 32 | % | |||||||||||
| Sales of merchandise | 138,450 | 99,366 | 39,084 | 39 | % | |||||||||||
| Ancillary revenue | 90,125 | 80,979 | 9,146 | 11 | % | |||||||||||
| $ | 3,554,712 | $ | 3,008,654 | $ | 546,058 | 18 | % | |||||||||
Our revenue is comprised of golf operations, sales of food and beverage and sales of merchandise. Overall increase in revenue year over year by $546,058 or 18% was mainly due to the increase in one-time green fees from golf operations, sales of food and beverage and sales of merchandise which was partially offset by decrease in annual membership dues from golf operations.
Revenue from golf operations increased by $333,241 or 14% from $2,310,615 for the year ended December 31, 2022 to $2,643,856 for the year ended December 31, 2023, which was driven by the increase in one-time green fees from golf operations by $395,392 or 19% which partially offset the decrease in annual membership dues from golf operations by $62,151 or 27%.
One-time green fees from golf operations accounted for 70% and 69% of total revenue for the years ended December 31, 2023 and 2022 respectively. Increase in one-time greens fees by 19% resulted from the increase in total number of rounds by 10% from approximately 50,000 rounds during fiscal year ended 2022 to approximately 55,000 rounds during fiscal year ended 2023 as well as the increase in average price per round by 8% from $39 per round December 31, 2022 to $42 per round for the year ended December 31, 2023.
Annual memberships decreased by 27% was mainly due to most of the annual membership dues being received during the third quarter during the year ended December 31, 2023 and the remaining unused monthly services were deferred to the year of 2024.
Increase in revenue from sales of food and beverage by $164,587 or 32% from $517,694 for the year ended December 31, 2022 to $682,281 for the year ended December 31, 2023, which was contributed by the increase in quantities sold by 16% from approximately 100,000 for the year ended December 31, 2022 to approximately 116,000 for the year ended December 31, 2023 and the average unit price remained stable at $6 per unit for the year ended December 31, 2022 and $6 for the year ended December 31, 2023. The increase in quantity sold was in line with increase in golf operations.
Increase in revenue from sales of merchandise by $39,084 or 39% from $99,366 for the year ended December 31, 2022 to $138,450 for the year ended December 31, 2023, which was contributed by the increase in sales of golf balls, men’s and ladies’ wear and gloves by 44% as a result of the increase in sales to customers playing golf during the year ended December 31, 2023.
Ancillary revenue mainly represented the equipment and facilities rental, including the lease of our clubhouse and lease of golf club to our customers. The increase by $9,146 or 11% was mainly due to increase in demand for rental services for activities and events during the year ended December 31, 2023.
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Operating expenses
Operating expenses consisted of the following:
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Golf operating costs(1) | $ | 1,189,889 | $ | 1,015,852 | $ | 174,037 | 17 | % | ||||||||
| Cost of food and beverage sales(1) | 209,226 | 167,614 | 41,612 | 25 | % | |||||||||||
| Cost of merchandise sales(1) | 92,675 | 56,228 | 36,447 | 65 | % | |||||||||||
| Salaries and benefits | 683,941 | 556,880 | 127,061 | 23 | % | |||||||||||
| Depreciation | 174,207 | 163,371 | 10,836 | 7 | % | |||||||||||
| Other general and administrative expenses | 951,616 | 580,463 | 371,153 | 64 | % | |||||||||||
| $ | 3,301,554 | $ | 2,540,408 | $ | 761,146 | 30 | % | |||||||||
| (1) | Exclusive of depreciation and salaries and benefits shown separately above. |
The operating expenses of the Company mainly consists of costs related to golf operations, costs related to sales of food and beverage and merchandise, salaries and benefits, depreciation and other miscellaneous administrative expenses. The overall operating expenses increased by $761,146 or 30% from $2,540,408 for the year ended December 31, 2022 to $3,301,554 for the year ended December 31, 2023 which was primarily due to increases across all operating cost categories during the current year discussed below.
Golf operating expenses consisted of course upkeep expenses including the regular repair and maintenance of the golf courses and landscaping. Increase in golf operating expenses by $174,037 or 17% from $1,015,852 for the year ended December 31, 2022 to $1,189,889 for the year ended December 31, 2023 which was attributable to the increase in number of rounds by golf players as discussed in revenue above which was resulted in increase in the frequency of landscaping and repair and maintenance of equipment required by 16%.
The increase in cost of food and beverage by $41,612 or 25% from $167,614 for the year ended December 31, 2022 to $209,226 for the year ended December 31, 2023 was in line with the increase in sales of food and beverage.
Our cost of merchandise sales consisted of mainly the purchase cost of golf balls, men’s and ladies’ wears and gloves. Increase in cost of merchandise sales was mainly due to the combined effect of (i) increase in revenue from sales of merchandise; and (ii) average purchase costs for golf balls, men’s and ladies’ wear and gloves increased by 43%.
Our salaries and benefits mainly consisted of the director’s remuneration, the staff costs and welfare of management, operating team, cashier and administrative personnel. The increase in salaries and benefits by 23% was primarily due to an increased mandatory minimum wage and inflation driven cost of living adjustments to key management members and staff by 23% as compared to prior year.
Our depreciation is mainly derived from the recreational building, golf carts, pump stations and other operating equipment. The increase in depreciation was mainly due to the acquisition of a pump station, cooler and freezer and air-conditioning system resulting in an aggregate depreciation of approximately $148,000 during the year ended December 31, 2023.
Other general and administrative expenses mainly consisted of professional fees, repair and maintenance of restaurant machineries and equipment, utilities, liability insurance, personal property tax and real estate tax, credit card charges and other miscellaneous administrative expenses. Increase in other general and administrative expenses by $371,153 or 64% from $580,463 for the year ended December 31, 2022 to $951,616 for the year ended December 31, 2023 was attributable to the increase in insurance expenses by approximately $35,000 resulted in obtaining coverage in the State of Florida; (ii) increase in repair and maintenance of restaurant machineries and equipment by $30,000; and (iii) increase in audit fee of $268,000 for listing purpose.
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Other income (expenses)
Other income (expenses) mainly includes interest expenses regarding the bank other borrowings incurred, bank interest income and additional service charges from customers who paid by credit cards.
Income tax expenses
The Company provides for income tax under ASC 740, “Income Taxes” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the new federal statutory rate of 21% to the income tax amount recorded for the years ended December 31, 2023 and 2022. Income tax (benefits) expenses was $(135,265) and $117,757 for the year ended December 31, 2023 and 2022, respectively, which was mainly derived from the deferred tax assets on net operating losses (“NOLs”).
The Group evaluated the recoverable amounts of deferred tax assets to the extent that future taxable profits will be available against which the NOLs and temporary difference can be utilized.
As of December 31, 2022, the deferred tax assets of $73,573 represented the net operating losses (“NOLs”) of $277,634 recognized for Chrome I due to the opinion of the management that Chrome I has taxable income to be utilized the NOLs in the foreseeable future. During the year ended December 31, 2023, deferred tax assets of $26,604 recognized under Chrome I was further utilized. As of December 31, 2023, deferred tax assets of Chrome I carried forward indefinitely was $46,969.
During the year ended December 31, 2023, the management believed that the NOLs of Chrome II has taxable income to utilize the NOLs in the foreseeable future and recognized the NOLs carryforwards of $1,034,247 as deferred tax assets of $274,075 and among which $84,914 of deferred tax assets were utilized during the current year. As of December 31, 2023, deferred tax assets of Chrome II carried forward indefinitely was $189,161.
As of December 31, 2023, the Company had $891,049 of NOLs which can be carried forward indefinitely.
The NOLs carry forwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382.
Net income
Our income for the years ended December 31, 2023 and 2022, was $386,128 and $323,193, respectively. The increase of net income by $62,935 or 19% was mainly due to the increase in our revenue during the year ended December 31, 2023 and recognition of deferred tax assets on NOLs as discussed above.
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Results of Operations (For the Three and Six Months Ended June 30, 2024 and 2023)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Golf operations | 458,728 | 500,069 | $ | 1,679,609 | $ | 1,947,671 | ||||||||||
| Sales of food and beverage | 146,824 | 150,286 | 392,085 | 421,166 | ||||||||||||
| Sales of merchandise | 24,732 | 28,188 | 75,824 | 88,081 | ||||||||||||
| Ancillary revenue | 18,253 | 16,078 | 54,654 | 56,544 | ||||||||||||
| Total revenue | 648,537 | 694,621 | 2,202,172 | 2,513,462 | ||||||||||||
| Operating costs: | ||||||||||||||||
| Golf operating costs (exclusive of depreciation and salaries and benefits shown separately below) | 315,464 | 283,835 | 706,695 | 580,802 | ||||||||||||
| Cost of food and beverage sales (exclusive of depreciation and salaries and benefits shown separately below) | 43,232 | 46,327 | 114,040 | 126,322 | ||||||||||||
| Cost of merchandise sales (exclusive of depreciation and salaries and benefits shown separately below) | 9,968 | 20,943 | 34,084 | 55,193 | ||||||||||||
| Salaries and benefits | 141,795 | 159,928 | 377,643 | 415,096 | ||||||||||||
| Depreciation | 50,031 | 43,104 | 100,038 | 85,108 | ||||||||||||
| Other general and administration expenses | 182,822 | 178,082 | 484,337 | 346,377 | ||||||||||||
| Total operating costs | 743,312 | 732,219 | 1,816,837 | 1,608,898 | ||||||||||||
| (Loss) income from operations | (94,775 | ) | (37,598 | ) | 385,335 | 904,564 | ||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (6,296 | ) | (7,075 | ) | (16,482 | ) | (14,252 | ) | ||||||||
| Other income | 9,825 | 6,371 | 29,267 | 14,220 | ||||||||||||
| Total other income (expense), net | 3,529 | (704 | ) | 12,785 | (32 | ) | ||||||||||
| (Loss) income before income tax | (91,246 | ) | (38,302 | ) | 398,120 | 904,532 | ||||||||||
| Income tax (benefits) expenses | (22,145 | ) | (10,059 | ) | 137,837 | (34,012 | ) | |||||||||
| Net (Loss) Income | (69,101 | ) | (28,243 | ) | $ | 260,283 | $ | 938,544 | ||||||||
Revenue
Revenues disaggregated by major revenue streams for the three and six months ended June 30, 2024 and 2023 are disclosed in the table below:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | Changes | June 30, | Changes | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| Golf operations | ||||||||||||||||||||||||||||||||
| – annual membership dues | 76,156 | 62,905 | 13,251 | 21 | % | $ | 150,380 | $ | 142,548 | $ | 7,832 | 5 | % | |||||||||||||||||||
| – one-time green fees | 382,572 | 437,164 | (54,592 | ) | (12 | )% | 1,529,229 | 1,805,123 | (275,894 | ) | (15 | )% | ||||||||||||||||||||
| Sales of food and beverage | 146,824 | 150,286 | (3,462 | ) | (2 | )% | 392,085 | 421,166 | (29,081 | ) | (7 | )% | ||||||||||||||||||||
| Sales of merchandise | 24,732 | 28,188 | (3,456 | ) | (12 | )% | 75,824 | 88,081 | (12,257 | ) | (14 | )% | ||||||||||||||||||||
| Ancillary revenue | 18,253 | 16,078 | 2,175 | 14 | % | 54,654 | 56,544 | (1,890 | ) | (3 | )% | |||||||||||||||||||||
| 648,537 | 694,621 | (46,084 | ) | (7 | )% | $ | 2,202,172 | $ | 2,513,462 | $ | (311,290 | ) | (12 | )% | ||||||||||||||||||
Comparison for the six months ended June 30, 2024 and 2023
Our revenue is mainly comprised of golf operations, sales of food and beverage and sales of merchandise. Overall decrease in revenue period over period by $311,290 or 12% was mainly due to the decrease in one-time green fees from golf operations and the associated sales of food and beverage and merchandise.
Revenue from golf operations decreased by $268,062 or 14% from $1,947,671 for the six months ended June 30, 2023 to $1,679,609 for the six months ended June 30, 2024, which was mainly driven by the decrease in one-time green fees from golf operations by $275,894 or 15%, slightly net off by the increase in annual membership dues by $7,832 or 5%.
Revenue from annual membership dues slightly increased by $7,832 or 5% mainly due to the increase in demand from customers who paid annual membership dues for the six months ended June 30, 2024.
One-time green fees from golf operations accounted for 69% and 72% of total revenue for the six months ended June 30, 2024 and 2023 respectively. Decrease in one-time greens fees by 15% resulted from the decrease in total number of rounds by approximately 18% from approximately 38,000 rounds during the six months ended June 30, 2023 to approximately 31,000 rounds during the six months ended June 30, 2024 despite the increase in average price per round by 6% from $52 per round for the six months ended June 30, 2023 to $55 per round for the six months ended June 30, 2024. Decrease in number of rounds was mainly due to more rainy days during the first half year of 2024.
Decrease in revenue from sales of food and beverage by $29,081 or 7% from $421,166 for the six months ended June 30, 2023 to $392,085 for the six months ended June 30, 2024 was contributed by a decrease in quantities sold by 15% from approximately 74,000 pieces of food and beverage for the six months ended June 30, 2023 to approximately 63,000 pieces of food and beverage for the six months ended June 30, 2024 and the average unit price remained stable at $6 per unit for both periods. The decrease in quantities sold was in line with decrease in golf operations.
Decrease in revenue from sales of merchandise by $12,257 or 14% from $88,081 for the six months ended June 30, 2023 to $75,804 for the six months ended June 30, 2024 was contributed by a decrease in sales of golf balls, men’s wear and headwear by 14% as a result of the decrease in customers playing golf during the six months ended June 30, 2024.
Ancillary revenue mainly represented the equipment and facilities rental, including the lease of our clubhouse and lease of golf club to our customers. The decrease by $1,890 or 3% was mainly due to a decrease in demand for rental services for activities and events during the six months ended June 30, 2024.
Comparison for the three months ended June 30, 2024 and 2023
Our revenue is mainly comprised of golf operations, sales of food and beverage and sales of merchandise. Overall decrease in revenue period over period by $46,084 or 7% was mainly due to the decrease in one-time green fees from golf operations and being partially offset by an increase in annual membership dues by $15,452 or 25%.
Revenue from golf operations decreased by $41,341 or 8% from $500,069 for the three months ended June 30, 2023 to $458,728 for the three months ended June 30, 2024, mainly driven by the decrease in one-time green fees from golf operations by $54,592 or 12%.
One-time green fees from golf operations accounted for 59% and 63% of total revenue for the three months ended June 30, 2024 and 2023 respectively. Decrease in one-time green fees by 20% resulted from the decrease in total number of rounds by approximately 9% from approximately 11,000 rounds during the three months ended June 30, 2023 to approximately 10,000 rounds during the three months ended June 30, 2024 as well as the decrease in average price per round by 11% from approximately $47 per round in average for the three months ended June 30, 2023 to approximately $42 per round in average for the three months ended June 30, 2024.
Revenue from annual membership dues increased by $13,251 or 21% mainly due to the increase in demand from customers who paid annual membership dues by enjoying a lower price for annual subscriptions for the three months ended June 30, 2024.
Decrease in revenue from sales of food and beverage by $3,462 or 2% from $150,286 for the three months ended June 30, 2023 to $146,824 for the three months ended June 30, 2024 was contributed by the decrease in quantities sold by 11% from approximately 26,000 pieces of food and beverage for the three months ended June 30, 2023 to approximately 23,000 pieces of food and beverage for the three months ended June 30, 2024 and the average unit price remained stable at $6 per unit for both periods. The decrease in quantities sold was in line with the decrease in golf operations.
Decrease in revenue from sales of merchandise by $3,456 or 12% from $28,188 for the three months ended June 30, 2023 to $24,732 for the three months ended June 30, 2024 was caused by the decrease in sales of golf balls, men’s wear and headwear by 12% as a result of the decrease in customers playing golf during the three months ended June 30, 2024.
Ancillary revenue mainly represented the equipment and facilities rental, including the lease of our clubhouse and lease of golf club to our customers. The increase by $2,175 or 14% was mainly due to the increase in demand for rental services for activities and events during the three months ended June 30, 2024.
| 37 |
Operating expenses
Operating expenses consisted of the following:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | Changes | % | 2024 | 2023 | Changes | % | |||||||||||||||||||||||||
| Golf operating costs(1) | 315,464 | 283,835 | 31,629 | 11 | % | $ | 706,695 | $ | 580,802 | $ | 125,893 | 22 | % | |||||||||||||||||||
| Cost of food and beverage sales(1) | 43,232 | 46,327 | (3,095 | ) | (7 | )% | 114,040 | 126,322 | (12,282 | ) | (10 | )% | ||||||||||||||||||||
| Cost of merchandise sales(1) | 9,968 | 20,943 | (10,975 | ) | (52 | )% | 34,084 | 55,193 | (21,109 | ) | (38 | )% | ||||||||||||||||||||
| Salaries and benefits | 141,795 | 159,928 | (18,133 | ) | (11 | )% | 377,643 | 415,096 | (37,453 | ) | (9 | )% | ||||||||||||||||||||
| Depreciation | 50,031 | 43,104 | 6,927 | 16 | % | 100,038 | 85,108 | 14,930 | 18 | % | ||||||||||||||||||||||
| Other general and administrative expenses | 182,822 | 178,082 | 4,740 | 3 | % | 484,337 | 346,377 | 137,960 | 40 | % | ||||||||||||||||||||||
| 743,312 | 732,219 | 11,093 | 2 | % | $ | 1,816,837 | $ | 1,608,898 | $ | 207,939 | 13 | % | ||||||||||||||||||||
| (1) | Exclusive of depreciation and salaries and benefits shown separately above. |
Comparison for the six months ended June 30, 2024 and 2023
The operating expenses of the Company mainly consist of costs related to golf operations, costs related to sales of food and beverage and merchandise, salaries and benefits, depreciation and other miscellaneous administrative expenses. The overall operating expenses increased by $207,939 or 13% from $1,608,898 for the six months ended June 30, 2023 to $1,816,837 for the six months ended June 30, 2024, which was primarily due to increases in golf operating costs and other general and administrative expenses and partially offset by the decrease in cost of merchandise sales and salaries and benefits during the current period with details discussed below.
Golf operating expenses consisted of course upkeep expenses including the regular repair and maintenance of the golf courses and landscaping. Golf operating expenses increased by $125,893 or 22% from $580,802 for the six months ended June 30, 2023 to $706,695 for the six months ended June 30, 2024, which was attributable to the increase in contractual landscaping and repair and maintenance with our largest vendor, Down to Earth, after more frequent rainy days during the first half of 2024 despite the decrease in revenue.
The decrease in cost of food and beverage sales by $12,282 or 10% from $126,322 for the six months ended June 30, 2023 to $114,040 for the six months ended June 30, 2024 was in line with the decrease in sales of food and beverage.
Our cost of merchandise sales consisted of mainly the purchase cost of golf balls, men’s and ladies’ wear, gloves and headwear. Decrease in cost of merchandise sales was mainly due to the decrease in revenue from golf operations as a result of decrease in customers visiting our pro shops.
Our salaries and benefits mainly consisted of the director’s remuneration, the staff costs and welfare of management, operating team, cashier and administrative personnel. The decrease in salaries and benefits by $37,453 or 9% was primarily due to a decrease in director’s remuneration by $70,000 to Mr. C. P. Cheung for his duties as CEO in the daily operations and management of golf operations of the Company and offset by the increase of salaries for other personnel by approximately $30,000 as a result of hiring of a chef with a high salary since the second half year of 2023 and increase in mandatory minimum wage by $1 per hour for the six months ended June 30, 2024.
Our depreciation is mainly derived from depreciation of the recreational building, golf carts, pump stations and other operating equipment. The increase in depreciation was mainly due to the replacement of a pump station and air-conditioning system with acquisition costs of $181,471, of which $103,436 was paid and recognized as prepayment for acquisition of property and equipment in the prior year.
Other general and administrative expenses mainly consisted of professional fees, repair and maintenance of restaurant machinery and equipment, utilities, liability insurance, personal property tax and real estate tax, credit card charges and other miscellaneous administrative expenses. Increase in other general and administrative expenses by $137,960 or 40% from $346,377 for the six months ended June 30, 2023 to $484,377 for the six months ended June 30, 2024 was mainly attributable to the recognition of audit and quarterly review fee of $121,000 for listing purposes during the period.
Comparison for the three months ended June 30, 2024 and 2023
The operating expenses of the Company mainly consists of costs related to golf operations, costs related to sales of food and beverage and merchandise, salaries and benefits, depreciation and other miscellaneous administrative expenses. The overall operating expenses increased by $11,093 or 2% from $732,219 for the three months ended June 30, 2023 to $743,312 for the three months ended June 30, 2024, which was primarily due to increases in golf operating costs and depreciation and offset by the decrease in cost of merchandise sales and salaries and benefits during the current period with the details discussed below.
Golf operating expenses consisted of course upkeep expenses including the regular repair and maintenance of the golf courses and landscaping. Increase in golf operating expenses by $31,629 or 11% from $283,835 for the three months ended June 30, 2023 to $315,464 for the three months ended June 30, 2024 was attributable to the increase in the contractual landscaping and repair and maintenance with our largest vendor, Down to Earth, after the more frequent rainy days during the second quarter of 2024 despite the decrease in revenue.
The decrease in cost of food and beverage sales by $3,095 or 7% from $46,327 for the three months ended June 30, 2023 to $43,232 for the three months ended June 30, 2024 was in line with the decrease in sales of food and beverage.
Our cost of merchandise sales consisted of mainly the purchase cost of golf balls, men’s and ladies’ wear, gloves and headwear. Decrease in cost of merchandise sales was mainly due to the decrease in revenue from golf operations as a result of decrease in customers visiting our pro shops.
Our salaries and benefits mainly consisted of director’s remuneration, staff costs and welfare of management, operating team, cashier and administrative personnel. The reduction in salaries and benefits by $18,133 or 11% was primarily due to the deferral in remuneration by $20,000 to Mr. C. P. Cheung for his duties as CEO in the daily operations and management of golf operations of the Company for the three months ended June 30, 2024 as compared to the corresponding period in 2023. Mr. C. P. Cheung has agreed to accept a regular monthly salary as stipulated on his Employment Agreement once the Company becomes public.
Our depreciation is mainly derived from the recreational building, golf carts, pump stations and other operating equipment. The increase in depreciation was mainly due to the replacement of a pump station and air-conditioning system with acquisition costs of $181,471 in the first quarter of 2024, among which $103,436 was paid and recognized as prepayment for acquisition of property and equipment in the prior year.
Other general and administrative expenses mainly consisted of professional fees, repair and maintenance of restaurant machinery and equipment, utilities, liability insurance, personal property tax and real estate tax, credit card charges and other miscellaneous administrative expenses. Increase in other general and administrative expenses by $4,740 or 3% from $178,082 for the three months ended June 30, 2023 to $182,822 for the three months ended June 30, 2024 was mainly attributable to the recognition of quarterly review fee of $7,500 for listing purposes during the period.
| 38 |
Comparison for the three and six months ended June 30, 2024 and 2023
Other (expenses) income
Other (expenses) income mainly includes interest expenses regarding the bank other borrowings incurred, bank interest income and additional service charges from customers who paid by credit cards. The increase in other income by $12,817 for the six months ended June 30, 2024 and by $4,233 for the three months ended June 30, 2024 was mainly due to the increase in service charges from customers due to more usage of credit cards by the customers and increase in bank interest income.
Income tax expenses
The Company provides for income tax under ASC 740, “Income Taxes” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
The Company is incorporated in the State of Nevada and is not subject to tax on income or capital gains under current Nevada law. In addition, upon payments of dividends by these entities to their shareholders, no Nevada withholding tax will be imposed.
The Company’s deferred tax asset and income tax expenses are computed at the federal statutory rate of 21% and state of Florida tax rate of 5.5% to the income tax amount recorded for the three and six months ended June 30, 2024 and 2023.
The Group evaluated the recoverable amounts of deferred tax assets to the extent that future taxable profits will be available against which the net operating losses and temporary difference can be utilized.
As of June 30, 2024, the Company had $421,963 of net operating losses (“NOLs”) which can be carried forward indefinitely.
The NOLs carry forwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382.
The Company recorded income tax expenses of $137,837 for the six months ended June 30, 2024 while income tax benefits of $34,012 for the six months ended June 30, 2023. The Company recorded income tax benefits of $22,145 for the three months ended June 30, 2024 and income tax benefits of $10,059 for the three months ended June 30, 2023. Please refer to Note 12 – Income Tax to the Unaudited Condensed Consolidated Financial Statements for more details.
Net (loss) income
Our income for the six months ended June 30, 2024 and 2023 was $260,283 and $938,544, respectively. The decrease in net income by $678,261 or 72% was mainly due to the decrease in our revenue by $311,290 and increase in our operating costs by $207,939 mainly due to additional professional fees for listing purposes during the six months ended June 30, 2024 and increase in income tax expense due to utilization of NOLs for the six months ended June 30, 2024.
Our loss for the three months ended June 30, 2024 and 2023 was $69,101 and $28,243, respectively. The increase of net loss by $40,858 or 145% was mainly due to the decrease in our revenue by $46,084, partially offset by the increase in income tax benefits by $12,086 for the three months ended June 30, 2024.
Liquidity and Capital Resources
The following table sets forth a breakdown of our current assets and liabilities as of dates indicated:
Working Capital (As of December 31, 2023 and 2022)
The following table summarizes our cash and working capital as of December 31, 2023 and 2022:
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | Changes | % | |||||||||||||
| Cash and cash equivalents | $ | 646,294 | $ | 693,151 | $ | (46,857 | ) | (7 | )% | |||||||
| Accounts receivable – net | 36,299 | 29,219 | 7,080 | 24 | % | |||||||||||
| Inventories, net | 55,704 | 59,362 | (3,658 | ) | (6 | )% | ||||||||||
| Deferred offering costs | 252,964 | - | 252,964 | 100 | % | |||||||||||
| Other current assets | 125 | - | 125 | 100 | % | |||||||||||
| Total currents assets | $ | 991,386 | $ | 781,732 | $ | 209,654 | 27 | % | ||||||||
| Accounts payable and accrued liabilities | $ | 495,930 | $ | 308,394 | $ | 187,536 | 61 | % | ||||||||
| Contract liabilities – deferred revenue | 158,429 | 19,456 | 138,973 | 714 | % | |||||||||||
| Bank and other borrowings – current | 135,970 | 67,681 | 68,289 | 101 | % | |||||||||||
| Operating lease liabilities – current | 222,275 | 215,217 | 7,058 | 3 | % | |||||||||||
| Due to related parties | 1,651,407 | 2,065,543 | (414,136 | ) | (20 | )% | ||||||||||
| Total current liabilities | $ | 2,664,011 | $ | 2,676,291 | $ | (12,280 | ) | (0 | )% | |||||||
| Working Capital Deficiency | $ | (1,672,625 | ) | $ | (1,894,559 | ) | $ | 221,934 | (12 | )% | ||||||
Accounts receivables
Accounts receivable mainly represent amounts due from customers paid by credit cards for provision of golf operations services and sales of merchandise and food and beverages which are recorded net of allowance for doubtful accounts/expected credit loss. Increase in balance mainly due to increase in revenue during current year end.
Inventories
Our inventories consist of merchandise goods such as golf balls, gloves, men’s wear and women’s wears, food and beverages. The Company keeps low inventories since the turnaround time is short.
Deferred offering costs
Deferred offering costs consist of underwriting, legal and other expenses incurred through the balance sheet date that are directly related to the intended initial public offering (“IPO”). Deferred offering costs will be charged to shareholders’ equity netted against the proceeds upon the completion of the IPO. Should the IPO prove to be unsuccessful, these deferred offering costs, as well as additional expenses to be incurred, will be charged to statements of income. Such costs will be deferred until the closing of the IPO, at which time the deferred costs will be offset against the offering proceeds and recognized in equity of the Company.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities represented the payable to the vendors for the course upkeep costs, credit cards charge payables, sales tax payables and property tax payable. Increase in accounts payable and accrued liabilities balance by $187,536 or 61% from $308,394 as of December 31, 2022 to $495,930 as of December 31, 2023 was mainly due to an increase in payables to vendors as a result of an increase in course upkeep expenses including regular repair and maintenance of the golf courses and landscaping.
Contract liabilities – deferred revenue
Contract liabilities – deferred revenue represented the annual membership dues received in advance before the usage of golf course by the customers. The increase in this balance by $138,973 or 714% was mainly due to a large portion of annual membership dues being received in the third quarter of 2023 and for part of the services to be used by these customers in fiscal year 2024. Hence, the unearned revenue was deferred as of December 31, 2023.
| 39 |
Bank and Other Borrowings
The Company borrowed loans from various financial institutions for working capital purpose. Our borrowings are as follows:
Initiation date | Loan No. | Principal Amount | Maturity date | Fixed Interest Rate | December 31, 2023 | December 31, 2022 | ||||||||||||||
| May 13, 2020 | #1 | $ | 500,000 | April 13,2050 | 3.75 | % | $ | 488,961 | $ | 499,650 | ||||||||||
| May 17, 2022 | #2 | $ | 25,050 | August 1,2025 | 5.5 | % | 13,975 | 23,431 | ||||||||||||
| September 9, 2022 | #3 | $ | 150,000 | September 9, 2025 | 6.75 | % | 91,202 | 138,634 | ||||||||||||
| August 1, 2023 | #4 | $ | 87,199 | July 1, 2031 | 6.50 | % | 74,089 | - | ||||||||||||
| November 13, 2023 | #5 | $ | 120,000 | November 13, 2026 | 9.25 | % | 117,088 | - | ||||||||||||
| Total loans payable | 785,315 | 661,715 | ||||||||||||||||||
| Current portion | (135,970 | ) | (67,681 | ) | ||||||||||||||||
| Long-term portion | $ | 649,345 | $ | 594,034 | ||||||||||||||||
The increase in bank and other borrowings was mainly due to the new loans from a bank and a non-financial institutions with an aggregate principal amount of $207,199 with three years terms and partially offset by the repayment of loan #3 of $47,432 during the year ended December 31, 2023.
Operating lease liabilities
The operating leases liabilities represented the leases for corporate office, golf cars and golf equipment for terms of four to five years. The operating leases – current remained stable at $222,275 and $215,217 as of December 31, 2023 and 2022 respectively.
Amounts due to related parties
Amounts due to related parties consists of the following:
| Name | Relationship | Nature | December 31, 2023 | December 31, 2022 | ||||||||
| Mr. S. Cheung | Shareholder of the Company | Interest-free listing expense loans(1) | $ | 520,964 | $ | - | ||||||
| Mr. S. Cheung | Shareholder of the Company | Interest-free shareholder’s loans(2) | 472,272 | $ | 989,822 | |||||||
| Mr. C. P. Cheung | Shareholder and Director of the Company | Interest-free shareholder’s loans(2) | 377,817 | 791,857 | ||||||||
| Mr. C. P. Cheung | Shareholder and Director of the Company | Director’s remunerations(3) | 185,900 | 85,900 | ||||||||
| Mr. Y. C. Cheung | Shareholder of the Company | Interest-free shareholder’s loans(2) | 94,454 | 197,964 | ||||||||
| $ | 1,651,407 | $ | 2,065,543 | |||||||||
Notes:
| (1) | On September 7, 2023, Mr. S. Cheung, a shareholder of the Company, entered into a loan facility agreement with the Company that Mr. S. Cheung agreed to pay the listing expenses incurred for the initial public offering in Nasdaq on behalf of the Company before listing with a maximum principal amount of $1,000,000. Pursuant to the facility agreement, the loan is interest-free, unsecured and repayable on the earlier of the listing of our common stock on Nasdaq, or December 31, 2024. As of December 31, 2023 and 2022, amount of listing expenses paid by Mr. S. Cheung on behalf of the Company was $520,964 and Nil. |
| (2) | On April 24, 2014, Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung entered into two shareholders’ loan agreements with Chrome Field I, Inc. and Chrome Field II, Inc., wholly-owned subsidiaries of the Company, respectively. Pursuant to the shareholders’ loan agreements, Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung agreed to grant shareholders’ loans at principal amounts of $1,307,619.69 and $1,447,739.16 to Chrome Field I, Inc. and Chrome Field II, Inc., respectively, in a proportion of 50%, 40% and 10%, respectively, in connection with the acquisition of Kissimmee Bay and Remington in 2014. Pursuant to the shareholders’ loan agreements, the loans are interest-free, unsecured and to repayable on demand. As of December 31, 2023, amount of outstanding shareholders’ loans owned by the Company to Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung was $472,272, $377,817 and $94,454, respectively. As of December 31, 2022, amount of outstanding shareholders’ loans owned by the Company to Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung was $989,822, $791,857 and $197,964, respectively. |
| (3) | For the sake of compensating Mr. C. P. Cheung’s duties as CEO in the daily operations and management of golf operations of the Company, director’s remuneration was granted by the Company every year based on the performance of the Company. For the years ended December 31, 2023 and 2022, the Company charged $110,000 and $100,000 as director’s remuneration to Mr. C. P. Cheung and recognized under salaries and benefits of statements of income. As of December 31, 2023 and 2022, outstanding director’s remuneration was $185,900 and $85,900, respectively. The balance is interest-free, unsecured and repayable on demand. |
Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung signed an undertaking that no demand on repayment from the Company since December 31, 2022 and the balances will be fully settled upon listing of the Group.
Working Capital (as of June 30, 2024 and December 31, 2023)
The following table summarizes our cash and working capital as of June 30, 2024 and December 31, 2023:
| June 30, | December 31, | |||||||||||||||
| 2024 | 2023 | Changes | % | |||||||||||||
| Cash and cash equivalents | $ | 799,078 | $ | 646,294 | $ | 152,784 | 24 | % | ||||||||
| Accounts receivable – net | 14,604 | 36,299 | (21,695 | ) | (60 | )% | ||||||||||
| Inventories, net | 54,840 | 55,704 | (864 | ) | (2 | )% | ||||||||||
| Deferred offering costs | 559,373 | 252,964 | 306,409 | 121 | % | |||||||||||
| Other current assets | 125 | 125 | - | 0 | % | |||||||||||
| Total currents assets | $ | 1,428,020 | $ | 991,386 | $ | 436,634 | 44 | % | ||||||||
| Accounts payable and accrued liabilities | $ | 308,096 | $ | 495,930 | $ | (187,834 | ) | (38 | )% | |||||||
| Contract liabilities – deferred revenue | 180,058 | 158,429 | 21,629 | 14 | % | |||||||||||
| Bank and other borrowings – current | 109,334 | 135,970 | (26,636 | ) | (20 | )% | ||||||||||
| Operating lease liabilities – current | 161,167 | 222,275 | (61,108 | ) | (27 | )% | ||||||||||
| Due to related parties | 2,403,354 | 1,651,407 | 751,947 | 46 | % | |||||||||||
| Total current liabilities | $ | 3,162,009 | $ | 2,664,011 | $ | 497,998 | 19 | % | ||||||||
| Working Capital Deficiency | $ | (1,733,989 | ) | $ | (1,672,625 | ) | $ | (61,364 | ) | 4 | % | |||||
Accounts receivables
Accounts receivable mainly represent amounts due from customers paid by credit cards from provision of golf operations services and sales of merchandise and food and beverages which are recorded net of allowance for expected credit losses. The decrease in accounts receivables from $36,299 as of December 31, 2023 to $14,604 as of June 30, 2024 was mainly due to the less customers who paid by credit cards near the end of June 30, 2024.
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Inventories
Our inventories consist of merchandise goods such as golf balls, gloves, men’s wear and women’s wears, food and beverages. The Company keeps low inventories since the turnaround time is short.
Deferred offering costs
Deferred offering costs consist of underwriting, legal and other expenses incurred through the balance sheet date that are directly related to the intended initial public offering (“IPO”). Deferred offering costs will be charged to shareholders’ equity netted against the proceeds upon the completion of the IPO. Should the IPO prove to be unsuccessful, these deferred offering costs, as well as additional expenses to be incurred, will be charged to statements of income. Such costs will be deferred until the closing of the IPO, at which time the deferred costs will be offset against the offering proceeds and recognized in equity of the Company. The increase of $306,409 was due to additional payment for expenses for listing purpose during the six months ended June 30, 2024.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities represented the payable to the vendors for the course upkeep costs, credit cards charge payables, sales tax payables and property tax payable. Decrease in accounts payable and accrued liabilities balance by $187,834 or 38% from $495,930 as of December 31, 2023 to $308,096 as of June 30, 2024 was mainly due to the decrease in accounts payable by $112,339 as a result of settlement of payables to vendors outweighed the costs incurred to vendors during the six months ended June 30, 2024.
Contract liabilities – deferred revenue
Contract liabilities – deferred revenue represented the annual membership dues received in advance before the usage of golf course by the customers. The increase in this balance by $21,629 or 14% was mainly due to more annual membership dues being received in advance in the first half of 2024 to be used in the coming year.
Bank and Other Borrowings
The Company borrowed loans from various financial institutions for working capital purpose. Our borrowings are as follows:
Initiation date | Loan No. | Principal Amount | Maturity date | Fixed Interest Rate | June 30, 2024 | December 31, 2023 | ||||||||||||||
| May 13, 2020 | #1 | $ | 500,000 | April 13,2050 | 3.75 | % | $ | - | $ | 488,961 | ||||||||||
| May 17, 2022 | #2 | $ | 25,050 | August 1,2025 | 5.50 | % | 10,380 | 13,975 | ||||||||||||
| September 9, 2022 | #3 | $ | 150,000 | September 9, 2025 | 6.75 | % | 66,255 | 91,202 | ||||||||||||
| August 1, 2023 | #4 | $ | 87,199 | July 1, 2031 | 6.50 | % | 70,785 | 74,089 | ||||||||||||
| November 13, 2023 | #5 | $ | 120,000 | November 13, 2026 | 9.25 | % | 99,224 | 117,088 | ||||||||||||
| Total loans payable | 246,644 | 785,315 | ||||||||||||||||||
| Current portion | (109,334 | ) | (135,970 | ) | ||||||||||||||||
| Long-term portion | $ | 137,310 | $ | 649,345 | ||||||||||||||||
The overall decrease in bank and other borrowings was mainly due to the repayment of loans of $538,671 during the six months ended June 30, 2024.
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Operating lease liabilities
The operating leases liabilities represented the leases for corporate office, golf carts and golf equipment for terms of four to five years. The decrease in the operating leases – current was mainly due to the repayments during the six months ended June 30, 2024.
Amounts due to related parties
Amounts due to related parties consists of the following:
| Name | Relationship | Nature | June 30, 2024 | December 31, 2023 | ||||||||
| Mr. S. Cheung | Shareholder of the Company | Interest-free listing expense loans(1) | $ | 942,811 | $ | 520,964 | ||||||
| Mr. S. Cheung | Shareholder of the Company | Interest-free shareholder’s loans(2) | 617,272 | 472,272 | ||||||||
| Mr. C. P. Cheung | Shareholder and Director of the Company | Interest-free shareholder’s loans(2) | 493,917 | 377,817 | ||||||||
| Mr. C. P. Cheung | Shareholder and Director of the Company | Director’s remunerations(3) | 225,900 | 185,900 | ||||||||
| Mr. Y. C. Cheung | Shareholder of the Company | Interest-free shareholder’s loans(2) | 123,454 | 94,454 | ||||||||
| $ | 2,403,354 | $ | 1,651,407 | |||||||||
Notes:
| (1) | On September 7, 2023, Mr. S. Cheung, a shareholder of the Company, entered into a loan facility agreement with the Company that Mr. S. Cheung agreed to pay the listing expenses incurred for the initial public offering in Nasdaq on behalf of the Company before listing with a maximum principal amount of $1,000,000. Pursuant to the facility agreement, the loan is interest-free, unsecured and repayable on the earlier of the listing of our common stock on Nasdaq, or December 31, 2024. As of June 30, 2024 and December 31, 2023, amount of listing expenses paid by Mr. S. Cheung on behalf of the Company was $942,811 and $520,964. |
| (2) | On April 24, 2014, Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung entered into two shareholders’ loan agreements with Chrome Field I, Inc. and Chrome Field II, Inc., wholly-owned subsidiaries of the Company, respectively. Pursuant to the shareholders’ loan agreements, Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung agreed to grant shareholders’ loans at principal amounts of $1,307,619.69 and $1,447,739.16 to Chrome Field I, Inc. and Chrome Field II, Inc., respectively, in a proportion of 50%, 40% and 10%, respectively, in connection with the acquisition of Kissimmee Bay and Remington in 2014. Pursuant to the shareholders’ loan agreements, the loans are interest-free, unsecured and to repayable on demand. As of June 30, 2024, amount of outstanding shareholders’ loans owned by the Company to Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung was $617,272, $493,917 and $123,454, respectively. As of December 31, 2023, amount of outstanding shareholders’ loans owned by the Company to Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung was $472,272, $377,817 and $94,454, respectively. The increase was mainly due to the shareholders’ loans of $500,000 granted on April 15, 2024 which was offset by the repayments of shareholders’ loans by $210,000. |
| (3) | For the sake of compensating Mr. C. P. Cheung’s duties as CEO in the daily operations and management of golf operations of the Company, director’s remuneration was granted by the Company every year based on the performance of the Company. For the six months ended June 30, 2024 and 2023, the Company charged $40,000 and $110,000, respectively, as director’s remuneration to Mr. C. P. Cheung and recognized under salaries and benefits on the statement statements of income. The balance is interest-free, unsecured and repayable on demand. As of June 30, 2024 and December 31, 2023, outstanding director’s remuneration was $225,900 and $185,900, respectively. |
Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung signed an undertaking that no demand on repayment from the Company since December 31, 2022 and the balances will be fully settled upon listing of the Group.
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Cash Flows (For the Years Ended December 31, 2023 and 2022)
The following table summarizes our cash flows from operating, investing and financing activities:
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2023 | 2022 | Changes | ||||||||||
| Cash provided by Operating Activities | $ | 848,032 | $ | 576,256 | $ | 271,776 | ||||||
| Cash used in Investing Activities | $ | (251,389 | ) | $ | (207,582 | ) | $ | (43,807 | ) | |||
| Cash used in Financing Activities | $ | (643,500 | ) | $ | (364,781 | ) | $ | (278,719 | ) | |||
| Net change in cash and cash equivalents | $ | (46,857 | ) | $ | 3,893 | $ | (50,750 | ) | ||||
Cash Flow from Operating Activities
During the fiscal year ended December 31, 2023, our net cash provided by operating activities was approximately $848,032, primarily arising from net income of $386,128, and adjusted for non-cash items and changes in operating assets and liabilities. Adjustment for non-cash item mainly consisted of depreciation of $174,207 and unpaid director’s remuneration of $100,000. Changes in operating assets and liabilities mainly include (i) an increase in deferred tax assets of $162,557 due to $274,075 being recognized during the year for the NOLs and partially offset by the utilization of NOLs for the current year ended December 31, 2023 as mentioned above; (ii) an increase in accounts payable and accrued liabilities of $187,536 due to increase in accounts payable to vendors for the course upkeep costs; and (iii) an increase in contract liabilities of $138,973 due to a large portion of annual membership dues being received in the third quarter of 2023 for services to be used by customers partly in fiscal year 2024.
During the fiscal year ended December 31, 2022, our net cash provided by operating activities was approximately $576,256, which was driven by net income of $323,193, and adjusted for non-cash items and changes in operating assets and liabilities. Adjustment for non-cash item mainly consisted of depreciation of $163,371 and unpaid director’s remuneration of $30,000. Changes in operating assets and liabilities mainly include (i) a decrease in deferred tax assets of $99,765 due to the prior year tax credits; (ii) an increase in inventory of $33,742 due to an increase in unsold merchandise goods; and (iii) a decrease in accounts payable and accrued liabilities of $39,424 due to a decrease in accounts payable.
Cash Flows from Investing Activities
During the fiscal year ended December 31, 2023, cash flows used in investing activities were for the purchase of property and equipment and prepayment for acquisition of property and equipment of $147,953 and $103,436, respectively. The purchase and the prepayment for acquisition of property and equipment was due to payments for clubhouse renovations such as roof replacement, clubhouse exterior wall painting, down payment for a new pump station to replace the old one and down payment for a new air-conditioner system to be installed to replace the old one.
During the fiscal year ended December 31, 2022, cash flows used in investing activities were for the purchase of property and equipment of $207,582, it is mainly due to payments for the course renovations, roof replacement and bridge improvement.
Cash Flows from Financing Activities
During the fiscal year ended December 31, 2023, cash used in financing activities was the result of net repayments of related party loans of $514,136 and deferred offering costs of $252,964 offset by net proceeds from bank and other borrowings of $123,600.
During the fiscal year ended December 31, 2022, cash used in financing activities was the result of net repayments of related party loans of $466,000 offset by net proceeds from bank and other borrowings of $101,219.
Cash Flows (For the Six Month Ended June 30, 2024 and 2023)
The following table summarizes our cash flows from operating, investing and financing activities:
| For the Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2024 | 2023 | Changes | ||||||||||
| Cash provided by Operating Activities | $ | 394,512 | $ | 1,107,476 | $ | (712,964 | ) | |||||
| Cash used in Investing Activities | $ | (108,595 | ) | $ | (101,401 | ) | $ | (7,194 | ) | |||
| Cash used in Financing Activities | $ | (133,133 | ) | $ | (991,800 | ) | $ | 858,667 | ||||
| Net change in cash and cash equivalents | $ | 152,784 | $ | 14,275 | $ | 138,509 | ||||||
Cash Flow from Operating Activities
During the six months ended June 30, 2024, our net cash provided by operating activities was approximately $394,512, primarily arising from net income of $260,283, as adjusted for non-cash items and changes in operating assets and liabilities. Adjustment for non-cash item mainly consisted of depreciation of $100,038 and unpaid director’s remuneration of $40,000. Changes in operating assets and liabilities mainly include (i) a decrease in deferred tax assets of $124,310 due to the utilization of NOLs for the six months ended June 30, 2024; (ii) a decrease in accounts payable and accrued liabilities of $187,834 due to decrease in accounts payable as a result of settlement of payables to vendors outweighed the costs incurred to vendors; and (iii) an increase in contract liabilities of $21,629 due to more annual membership dues being received in advance in the first half of 2024 to be used in the coming year.
During the six months ended June 30, 2023, our net cash provided by operating activities was approximately $1,107,476, which was driven by net income of $936,217, and adjusted for non-cash items and changes in operating assets and liabilities. Adjustment for non-cash item mainly consisted of depreciation of $85,108 and unpaid director’s remuneration of $110,000. Changes in operating assets and liabilities mainly include (i) a decrease in accounts receivables of $23,472 due to decrease in revenues during the period end; (ii) a decrease in accounts payable and accrued liabilities of $19,691 due to more settlement of payables to vendors outweighed the costs incurred to vendors; and (iii) an increase in deferred tax assets of $36,918 due to recognition of deferred tax assets of $274,075 during the period for the NOLs and partially offset by the utilization of NOLs of $237,157 for the current period.
Cash Flows from Investing Activities
During the six months ended June 30, 2024, cash flows used in investing activities were for the purchase of property and equipment of $108,595. It was due to the purchase of pump station and the installation of new air-conditioner system.
During the six months ended June 30, 2023, cash flows used in investing activities were for the purchase of property and equipment of $101,401, it is mainly due to payments for the pump station and the course improvement.
Cash Flows from Financing Activities
During the six months ended June 30, 2024, cash used in financing activities was the result of deferred offering costs of $306,409 and repayments of bank and other borrowings of $538,671 and offset by net proceeds from related party loans of $711,947.
During the six months ended June 30, 2023, cash used in financing activities was the result of repayments of related party loans of $1,035,100 and net proceeds from bank and other borrowings of $43,300.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
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Capital Expenditures
We incurred capital expenditures of $251,389, $207,582, $108,595 and $101,401 for the years ended December 31, 2023 and 2022, and for the six months ended June 30, 2024 and 2023, respectively, which mainly related to the purchase of pump station, cooler and freezer, air-conditioning system, restaurant equipment and clubhouse improvements.
Contractual Obligations
Lease Agreements
The Company has six leases classified as right of use operating leases for corporate office, golf cars and golf equipment.
Future minimum lease payments under operating leases at December 31, 2023 were as follows:
| Year ending December 31, | ||||
| 2024 | $ | 230,865 | ||
| 2025 | 97,439 | |||
| 2026 | 47,482 | |||
| 375,786 | ||||
| Less imputed interest | (12,490 | ) | ||
| Operating lease liabilities | $ | 363,296 | ||
Future minimum lease payments under operating leases as of June 30, 2024 were as follows:
| Year ending December 31, | ||||
| 2024 (excluding six months ended June 30, 2024) | $ | 109,755 | ||
| 2025 | 88,566 | |||
| 2026 | 43,235 | |||
| $ | 241,556 | |||
| Less imputed interest | (6,672 | ) | ||
| Operating lease liabilities | $ | 238,884 | ||
Bank and other borrowings
Future minimum payments under bank and other borrowings at December 31, 2023 were as follows:
| Year ending December 31, | Total | |||
| 2024 | $ | 135,970 | ||
| 2025 | 128,162 | |||
| 2026 | 66,817 | |||
| 2027 | 12,423 | |||
| 2028 | 12,897 | |||
| Thereafter | 429,046 | |||
| $ | 785,315 | |||
Future minimum payments under bank and other borrowings at June 30, 2024 were as follows:
| Year ending December 31, | Total | |||
| 2024 (excluding the six months ended June 30, 2024) | $ | 54,321 | ||
| 2025 | 94,196 | |||
| 2026 | 49,225 | |||
| 2027 | 9,661 | |||
| 2028 | 10,456 | |||
| Thereafter | 28,785 | |||
| Total bank and other borrowings | $ | 246,644 | ||
Cash Flow Sufficiency
In order to meet the debt obligations and operating needs of our business, our management expects to satisfy the cash flow needs and through (i) maintaining stable relationships with banks in order to renew the bank borrowings upon maturity or to arrange for additional banking facilities for use when necessary; (ii) closely monitoring the collection status of accounts receivable and actively following up with our customers for settlements; (iii) diversifying and broadening our customer base to avoid reliance on particular customers and to expand our sources of revenue and cash flow; (iv) effectively managing accounts payable and negotiating for longer credit periods from suppliers, when necessary; (v) obtaining financial support from our Controlling Shareholder and investors to meet short-term operating expenses; and (vi) continuing to focusing on improving operational efficiency and cost reductions and enhancing efficiency.
The Company believes that, taking into consideration the present available banking facilities and internal financial resources we have, including the current levels of cash and cash flows from operations, and the measures mentioned above, will be sufficient to meet its anticipated cash needs for at least the next twelve months from the date of this report.
Quantitative and Qualitative Disclosure About Market Risk
Credit Risk
The Company’s principal financial assets are cash and cash equivalents and accounts receivables. The Company’s credit risk is primarily concentrated in its cash which is held with institutions with a high credit worthiness. The Company has not experienced losses on their accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
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The Company mitigates its credit risk on receivables by actively managing and monitoring its receivables. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. Since all accounts receivable as at years ended December 31, 2023 and 2022 and for the six months ended June 30, 2024 and 2023 are aged within one year and collected all receivables subsequent to year end, minimum credit risk was noted for accounts receivable.
Vendor concentration risk
As of June 30, 2024 and December 31, 2023 and 2022, the Company owed 81%, 85% and 84% of accounts payable to a key supplier, respectively.
For the six months ended June 30, 2024 and 2023, one vendor accounted for 31% and 28% of our total operating costs, respectively. No other vendor accounts for more than 10% of our total operating costs for the six months ended June 30, 2024 and 2023, respectively.
For the years ended December 31, 2023 and 2022, one vendor accounted for 31% and 32% of our total operating costs, respectively. No other vendor accounts for more than 10% of our total operating costs for the years ended December 31, 2023 and 2022, respectively.
For the three months ended June 30, 2024 and 2023, one vendor accounted for 35% and 30% of our total operating costs, respectively. No other vendor accounts for more than 10% of our total operating costs for the three months ended June 30, 2024 and 2023, respectively.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as its financial liabilities carry interest at fixed rates.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of twelve months, including through operations and financial support from our stockholders and financial institutions. We are continuing to focus on improving operational efficiency and cost reductions and enhancing efficiency, as well as servicing of financial obligations: this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Our ability to continue as a going concern is dependent upon obtaining the necessary financing or negotiating the terms of the existing short-term liabilities to meet our current and future liquidity needs.
Trend information
Other than as disclosed in “Risk factors” in this prospectus, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our operating revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily be indicative of future operating results or financial position.
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Overview
We own and operate two public golf country clubs in Florida that each feature a golf-club, consisting of over 289 acres of multi-service recreational property. Our golf country clubs include two golf-courses with over 13,000 yards of combined fairways, clubhouses boasting food and beverage options, aquatic golf ranges, and pro shops to assist any level of golfer. We believe our golf country clubs are a serene combination of approachable golf and nature that are designed to appeal to local residents and tourists alike. Both of our golf-courses are aesthetically complemented by nearby waterways of which we believe provide both our golf-courses with scenic backdrops and enhance our customers’ golfing experience. Our golf country clubs also host local golf leagues, golf-tournaments, and private events. We believe the natural elements and diverse challenges of our golf-courses, services and amenities offers a compelling value to our customers and will allow our facilities to maintain customer loyalty while being an attractive tourist destination in the greater Orlando Florida region. Moreover, we believe that “green fees” or entry fees at our golf-courses are priced affordably compared to Orlando’s resort area courses, and as a result are popular especially during our peak winter season in the greater Central Florida region. The property underlying both of our golf country clubs and the owner of that property is part of and subject to the Association, a not-for-profit corporation homeowners association. Leveraging our two golf country clubs, we plan to (i) continue to develop customer loyalty and capture a greater share of the golf-players who live in- or visit-the greater Orlando region and (ii) increase our revenue from the operation of our golf country clubs. We believe the quality of our golf-courses and the amenities we offer will continue to enhance our ability to attract and retain golf-players across a number of demographic groups and skill levels.
Each of our golf country clubs is organized into four principal business segments: (i) golf recreation, retail golf products, and equipment and facilities rental, (ii) membership dues, (iii) food and beverage services. and (iv) ancillary services and amenities. Each of the golf-courses featured at our golf country clubs present a different set of physical and strategic challenges depending on the layout and where we place the position of a ball-hole and flagstick on a green from time to time during the golf-season. We believe this variation helps to create an enjoyable experience for our customers, no matter how many times they have visited our golf-courses before. Our golf country clubs are less than a mile away from one another, providing our customers with an excellent option for a 36-hole day of golf at both of our facilities. Our customers will encounter similar elements at our golf-courses that may be found at most golf courses which include but are not limited to what we consider to be the essential parts of a golf-course: greens, fairways, and hazards—such as bunkers or the rough.
The “tee” is located in the “tee box” where each hole of a golf-course begins. The “green” is where the hole and flagstick are located. The “fairway” is a stretch of short grass between the tee box and the putting green. The goal of the game of golf is to get the golf ball from the tee, and into the hole on the green with the fewest strokes possible. Every hole of each course ends at the green. The tee box is a close-cut area of grass at the starting point of the hole. Our golf-courses have several tee boxes available for our customers to choose from based on a customer’s skill level. Usually, tees near the fairway are meant for beginners, while more advanced golf-players are better suited to hit a golf-ball from the back tees at the beginning of each hole on a golf-course. For example, our tee boxes are marked by colors which correlate to a recommended skill level to make it easy for our customers to decide where to start. Once a customer has chosen where to “tee off” or drive the ball towards the green, they can place a ball on a tee and take a swing.
Our golf-courses include a number of intentionally designed obstacles our customers should strategically avoid on the golf-course which are known as “hazards” or areas referred to “the rough”. We believe these hazards keep each round of golf interesting and challenging for our customers. Our customers should strategically avoid landing a golf ball near or on hazards such as water or bunkers, which are narrow pits filled with sand. Similarly, our customers should avoid hitting a ball near or around the rough, which is a manicured and longer-cut area of grass surrounding our fairways and greens because it is usually difficult and unpredictable to hit a ball from the rough. If a customer has their ball in the rough or in a sand trap, they often move the ball back to the fairway or into the green with golf country clubs known as sand wedges, lob wedges, or pitching wedges. However, if a customer cannot hit the ball, they must take a one-stroke penalty and either hit the ball again or drop their golf ball near the hazard, but not closer to the hole.
The grass we place on our greens is the most highly manicured area on the course. We maintain the greens so that the grass contained therein is short so that the ball can easily roll. Before a customer takes a shot on the green, they must read the ground conditions. To read the conditions of the green, a customer often makes note of the highest point on the surface because golf-putts (or shorter golf-ball taps) will usually roll away from that point. For example, sometimes wet, humid conditions like those in Florida will cause a green to slow a golf-ball down which may cause golf-putts to stick to the grass. Our greens superintendent regularly measures the rolling speed of our greens using a “stimpmeter” to assess the “stimp” of our putting greens which helps us determine whether additional topdressing of sand is needed on each of our greens to keep the roll fast and consistent. The stimp represents the numerical value that represents how fast the golf ball rolls on the putting surface while a “Stimpmeter” device is used to measure the speed of a golf course green by applying a known velocity to a golf ball and measuring the distance traveled in feet. The lower the stimp, the slower the greens while, the higher the stimp, the faster the greens. We believe manicuring the greens is important to our customers and that the manicured greens create a more enjoyable experience at our golf country clubs.
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We acquired both of our golf country clubs in 2014, and since then, our management team has grown alongside the business. Similarly, our revenue has increased steadily during the last five years due to efforts from our greens superintendent as well as the executive management team. We believe recent capital improvements at both golf country clubs will help the facilities and our golf-courses progressively grow in stature and reputation in order to keep up to date with future infrastructure needs that can meet future demand and structural wherewithal. As a result of these upgrades and our management’s plans for growth, we believe they have gained valuable experience and are well-equipped to take on additional assets and continue to enhance the performance of both golf country clubs since our initial acquisition in 2014. The following provides an overview of the unique features and services offered by both of our golf country clubs.
The Kissimmee Bay Country Club
The Kissimmee Bay Country Club (“Kissimmee Bay”), located south of Orlando, Florida, was designed by Clifton, Ezell & Clifton and hosts a par 71 18-hole course with five colored sets of tee boxes with increasing difficulty designated by color with a total yardage of 6,830, lined with oak trees that we believe date back a hundred years that blend with classic palm trees to anchor and frame the vistas across Kissimmee Bay. In 2017, we upgraded Kissimmee Bay’s greens with highly manicured “champion G12” grass, a new cultivar of champion ultradwarf Bermuda grass which now line the greens on Kissimmee Bay’s course. To that end, due to the course’s acclaimed beauty and value, in 2023 Kissimmee Bay was appropriately recognized and named by Golf Digest magazine as one of “Best Courses in Orlando under $100.”1
While open to the public daily, Kissimmee Bay is also intertwined with the local community through our membership in the Association and maintains 100 members as of June 30, 2024. It is specifically located in a neighborhood in Kissimmee, Florida near the intersection of Irlo Bronson Hwy (US192) and the Florida Turnpike. This golf-course opened for play in 1990 and is situated approximately fifteen minutes’ drive from Orlando International Airport and just west of East Lake Tohopekaliga. For the twelve months ended 2023, 40,623 rounds of golf were played.
In addition to standard recreational golf and related services, Kissimmee Bay guests enjoy accommodations that include a full kitchen, antique-display, bar, and banquet room where we offer what we believe are popular crowd-pleasing menu-items. Kissimmee Bay’s event space can comfortably seat large golf events as well as private events including weddings, galas, banquets, business meetings, and holiday parties. These events generate significant business for our club, and help to drive club visibility, while increasing our food and beverage sales and facility utilization. Kissimmee Bay’s clubhouse walls also feature a display adorned with rare golf antiques that we believe are rare in the golf world. Kissimmee Bay hosts a local rotary club’s weekly meetings which maintains possession of those golf antiques. The antiques are not held by Kissimmee Bay.
The Remington Golf Club
The Remington Golf Club (“Remington”) was designed by architects Clifton, Ezell & Clifton and hosts a par 72 18-hole course with five colored sets of tee boxes with increasing difficulty designated by color with a total yardage of 7,111. Remington is designed along hardwood trees, palm trees and classic and tropical flora and was built in 1996.
Remington Golf Club is specifically located in Kissimmee Florida near the intersection of Irlo Bronson Hwy (US192) and the Florida Turnpike. Remington opened for play in May 1996. Remington is also intertwined with the local community through our membership in the Association and has 33 members as of March 1, 2024. The average rounds of golf played per year at Remington is approximately 37,902.
Remington’s clubhouse features a full kitchen, a bar, a pro-shop and three of our offices. Remington offers customers a no-frills golf experience for casual recreational play. We offer hot and cold food options at Remington’s clubhouse.
The property underlying both of our golf country clubs and the owner of that property is part of and subject to the Association, a not-for-profit corporation homeowners association. The Association is the governing homeowners’ association which is responsible for the operation of the Kissimmee Bay community in which the Association’s voting membership is made up of owners, and in which membership is a mandatory condition of property ownership in the community. Each household within the association is entitled to cast one vote and the owner of our golf country clubs is entitled to cast ten votes at each Association meeting where Association-wide matters may be voted on. As of March 1, 2024, there were approximately 293 households in the Association and the golf country club owner’s vote represents approximately 3% of the total votes that may be cast. The Association is governed by a “Master Declaration of Covenants, Conditions, Restrictions, Easements and Reservations” for Kissimmee Bay (the “CCR”) that, among other things, (i) limits certain of our property use, (ii) imposes several reciprocal and non-reciprocal easements on us, (iii) outlines design guidelines on our property that we and the Association owners must adhere to and (iv) creates the Association that has the power to levy assessments and liens, review proposed architectural changes and govern common amenities. We provide club memberships to a group of legacy members who are part of the Association pursuant to the CCR who enjoy the lifestyle of patronizing Kissimmee Bay and Remington year-round. The Association’s CCR does not materially interfere with the ordinary course of business of the Company or any of its subsidiaries.
1 The best courses you can play in Orlando under $100. Golf Digest. (January 21, 2023). https://www.golfdigest.com/courses/guides/best-public-golf-courses-orlando-under-100-dollars
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Our Business Model
We are the manager and operator of golf country clubs just south of Orlando, Florida. We believe that our golf country clubs are designed to appeal to a wide-ranging population that attracts customers across a number of local and tourism-driven demographic groups. We believe the combination of our geographic location and approachable golf-courses allow us to capture a greater share of a broad base of customers’ discretionary leisure spending. We believe our golf country clubs are designed to provide customers with lush and serene backdrops where they can enjoy leisure and social activities.
Both of our golf-courses are conveniently located just south of Orlando, Florida and both Remington and Kissimmee Bay are an approximate 23-minute drive to popular attractions such as Walt Disney World Resort. Similarly, both our golf-courses are easily accessible via major highways and in close proximity to Orlando International Airport. According to Frost & Sullivan Limited, whom we commissioned in December 2023 to produce the Frost & Sullivan Report which covers and analyzes the golf club industry for a period of 2018-2022, Orlando, Florida is one of the most visited cities in the world for leisure travelers with domestic and international visitors combined rising from 111.8 million in 2018 to 137.4 million in 2022. Further, both our golf-courses are open for play to the general public provided, however, Kissimmee Bay and Remington maintain club memberships in order to provide exclusive benefits to those members, including but not limited to, reduced green and food and beverage fees. For the fiscal year ended December 31, 2023, Kissimmee Bay accounted for 55% of our total club revenue and business, Remington accounted for 45% of our total club revenue and business.
We are a service-oriented business, but we depend on a number of third-party suppliers in order to comprehensively operate our golf country clubs and its and supply our customers with enjoyable leisure experiences. Our large suppliers include equipment and service suppliers, all of whom are independent third parties. These third-party vendors include but are not limited to our golf-course maintenance, equipment, professional service providers, golf cart supplier, golf merchandise suppliers, and food and beverage suppliers. Moreover, as a leisure business, we do not depend on any individual customer. Instead, our primary goal is to continuously enhance our quality and services to ensure every customer has a positive experience in order to recommend and revisit either of our golf country clubs. Our golf-courses provide a broad variety of golf services to appeal to a diverse group of families and individuals who lead an active lifestyle and seek flexible access to a public golf-course near Orlando, Florida. Our operations are seasonal in nature, and we experience annual peak and shoulder seasons which are determined by the climate in Central Florida, as well as factors that we believe include regional and holiday-driven tourism, discretionary leisure spending associated with larger national or regional macroeconomic trends. The shoulder season is comprised of months before and after the peak season and historically includes mid-April to May, and October to December, while our peak season historically includes January through mid-April. Slow season historically takes place during Florida’s summers, inclusive of June through September. Our operations, services and revenue streams are organized into four principal business sectors: (i) golf recreation, retail golf products, and equipment and facilities rental, (ii) membership dues, (iii) food and beverage services. and (iv) ancillary services and amenities.
Golf Recreation
Green Fees. For the year ended December 31, 2023 and six months ended June 30, 2024, we generated approximately 72% and 69% of our gross revenue from collecting daily green fees which each golfer is charged for every round of eighteen holes that golfer plays, respectively. Green fee rates differ by the day of the week, time of day, or season. In both Kissimmee Bay and Remington, our club golf cart rentals are included with green fees which we believe allow our customers to traverse each round with ease and keep traffic flowing throughout our golf clubs. We also feature practice putting greens at both clubs in order for our customers to practice their short distance golf-games. Short-game is where golf-players practice finesse-related skills due to the need for accuracy over short distances. Practice greens, also called putting greens are included with green fees and are popular amongst those customers warming up before a round of golf. For the fiscal year ended December 31, 2022, and 2023, our green fees revenue increased from $2,079,741 to $2,475,133, respectively representing a year over year increase of approximately 19%. For the six months ended June 30, 2023 and 2024, our green fees revenue decreased from $1,805,123 to $1,529,229, respectively representing a period over period decrease of approximately 15%.
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Driving Ranges. Both Remington and Kissimmee Bay offer driving ranges for golfers to practice their long golf-game. Our driving ranges are unique because they are both aquatic ranges and provide an exciting opportunity for our guests to practice their long-range golf swings over waterways. In the long game aspect of golf that is practiced at our golf ranges, power and distance are required so that a golf-player’s ball can approach the putting green in as few strokes as possible. We believe our aquatic ranges offer our customers a dynamic experience distinct from traditional golf ranges due to the fact that our ranges require golfers to rent and drive a particular type of golf ball into a large body of water such as a lake or pond. To enjoy a successful aquatic driving range experience, customers often rent special types of floater range balls that are preferred when golfing at our unique ranges. We believe floater range balls are approximately 5% lighter to allow for flotation and are unlike traditional golf balls. We believe renting the aquatic balls to our customers is advantageous to our operations because they allow our golf country clubs to reuse the floater range balls at a higher rate than traditional golf balls and without high operational intensity. This is because, after a floater range ball is driven by a customer into the waterway, that ball is retrieved by club operations and reused with minimal effort as compared with those typically required to retrieve traditional golf balls from an extensive grass-based driving range.
As of the date of this prospectus, we sell our floater range balls at $9 per bucket to our customers. Part of our daily operations includes the retrieval and replenishment of floater range balls to limit inventory turnover and keep operations at our ranges running smoothly.
Retail Golf Products and Equipment and Facilities Rental
Pro shops. We maintain pro shops at both of our golf country clubs, which offer golf apparel, equipment, and information about our golf-courses. Our pro shops include unique retail options such as golf balls, golf-gloves, logoed hats and polos. At our pro shops, we only sell golf clubs on a prepaid custom-order-basis, which avoids our need to maintain a large inventory and prevents long turnovers of ordered equipment.
Golf product rental. We maintain multiple sets of new or gently used golf country clubs on premises for guest rental purposes. We annually purchase and replenish eight to ten sets of new Wilson Sporting Goods branded golf clubs to rent out to our Kissimmee Bay guests. Annually, any golf clubs over a year in age are transferred to Remington for customer rentals. Our annual replenishment of golf country clubs is designed to provide new clubs for rentals at both of our golf facilities. We believe, new golf clubs retain higher golf club rental rates and provide customers with a better golfing experience in order to generate reasonable returns for each golf club rental.
Golf cart rental. We leased approximately 76 golf carts from Yamaha Golf-Car Company (“Yamaha”) at each golf-course in January 2020. Historically, we have renewed our Yamaha leases every four years. However, in 2023 and due to Yamaha’s supply chain issues, our current golf cart leases have gone beyond four years. As of the date of this prospectus, we renewed our golf cart leases in the third quarter of 2024. Golf cart rentals are included in the price of green fees, and we believe including the golf carts with each round of golf provides our customers with a comfortable and enjoyable experience. We believe the use of golf carts at our golf country clubs allows our customers to swiftly and easily travel between the eighteen holes at each of our golf-courses without delaying or interfering with other customers use of the same golf-course.
Membership Dues
We provide club memberships to a group of legacy members who are part of the Association pursuant to the CCR who enjoy the lifestyle of patronizing Kissimmee Bay and Remington year-round. As part of that membership, our members pay an annual fee and in return have the ability to play unlimited rounds of golf at Kissimmee Bay and Remington throughout the year. Members also enjoy select discounts at Kissimmee Bay and Remington. Our overall revenue and future growth does not heavily rely on our members because we do not advertise our two membership programs at Kissimmee Bay and Remington. We believe more tee times for daily golfers will be freed up, particularly during peak seasons by not widely advertising our memberships.
We believe we have a great relationship with all of our members and in turn our members provide stable recurring revenue throughout the year. As of June 30, 2024, Kissimmee Bay had over 65 memberships and Remington had over 30 memberships. For the year ended December 31, 2023, and the six months ended June 30, 2024, membership dues totaled $168,723 and $150,380, respectively each of which represented approximately 5% and 7% of our total revenues.
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Food and Beverage Services
Our food and beverage services provide what we believe to be high-quality, freshly prepared food, snacks, and non-alcoholic and alcoholic beverages to our customer base. As of the date of this prospectus, both of our golf country clubs maintain liquor licenses issued by the state of Florida. Our chef, Michael Meaux, brings over ten years of culinary experience from a local restaurant close to Kissimmee Bay. At Kissimmee Bay, Mr. Meaux prepares freshly made menu items, ensuring our patrons enjoy a variety of food options. We receive fresh food materials from our vendors every week, which we believe ensures a consistent supply of ingredients. Bars at both clubhouses are a popular attraction, especially for those golfers looking to relax during their visit. Our bars serve as a central gathering place for members, golfers, and their guests. Additionally, we organize weekly evening residential events at both of our golf country clubs to provide members with special offerings and community benefits.
Golfers on our courses make up our primary customer base for food and beverages, who are often looking for a convenient meal after a round of golf. Alternatively, those interested in hospitality in our leisurely clubhouses also frequent our clubhouse restaurant. Food and beverage services are a highly profitable area for our operations, and we believe that by continually improving our menu and food quality while minimizing waste, we can maximize food and beverage sales. We aim to achieve a net margin of approximately 20% in our food and beverage services and believe this goal is particularly attainable at Kissimmee Bay because we offer daily lunch services with a focus on popular comfort food items prepared on-site by Chef Michael Meaux. Similarly, we believe our clubhouse bars offer hubs for socializing while our experienced bartenders foster a friendly and engaging atmosphere. We do not permit any of our customers to bring any outside alcoholic beverages onto either of our properties.
We also maintain beverage carts at each golf-club, which are operational on a seasonal basis. For example, our beverage carts are in operation every day during peak season. In shoulder seasons, they operate on weekends. In slower seasons, they operate upon request, typically for large tournaments or outings. Remington similarly offers hot and cold food along with drinks at the clubhouse bar.
For the fiscal years ended December 31, 2022 and 2023, food and beverage revenue increased from $517,694 to $682,281 or 19%, which accounts for approximate 18% and 19% of our total revenue, respectively. For the six months ended June 30, 2023 and 2024, food and beverage revenue decreased from $421,166 to $392,085, respectively representing a quarter over quarter decrease of approximately 7%.
Ancillary Services and Amenities
Outside of golfing, both of our golf country clubs provide a variety of additional amenities and services that we believe appeal to families and individual customers alike, such as well-appointed clubhouses, a variety of dining options, event and meeting spaces and outdoor gathering spaces. We believe our golf country clubs have quality facilities, a breadth of amenities and the ability to host several relevant functions and events.
Kissimmee Bay and Remington each have their own clubhouse, featuring a pro-shop, kitchen, bar, and dining area. At Kissimmee Bay, the kitchen and bar areas are larger than Remington and includes a dividable banquet room with a maximum capacity of 200 persons. This banquet room can be split into two smaller event spaces, allowing for simultaneous events. This banquet room is a rentable space for private events and related event services. We believe this strategic service offering capitalizes on the club’s scenic landscapes and spacious ballroom, which has rapidly gained popularity among couples seeking an extraordinary and scenic wedding experience. Our club offers a number of pre-planned and flexible packages, catering to the individual needs of each client to create a custom event. This ancillary service not only diversifies our revenue streams but positions us as a competitive operator in what we believe to be a lucrative event and wedding industry within the greater Orlando, Florida region. Remington’s clubhouse is smaller in comparison, but despite its size, it has a fully functional kitchen with a walk-in cooler and freezer.
We also annually host dozens of tournaments and outings at our golf country clubs under which we charge by the person for use of our golf-courses and driving range, if requested. We also charge an outside food service fee for those events where outside food is typically brought in, as well as other service-related fees associated with room rentals at our facilities. Customers that host events at our golf country clubs range from corporations to non-profits or local chapters of social clubs. As part of any tournament or outing, we provide the event with golf-club bag drop services, scorecards and placards with hole assignments for all participants included with the rented golf-carts. In order to provide stability for tournaments and outings, we require prospective events to pay at least two weeks ahead of the event. Moreover, if events are cancelled within ninety days of the event date, we require fifty percent of the event costs to be paid to make-up for any anticipated losses our golf country clubs may experience due to such cancellation.
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Our Operational and Competitive Strengths
Accessible and Convenient Locations. Kissimmee Bay and Remington are located near Orlando which we believe is one of Florida’s major cities known for its tourist attractions and populations, commerce, and densely populated residential areas. Because our golf country clubs are close to Orlando and major theme parks nearby, we believe both golf country clubs are in a better position to attract both local residents and tourists visiting the city than other golf country clubs located far beyond city-centers. We believe that many of the tourists visiting these attractions in greater Orlando Florida area are well-positioned to spend a day at one of our golf country clubs. The golf country clubs are both easily accessible via major highways, which makes locating our locations easy for visitors. Similarly, Orlando International Airport is only a thirty minutes’ drive away from both of our golf country clubs, which we believe adds convenience for international and out-of-state visitors.
Aesthetically Appealing Grounds. We believe both of our golf country clubs boast natural beauty due to their intentional design near and around bodies of waters and inclusion of mature trees. We believe that these aesthetic design considerations contribute to the allure of both of our golf-courses due to their scenic backdrops. Ultimately, we believe that if customers enjoy their surroundings while playing a round of golf, it will enhance their golfing experience and encourage future visits. In fact, Remington was built in the mid-1990s and designed by the Clifton, Ezell & Clifton Golf Design Group. We have uniquely designed both golf-courses with their own features such as abundant water, generous landing areas and scenic landscaping. For instance, Remmington uses a layout cut from an oak forest which makes its 6,830-yard, par-71 length not as long as some of the newer golf-courses. We believe the layout requires our customers to constantly plan their golfing strategy to achieve a good score so that each round of golf is unique. We believe this may promote a higher repeat customer rate at our golf country clubs. Kissimmee Bay also boasts a new champion dwarf G12 hybrid grass on each of its greens which we believe will help to roll golf balls very fast, with little resistance to the golf-player. This particular cultivar of grass features a smaller leaf blade, so it has less resistance against a golf-ball initially when a golf-player plays on that greens’ surface because the surface is smaller which we believe creates a desirable consistency on the putt from the beginning of the of the stroke all the way through to the hole. Because of the nature of these hybrid greens, we believe they will maintain their consistent smooth nature year-round, and these greens challenge even the most seasoned golfers.
Kissimmee Bay’s clubhouse walls also feature a display adorned with rare golf antiques that we believe are considered rare in the golf world. Kissimmee Bay hosts a local rotary club’s weekly meetings which maintains possession of those golf antiques. The antiques are not held by Kissimmee Bay.
Ownership and Control of Golf- and Country-Clubs. As the fee simple real estate owner of our golf country clubs, we believe that we have an advantage over other competing golf country clubs that do not own the land they operate on. Because we own the land we operate on outright, we retain the ability to maximize the value of our golf country clubs and business. Because we own the real estate underlying our golf country clubs, over the years we have been able to implement capital plans that inure to our benefit and generate positive returns on our investments without sacrificing equity in the underlying property. Owning our real estate assets also gives us the ability to recycle our capital by selling non-essential tracts of land. Additionally, we believe our ability to conceptualize, fund and execute country club renovations give us a significant competitive advantage over member-owned and individual privately-owned clubs, which may have difficulty gaining member consensus and financial backing to execute such improvements.
By way of background, we acquired both golf country clubs in 2014, a period when we believe the Florida golf industry faced significant challenges. At the time we acquired both golf country clubs we observed the conditions of both golf-courses were not optimal. However, due to the challenging period immediately after acquiring both golf country clubs, we believe the experience allowed us to learn how to efficiently manage costs while simultaneously increasing revenue. Since 2014, our management team has grown alongside the businesses, and we believe they have gained valuable experience. As a result, we believe we are now well-equipped to take on additional assets and enhance the performance of both golf country clubs even further.
Membership and in Public Golf-course Revenue Streams. As of the date of this prospectus we have a combined 100 members at both Kissimmee Bay and Remington. For the fiscal year ended December 31, 2022 and 2023, membership dues totaled $230,874 and $168,723, representing 7.67% and 4.75% of our total revenues, respectively. For the six months ended June 30, 2023 and 2024, membership dues totaled $142,548 to $150,380, representing 5.67% and 6.92% our total revenues, respectively. Unlike traditional membership clubs, our members pay an annual golf membership fee and enjoy unlimited golf. A significant portion of our members are residents of the Kissimmee Bay community, which is comprised of 297 households, with approximately 20% of those residents being club members. Because many of our club members live so close to our facilities, we believe our golf country clubs are an integral part of many of our members’ lives which has resulted in a high membership retention rate. Aside from individual member play, we organize a member-only league at Kissimmee Bay which hosts several matches throughout each week. In addition to the community aspects of club membership, members are eligible for a 10% discount on food and beverages at our golf country clubs. We believe the incentive promotes member spending and offers a more inviting experience in return for members loyalty. We value our members because they contribute to our steady revenue by frequenting and socializing at our golf-club bars throughout the day. This member-driven revenue through our food and beverage programs is particularly supportive during our slow seasons due to the fact that our business is highly seasonal.
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Hosting large golf leagues, outings and tournaments. We host weekly golf leagues at both of our golf country clubs, and annually accommodate dozens of small privately sponsored or hosted outings and large private tournaments, especially during our off-season. We charge each golfer participating in each of the leagues, outings, and tournaments that we host which plays a significant role in generating year-round revenue for our golf country clubs. Pricing for sponsoring outings, and tournaments is variable, with rates subject to the golf season each outing, or tournament is hosted in. To that end, we charge higher prices during peak seasons, and lower prices during low season. However, we often provide tournament discounts to our regular league participants who play at our golf country clubs year-round or return for tournaments on an annual basis, fostering long-term relationships with our clients. To maintain the quality of our services and avoid unnecessary interruption of free play, we typically avoid scheduling tournaments during peak season unless the tournament our outing host or sponsor is willing to pay a more premium price.
Committed Management Team and Specialized Consultancy Services. Our management team, led by Mr. S. Cheung our designated Executive Chairman, Mr. C. P. Cheung our Chief Executive Officer, and Mr. Austin St. John our director of golf, bring a wealth of management experience. We believe this experience has been demonstrated through our management’s commitment to excellence and their vital role in driving the Company’s growth since acquiring our golf country clubs in 2014. To bolster the management of our golf country clubs we have engaged DTE an independently contracted country club consultancy and golf maintenance company. Our engagement with DTE includes consultancy services for DTE to advise on, manage, and maintain our facilities which includes but is not limited to capital, staffing, accounting, marketing, landscaping, regulatory, and other operations at our golf country clubs on a weekly basis (the “DTE Agreement”). Under the DTE Agreement, a business development manager consults directly at each of our properties twice a week where course and facility inspections are completed, and recommendations are provided to our executive team in order to best maintain our golf operations. As of the date of this prospectus, the DTE Agreement, as supplemented is set to expire at the beginning of the fourth quarter of 2027.
Our Growth Strategies
We plan to continue to promote, market, manage and operate our golf country clubs with the intent to (i) attract and retain customers across a number of demographic groups to further develop customer loyalty and capture a greater share of customers in the greater Orlando Florida region and (ii) increase revenue from managing and operating our golf country clubs.
We believe attracting and retaining customers while increasing customer engagement and loyalty by providing the highest quality golfing experience will drive our revenue. Drivers of our revenue growth will require further steps to maintain and build on quality experiences at our golf country clubs. To achieve the foregoing, we intend to use the following strategies as more fully described below:
| ● | Renovate and modernize our golf country clubs to promote more enjoyable use of our facilities; | |
| ● | Retain new regional customers by word-of-mouth or positive reviews via social media platforms and in proportion with the residential population growth of the surrounding greater Orlando Florida region through marketing efforts; and | |
| ● | Expand our portfolio through regional country club acquisitions. |
Club Renovation
Over fiscal years 2014 through 2022, we invested certain of our total revenues in our golf country clubs to maintain existing facilities and upgrade, replace, and build new facilities and amenities that focus on enhancing our customer experience. Through capital investment we have sought to renovate our facilities to provide customers with a modern golf-club experience to enhance our facilities. We believe that enhancing our facilities will promote higher usage, and customer engagement to ultimately result in additional ancillary spend, such as food and beverage purchases, and improved customer and brand loyalty. We estimate the need to invest approximately $1.2 million to renovate our golf country clubs over the course of the twelve months ending December 2025. With our planned renovations, we intend to bring a mixture of features in order to update our clubhouses and grounds so they remain contemporary. Upgrades we are considering at Remington and Kissimmee Bay include improved banquet rooms to provide more dining options or act as an enhanced private event space, enhanced golf-course greens and irrigation to revitalize our landscaped grounds, a repaved parking lot, and facilities upgrades designed to improve our members’ experience such as remodeling our recreational bar areas, restrooms and pro-shop.
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Long-term Growth of Residential Community
Residential communities surround both of our golf country clubs and we believe they often refer one another via word of mouth after a positive experience at our golf country clubs. Based on our experience, word-of-mouth advertising has the lowest customer acquisition cost and is most effective way of attracting new customers. Anecdotally, we have noticed many of our customers have social media platforms to share information of their experiences at our golf country clubs. If our customers positively report our golf-course conditions and their experience on their social media platforms, we believe this segment of organic social media content is very powerful in terms of our marketing purposes. This strategic position provides us with a local customer base, allowing nearby residents to become regular patrons and contribute to our golf country clubs consistent revenue. We believe this organic customer acquisition is, in part, due to the limited number of golf courses in the local communities surrounding our golf country clubs. To that end, so long as we are able to offer a positive experience to our new customers, we believe we will be able to earn their trust as repeat customers.
Additionally, we note the recent surge in population growth in the area and throughout Florida, particularly driven by high-net-worth individuals and retirees relocating from the north. This demographic shift, combined with the announcement of a new development adjacent to the Kissimmee Bay community with over 3,000 low-density housing units planned, presents a significant opportunity to tap into a potentially larger golfing population. We have periodically obtained feedback from our customers to understand the market preference and believe we can capitalize on the influx of residents and their word-of-mouth referrals to facilitate the growth and customer retention of our golf country clubs.
Acquisitions
We believe the growth of residential population provides us a significant growth opportunity in pursuing acquisitions to expand our portfolio of clubs and variety of amenities. We believe our management team is capable of running multiple golf country clubs because they have grown alongside our company since 2014. We believe that the unique benefits we have to offer, such as a policy which does not assess members for capital improvements as well as our ability to consummate acquisitions and improve operations, provide us a unique competitive advantage in pursuing potential transactions. We believe there are many attractive acquisition opportunities available, and we continually evaluate and selectively pursue these opportunities to expand our business. We plan to actively communicate with other club operators, their lenders and boards of directors who may seek to dispose of their golf-club properties or combine membership rosters at other club locations. We also evaluate joint ventures and management opportunities that allow us to expand our operations and increase our recurring revenue base without substantial capital outlay. If we do make strategic acquisitions, we plan to do so only after an evaluation to satisfy ourselves that we can add value given our external growth experience, facility assessment capabilities, operational expertise and economies of scale.
Golf Industry Overview
All information and data presented in this “Golf Industry Overview” section have been derived from Frost & Sullivan Limited’s (“Frost & Sullivan”) industry report covering the golf club industry for a period of 2018-2022 commissioned by us entitled “The Golf Country Clubs Market” (the “Frost & Sullivan Report”) unless otherwise noted. Frost & Sullivan has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. None of these industry sources are affiliated with us, and the information contained in this report has not been reviewed or endorsed by any of them. While we have not independently verified the data and information contained therein and such data and information may have been collected using third-party methodologies, we believe that the data and information, including projections based on a number of assumptions, from these third-party publications and reports used in this prospectus is reliable. However, the industry in which we operate may not grow at the rate projected by market data, or at all. Industry publications, research, surveys, studies, and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. The following discussion contains forecasts for future growth, which may not occur at the rates that are projected or at all. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus.
OVERVIEW OF GOLF COUNTRY CLUBS MARKET IN THE UNITED STATES
Definition and Classification
Certain golf country clubs are private clubs that offer its members access to a range of recreational facilities and social activities, while others remain public or are a hybrid blend of both publicly and privately accessible. Typically, country clubs are located in suburban or rural areas and offer amenities such as golf-courses, tennis courts, swimming pools, fitness centers, spa facilities, dining areas, and event spaces. As further described herein, business segments of golf country clubs could be classified into (i) golf recreation and golf product retail, (ii) membership dues and green fees, (iii) food and beverage, and (iv) ancillary services and amenities.
Golf Recreation and Golf Product Retail – Revenue is generated from collecting daily green fees which are charged to a single golfer for every round of eighteen holes that golfer plays and driving ranges are also offered to golfers to practice their long golf-game. It also includes the sales of golf apparel and equipment, and rental of golf products and cars.
Membership Dues and Green Fees – Golf country clubs typically charge an upfront membership fee or green fees, giving members or customers access to the club’s facilities and services for a set period of time or on a daily basis at the point of sale.
Food and Beverage – Food and beverage services at golf country clubs go beyond catering to the basic needs of golfers. They contribute to the overall enjoyment and social aspect of the golfing experience, providing members and customers with a satisfying culinary experience in a relaxed and welcoming environment.
Ancillary Services and Amenities – In addition to golfing facilities, golf country clubs often offer a range of ancillary services and amenities to enhance the overall experience for members and customers. These services include all or some combination of leisure activities hosted in an on-premises clubhouse, kitchen, bar, and dining area.
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Value Chain
The value chain relating to the operations and revenue by golf country clubs include three stages (i) upstream value, (ii) midstream value and (iii) downstream value.
Source: The Frost & Sullivan Report
Upstream Value:
In the upstream of country golf clubs, infrastructure, technology systems and procurement are the prerequisite for a golf country club. The development, maintenance, and improvement of physical infrastructure, including the golf-course, clubhouse, parking facilities, cart paths, practice facilities, and other amenities. Technology systems, such as golf-course management software, tee time reservation systems, point-of-sale systems, website and online booking platforms, and customer relationship management tools, play a crucial role in streamlining operations, improving communication, and enhancing the overall efficiency of the golf club. This aspect of the value chain also involves sourcing and managing relationships with suppliers and vendors to ensure the availability of quality products and services, such as golf equipment, food and beverages, golf carts, maintenance materials, and event supplies.
Midstream Value:
Golf-course management, clubhouse operations and golf operations are at the midstream of value chain. Golf-course management involves the management and maintenance of the golf-course itself. It includes activities such as turf care, irrigation, landscaping, pest control, bunker maintenance, and overall course conditioning. Clubhouse operations focus on the management of the clubhouse facilities and services which include food and beverage operations, event planning and management, member and customer services, locker room facilities, pro shop management, and administrative functions. “Golf Operations” refers to the fundamental activities and services associated with golf provided to members and customers which encompasses managing tee times, offering golf instruction and coaching, overseeing golf cart operations, providing club fitting and repair services, organizing golf events, and handling tournament operations. The objective is to ensure efficient golf operations and offer a range of services tailored to meet the needs of golfers.
Downstream Value:
The provision of customer services is at the downstream of the value chain. Customer service encompasses delivering exceptional service and elevating the overall experience for both members and customers. This involves engaging in activities such as providing personalized attention, ensuring efficient check-in procedures, employing friendly and knowledgeable staff, maintaining responsive communication, organizing member-exclusive events and activities, and effectively managing feedback. Prioritizing a positive and memorable experience is essential for fostering customer satisfaction and fostering long-term loyalty.
Market Size
The market size of the golf country club industry in United States increased from $34.5 billion in 2018 to $37.1 billion in 2022, representing a CAGR of 1.8%. Rising household incomes and wealth levels in the United States have fueled the growth of the golf country club industry, as middle-Series And affluent consumers have more disposable income and are spending more on leisure activities, particularly golf. Golf country clubs strategically located within larger real estate developments benefit from positive trends in surrounding property markets, as population growth and increased home sales create a larger target customer base. Going forward, the market size of golf country clubs in United States is estimated to grow at a CAGR of 3.2% from 2023 to 2028.
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Source: The Frost & Sullivan Report
Favorable golf tourism trends, both domestically and internationally, have become a significant market driver for the golf country club industry in the United States, especially in states like Florida, where recreational tourism is thriving. As warmer climate states with premier golf resorts and courses attract tourists looking to combine travel with golf, there has been an increased demand and premium pricing power for golf country clubs that market to visiting golf-players and secure a sustainable stream of revenue from various fees and amenities.
Golf country clubs with event facilities and amenities also benefit from the growing trend of corporate entities seeking unique venues for meetings, conferences, retreats, and client entertainment, as golf provides an optimal environment for relationship-building and business networking, allowing clubs to offer a distinctive platform for organizations aiming to drive sales opportunities and foster positive affiliations, thereby diversifying revenues beyond traditional golfing streams. The market size of golf country clubs industry in Florida increased from $2,360.1 million in 2018 to $2,597.5 million in 2022, at a CAGR of 2.4% and the market size of golf country clubs industry in Florida is expected to reach $3,277.9 million in 2028, at a CAGR of 3.9%.
Source: The Frost & Sullivan Report
Market Drivers Analysis
Rising Household Incomes and Wealth in the United States: Rising household incomes and wealth levels in the United States have proven to be a significant market driver for the golf country club industry in recent years. As middle-Series And affluent consumers have more disposable income, they are spending more on recreation and leisure activities. Golf, in particular, has benefited, as it is seen as an aspirational sport that grows in appeal as incomes rise. With the median household income in the United States increasing from $63,179 in 2018 to approximately $74,580 in 2022, representing a CAGR of approximately 4.2% during 2018 to 2022 and United States households’ real median net worth reaching new highs by attaining $192,900 in 2022, more families have the means to afford country club memberships, golf equipment, lessons, and rounds on premier courses. The expanding target market of consumers with discretionary income to allocate towards golf bodes well for established country clubs and new entrants alike. Furthermore, the number of high-net-worth individuals (with minimum net worth of $1 million) in the United States has increased robustly from 5.7 million in 2018 to 7.4 million in 2022, substantiating a growing targeted population. With projections of continued GDP growth and rising wages, the golf country club industry stands to further capitalize on Americans’ increasing wealth and desire for lifestyle experiences.
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Domestic Demand in Strategic Location within Adjoining Property Development: For golf country clubs strategically located within larger real estate developments, positive trends in surrounding property markets present a significant market driver. As increased home sales and ongoing urban development drive population growth in the surrounding community, the target customers for the club can continuously and naturally expand along with the growth in the size of the community. Competent golf country clubs exert tight integration with their surrounding neighborhood, which provide salience and convenience that can aid customer acquisition and retention efforts. Overall, the inherent strategic alignment with the prosperity of the real estate development fuels mutually beneficial growth, and for a club immersed within an expanding residential area, rising neighborhood popularity and home values lift prospects alongside general economic factors.
Favorable Golf Tourism Trends in Florida: Favorable golf tourism trends, both domestic and international, have emerged as a key market driver for the golf country club industry in the United States and particularly in states where recreational tourism is thriving such as Florida. Golf vacations and golf destination travel have grown steadily in popularity over the past decade. Warmer climate states such as Florida and Arizona that offer premier golf resorts and courses have benefited immensely from the influx of tourists looking to combine travel with their passion for golf. With Orlando being one of the most visited cities in the world for leisure travelers with domestic and international visitors combined rising from 111.8 million in 2018 to 137.4 million in 2022, its golf clubs stand to gain from the millions of tourists coming through each year. Whether amateur golf-players looking to test out famous courses or pros competing in events, a rising tide of golf travelers provides year-round demand and premium pricing power for golf country clubs smart enough to market to visiting golf-players. As global wealth rises and golf gains popularity internationally, more foreigners are also traveling to the United States specifically to play golf. Golf country clubs can thereby secure sustainable streams of revenue from monetizing publicly facing golf-courses through daily green fees, golf product rental fee, golf cart rental fee, membership fees and other ancillary facilities and amenities fee. Such a wave of golf tourism provides a profitable source of customers and visibility for public golf country clubs across the country.
Burgeoning Demand from Corporate Events: As corporate entities seek unique venues to conduct meetings, host conferences, organize retreats, and entertain clients, golf country clubs equipped with event facilities and amenities have proven to be opportune beneficiaries of this trend. The sport of golf provides an optimal environment for relationship-building, business networking, and client entertainment. Thus, golf country clubs offer a distinctive platform for organizations aiming to utilize corporate gatherings as a catalyst for driving sales opportunities and fostering positive affiliations. Additionally, robust economic expansion coupled with strong corporate profitability has enabled firms to allocate greater budgets for corporate events and team building initiatives. With Orlando already being recognized as a foremost destination for business travel and conferences, golf country clubs in that region are exceptionally situated to capitalize on the influx of corporate event demand from local and visiting enterprises. This growing tendency provides profitable prospects for country club owners to diversify revenues beyond traditional golfing streams.
Growing Popularity of Golf and Youth Golf Programs: As golf witnesses a renaissance with younger demographics taking up the sport especially in the United States, golf country clubs are well positioned to leverage this trend through memberships, equipment sales, instruction, and social events tailored to new golfers. Furthermore, by cultivating future generations of club members and customers through youth golf initiatives and academies, country clubs can sow loyalty among junior golf-players who may form long-term connections. With family-friendly amenities beyond just golf, golf country clubs can make the most of golf’s rising popularity by capturing a larger share of discretionary spending and leisure time of new golfers and families attracted to the breadth of offerings. As momentum around golf builds, country clubs stand ready to welcome both new golf-players brought in by the sport’s resurgent appeal and junior golf-players signing up for youth programs, thereby propelling the golf country club market in the United States.
Market Trends and Opportunities Analysis
Increasing membership flexibility and variety: In response to shifting participant preferences, golf country clubs are increasingly offering more flexible membership structures. Variations such as monthly payment options, weekday/ weekend- only, seasonal sign-ups, and à la carte amenity access provide alternatives to long-term contracts for new members who desire more variability, allowing golf country clubs to attract participants who may not initially want full annual memberships yet can still partake in some offerings. Flexible passes grant trial opportunities that can convert to upgraded commitments over time. The ability to accommodate variable frequency of use and customized privilege levels helps expand the golf country club’s audience while still generating consistent revenue across the calendar year from a larger collective membership base.
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Renovation and technological innovation: By modernizing clubhouses, updating course conditions, and refurbishing amenities, golf country clubs can increase satisfaction among existing members and customers and reduce churn while also enticing prospective members and customers. Similarly, employing technology across operations, from mobile platforms to virtual golf simulators, helps golf country clubs improve member and customer convenience and accessibility. Investments in facilities and technology enable clubs to stay competitive in the market by meeting rising expectations. Clubs located near tourist destinations can especially stand out by promoting recent upgrades and new tech features to potential visiting customers. Accordingly, renovations and technology integration provide opportunities to refresh a club’s appeal, align with participant preferences, and strategically position the business for growth within its competitive landscape.
Experiential activities and casual ambiance: By offering family-oriented amenities, diverse dining options, entertainment, and events within an approachable and modern setting, golf country clubs can appeal to new generations of potential members. A relaxed atmosphere helps position the club as a welcoming hub for gathering and recreation versus being perceived as stuffy or pretentious. For clubs located near tourist hubs, promoting a vibrant calendar of family activities and approachable vibe can be highly effective in drawing visitors eager to find accessible leisure experiences. With creative programming, multi-faceted facilities, and modern sensibilities, clubs can transform into well-rounded lifestyle and entertainment venues suited for today’s family. In turn, the ability to deliver an engaging collection of amenities within a casual environment full of energy presents an avenue to seize greater market shares.
Market Risk Analysis
Rising operational costs: Staffing, facilities upkeep, equipment/fleet, amenities, and materials represent substantial recurring costs for clubs. As broader inflation mounts and competition for labor intensifies, the operating leverage of clubs has come under pressure. For diversified clubs with multiple facilities and amenity offerings, the amplified overhead presents financial management difficulties. Therefore, the lack of vigilant attention to operational efficiency and cost control dynamics could lead to budget overruns of golf country clubs. As rising costs industry-wide have already forced some clubs into financial distress or closure, persisting prudence and agility around managing overhead and cash flows is paramount. Developing differential advantages that members and customers will pay premiums for can offset some inflationary impacts, but ultimately containing costs would be pivotal for sustaining success.
Seasonality and dependency on macroeconomic trends and tourism: In general, recreational activity including golf and country club activities is highly associated with tourist activity and discretionary leisure spending. Downturns in the broader economy or disruptions such as pandemic outbreaks can highly and adversely disrupt the near-term business volumes. In terms of seasonality, peak-season spikes leave clubs pressed to accommodate surges, while off-season lulls strain budgets with reduced revenues. Proactive cost management and revenue diversification can help golf country clubs endure periodic demand contractions and succeed in peak seasons. Overall, developing resilient year-round revenue streams by offering varied amenities and building local member bases provide to a certain extent mitigation against seasonality.
Competition from private club and virtual golfs: In the golf country club market, some advanced or well-off customers may begin to look for exclusivity and prestige of private memberships over public or semi-private clubs, where semi-private golf country club may need to maintain competitive edge to secure customer loyalty. Similarly, virtual simulation golf options present increasing competition for recreational time and spending especially amongst the younger generation. Combating competition on both fronts may require efforts to heighten the tangible value proposition through upgrades, programming and marketing the unmatched social experiences and service levels.
COMPETITION OVERVIEW OF GOLF COUNTRY CLUBS IN UNITED STATES
The golf country club industry in the United States is competitive with than more 16,000 clubs in United States in 2022. Competition among golf clubs can be fierce, as they strive to attract and retain members in the area around location, course quality, facilities and amenities, membership structure and fees, member services and experience, marketing and branding. In 2022, there were more than 1,200 golf-courses in Florida, which collectively host more than 48 million rounds on a yearly basis.
Key market participants of golf country clubs in Florida are as follows:
| ● | Seminole Golf Club |
| ● | Adios Golf Club |
| ● | Jupiter Hills Club |
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Entry Barriers
Financial capability: Golf country clubs can incur significant upfront investments in construction, maintenance and promotional marketing. For instance, constructing a more than 10-hole course and upscale clubhouse can easily cost upwards of ten or more million dollars. After construction, ongoing expenses for landscaping, facilities/equipment upkeep, staffing and member services can tally millions more per year. Accordingly, entry-stage golf country clubs must have access to substantial financing and investors who are willing to invest in upcoming renovation and expansion. The high fixed costs and operating leverage associated with entry-stage golf country clubs amplify risk for new entrants relative to established clubs with stable cash flows from existing memberships and customer loyalty. The considerable capital reserves mandatory to fund the operation possess extreme financial barriers to new entrants.
Established competition: Incumbent golf country clubs with deeply rooted reputations and expansive membership and customer bases pose imposing barriers to entry for new market participants, especially in developed golf destinations like Orlando. With a high density of golfers and established clubs, the competitive environment is particularly challenging for unproven entrants. Without reputation or record, convincing Orlando golfers to switch their loyalty at well-established golf country clubs in favor of a relatively unknown golf country club is highly challenging. To realistically vie for market share, new golf country clubs must deliver differentiated services and incentives that adequately offset the tradition and familiarity offered by existing options.
Marketing and customer inertia: New golf country clubs must spend substantial time and money to market and promote their less familiar brands. To gain comparable recognition, new golf country clubs must invest heavily in advertising and outreach to build brand awareness. Even after achieving baseline visibility, new entrants still face the task of convincing satisfied customers of other golf country clubs to defect. Removing this customer inertia requires compelling messaging on prestige, and amenities that existing golf country clubs may not be able to match. With limited marketing budgets, new golf country clubs may struggle to create buzz and establish a status that competes with the trust and familiarity bred by legacy golf country clubs over decades. The combination of brand anonymity and customer allegiance poses dual marketing hurdles for new golf country clubs.
Factors of Competition
Strategic Location: In the golf country club market, selecting a site proximal to affluent residential communities grants access to an existing cluster of prospective customers. For instance, a golf country club that is proximate to hotels, entertainment hubs, airports and other amenities offers convenience for customers if positioned near a tourist destination. A customer friendly ambience and picturesque natural settings that features forests, hills and water bodies further enhance a golf country club’s location. Similarly, being equidistant between major metro areas allows a golf country club to draw customers from multiple areas. For longstanding golf country clubs, the history and prestige of an excellent original location often becomes part of their identity and brand because in an industry where setting matters greatly, securing an optimal location is key for success and limiting competition.
Hospitality and Service Culture: Orlando’s deep tourism industry underscores the importance of an ingrained hospitable mentality among employees and proactive customers and member engagement. With a view to maintaining competitive edge in terms of employee quality, maintaining rigorous hiring standards, intensive training in catering to customer needs, and continual monitoring of customer satisfaction enables building trust and community vital for customer retention. With outdoor recreation like golf inherently focused on enjoyment, hospitality factors will feature prominently when customers are differentiating between a more elevated experience versus a simple transactional competition among golf country.
Market Know-How: An in-depth understanding of consumer needs and market trends is one of the key points for competitors to sustain their business in the United States golf country club industry. Knowledgeable management can tailor customer options, offerings, marketing and operations to resonate with local cultures and capture regional, and international demand trends. A comprehensive perspective of customer preferences, regional nuances, and economic landscapes within a target market provides a strategic advantage to any golf country club. As such, expertise cannot be replicated easily and as quickly as physical assets, market know-how represents a success factor based on a golf country club’s patient accumulation of institutional knowledge.
Golf-course Design and Clubhouse Facilities: The quality of the core golf and clubhouse offerings fuels word-of-mouth buzz and conveys market position of a golf country club. In particular, constructing a challenging yet visually appealing course and outfitting a well-constructed clubhouse is pivotal for a successful business, because the golfing amenities and facilities directly determine perceived value of a golf country club. For instance, matching excellent golf-course conditions with upscale locker rooms, diverse dining options, swimming pools, gyms, event space and guest rooms provide an all-inclusive country club experience. The foregoing collectively contributes to the perceived value of a golf country club and is considered a key success factor.
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Competition
Our Company competes in a sporting and leisure-based industry tied to consumer discretionary spending. We believe that we compete for these discretionary consumer dollars against such businesses as amusement parks, spectator sports, ski and mountain resorts, fitness and recreational sports centers, gaming and casinos, hotels and restaurants. We believe most of our competition is regionally or locally based and the level of competition for both of our golf country clubs depends on their golf facilities, location and proximity relative to the location of our customers. We believe competitors of ours include six well-known public golf-courses within a two-hour drive from our golf-courses and that many of these local competitors have clubhouses with large banquet rooms and modern greens, with most of them being constructed approximately a decade ago. One of these six competitors include our closest competitor Royal St. Cloud Golf Links which is approximately a 20-minute drive from both of our golf country clubs. The remaining five competing golf country clubs include the Ritz-Carlton Orlando Grande Lakes, Disney’s Magnolia Golf Course, Shingle Creek Golf Club, Waldorf Astoria Golf Club – Signia, and Celebration Golf Club.
According to the Frost and Sullivan Report, the golf country club industry in United States is competitive with than more 16,000 clubs in United States in 2022. Frost & Sullivan Report further states that competition among golf country clubs can be fierce, as they strive to attract and retain members in the area around each golf-club’s location, course quality, facilities and amenities, membership structure and fees, member services and experience, marketing and branding. According to the Frost & Sullivan Report, there were more than 1,200 golf-courses in Florida, which collectively host more than 48 million rounds on a yearly basis in 2022.
To stay competitive, we have made significant improvements at Kissimmee Bay, upgrading its greens to the newest Champion G12 greens in 2017 and contracting DTE for golf-course maintenance. As a result, Kissimmee Bay’s golf-course condition has noticeably improved in recent years. However, our clubhouse, including the banquet room and parking lot, requires substantial upgrades to align with the quality of our golf-course and provide a consistent experience to our customers. Once these upgrades are completed, we believe we will be better positioned to compete with our competitors, especially given our affordable pricing.
At Remington, the greens have never been upgraded and are susceptible to diseases and mutations due to their age. To remain competitive in the greater Orlando region, we overseed our greens during peak golf season. Seeding involves applying new grass seeds on our greens to cover any dormant Bermuda greens on our golf-courses. We believe this seeding process nourishes our greens in order to maintain their condition for golfers. Additionally, we keep our green fees relatively competitive to the market for example,:
Our structured green fees for the end of the shoulder season during early to mid-January 2024* is as follows:
| Golf-Club | Weekday | |||||||||||||||
| Morning | Prime Afternoon | Twilight | Late Afternoon | |||||||||||||
| Kissimmee Bay | $ | 69.95 | $ | 39.95 | $ | 29.95 | $ | 24.95 | ||||||||
| Remington | $ | 54.95 | $ | 39.95 | $ | 29.95 | $ | 24.95 | ||||||||
| Golf-Club | Weekend | |||||||||||||||
| Morning | Prime Afternoon | Twilight | Late Afternoon | |||||||||||||
| Kissimmee Bay | $ | 84.95 | $ | 39.95 | $ | 29.95 | $ | 24.95 | ||||||||
| Remington | $ | 64.95 | $ | 39.95 | $ | 29.95 | $ | 24.95 | ||||||||
Our structured green fees for the peak season during mid-January through April 2024* is as follows:
| Golf-Club | Weekday | |||||||||||||||
| Morning | Prime Afternoon | Twilight | Late Afternoon | |||||||||||||
| Kissimmee Bay | $ | 84.95 | $ | 59.95 | $ | 34.95 | $ | 24.95 | ||||||||
| Remington | $ | 74.95 | $ | 49.95 | $ | 34.95 | $ | 24.95 | ||||||||
| Golf-Club | Weekend | |||||||||||||||
| Morning | Prime Afternoon | Twilight | Late Afternoon | |||||||||||||
| Kissimmee Bay | $ | 84.95 | $ | 59.95 | $ | 34.95 | $ | 24.95 | ||||||||
| Remington | $ | 74.95 | $ | 49.95 | $ | 34.95 | $ | 24.95 | ||||||||
| * | Rates are subject to change due to market conditions and competitor rates during each period stated above. |
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We upgraded the greens in both Remington and Kissimmee Bay in the third quarter of 2024 because we believe this improvement will attract more golfers and make their golfing experience more enjoyable. While Remington’s clubhouse layout may not accommodate large banquet events, we believe improving the golf-course conditions may lead to an increase in our daily golfers and seasonal tournaments.
We recognize the competitive landscape of the golf industry in the greater Orlando region and plan to take steps to enhance the aesthetics and function of both our golf-courses and facilities to remain competitive in our local market because we believe it will attract a broader customer base.
Sales and Marketing
We promote our golf country clubs through marketing and partnerships with tee-time booking platforms that are designed to appeal to our existing members and prospective members. We primarily use digital media marketing channels including social media and digital advertising services where we purchase and boost certain of our digital advertisements on social media platforms, such as Facebook to drive traffic to our well-designed websites or tee-time booking partners. Boosting our digital advertisements promotes visibility of our digital advertising which we believe drives internet engagement to our websites. Additionally, we strategically engage Google Ads Services during certain periods during each golf-season and believe both Kissimmee Bay and Remington have achieved high rankings on Google searches generally related to “Kissimmee” and “golf”. Moreover, during past peak seasons, we purchased additional Google keyword search advertisements to maintain our visibility and prevent competitors from securing top positions in search results for similar search terms.
In addition to traditional digital marketing, we partner with one of the preeminent tee-time booking platforms GolfNow.com, managed by GolfNow Inc., (“GolfNow”). GolfNow maintains an online reservations and revenue management platform featuring our golf-courses among others. In fact, we believe GolfNow’s booking and search engine is a dominant platform in the Florida golf market, making it easy for golfers to find our golf country clubs and book tee times at our golf-courses through GolfNow mobile App. GolfNow also provides our management with operational dashboards, email databases of our customers, and reports regarding the status of tee times at our golf country clubs. We believe we are able to leverage this insight to increase retail bookings and revenue through the insight GolfNow provides. Not only can we easily track tee times and improve any ongoing deals to our golfing clientele, we are also able to make promotional announcements to GolfNow’s email listserv once a month. With this insight, we have collaborated with GolfNow to advertise three barter tee times on the GolfNow platform daily. GolfNow sells these barter tee times at prices lower than our publicly published rates.
Other of our marketing partners include two golf wholesale vendors, Tee Times USA and Golfpac Travel. We have partnered with these wholesale vendors in order to attract a significant percentage of golfers during our peak season. Both wholesale vendors have circulated promotion emails to their large customer-base around the country and advertised our golf-courses on their social media platforms.
Seasonality
Our golf country clubs operations are seasonal in nature and we anticipate that our golf country clubs will experience annual seasonality. Due to the warm weather in Florida, our peak season begins in the first quarter, starting in January and running through mid-April. Our shoulder seasons include the second and fourth quarters. We historically see that our revenue significantly declines during the third quarter because of the humid and hot weather in Florida. However, during our peak season, we typically host over 200 golfers per day every day for approximate 90 days in a row. During the peak season, both international and national tourists visit Florida for a golfing vacation.
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After our peak season, golfing tourism noticeably slows however, our membership dues provide revenue that is historically less affected by seasonality than our green fees from those non-member golfers. We believe non-member local golfers are more particular than tourists about which times of the year they will- or will not-golf. To that end, keeping our golf-courses in good condition during both peak and non-peak season is key to attracting and engaging local patrons so they may view our golf country clubs favorably and become repeat customers at our golf-courses. As a result of these factors, we anticipate we will annually generate a disproportionate share of our revenues and cash flows in the peak season of each year or during quarter one and have lower revenues and profits in Central Florida’s warmer months such as during the third quarter.
Regulations
General. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wage requirements, overtime and other working conditions and citizenship requirements. Some of the Company’s resort and golf-course employees may receive the federal minimum wage and any increase in the federal minimum wage would increase the Company’s labor costs.
Our Company is subject to numerous federal, state and local governmental regulations, including those relating to the preparation and sale of food and alcoholic beverages, sanitation, public health, fire codes, seating capacity, and building requirements. Each of our golf-course clubhouses requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each clubhouse requires food service licenses from local health authorities. Our licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of employees or patrons who may serve or be served alcoholic beverages, the serving of alcoholic beverages to visibly intoxicated patrons, advertising, wholesale purchasing and inventory control. The failure of a restaurant to retain liquor or food service licenses could have a material adverse effect on operations. In addition, the Company is subject to certain state “dram-shop” laws, which provide a person injured by an intoxicated individual the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual.
The Company is also subject to the Americans with Disabilities Act of 1990, the Equal Employment Opportunity Act and the Age Discrimination in Employment Act and similar state laws. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. We are also subject to regulation by the United States Occupational Safety and Health Administration and similar health and safety laws in Florida. These regulations impact a number of aspects of operations, including golf-course maintenance and food handling and preparation. Our facilities, website and operations are subject to the Americans with Disabilities Act (the “ADA”). The rules implementing the ADA have been further revised by the ADA Amendments Act of 2008, which included additional compliance requirements for golf facilities and recreational areas. The ADA generally requires that we remove architectural barriers when readily achievable so that our facilities are made accessible to people with disabilities. Noncompliance could result in imposition of fines or an award of damages to private litigants. Federal legislation or regulations may further amend the ADA to impose more stringent requirements with which we would have to comply.
Homeowners’ Association. Our properties are subject to the rules and CCR of the Association which consist of various restrictions or guidelines regarding use and maintenance of the property, including, among others, easements, rights-of-way, restrictions, Association assessments and similar charges or encumbrances that do not materially interfere with the ordinary course of business of the Company or any of its Subsidiaries.
Environmental, Health and Safety. Our facilities and operations are subject to a number of environmental laws. As a result, we may be required to incur costs to comply with the requirements of these laws, such as those relating to water resources—including the health of ponds and littoral shelves on our properties, discharges to air, water and land, the use and storage of various hazardous materials such as herbicides, pesticides, fertilizers, batteries, solvents, motor oil and gasoline, handling and disposal of solid and hazardous waste, and the cleanup of properties affected by regulated materials. Under these and other environmental requirements, we may be required to investigate and clean up hazardous or toxic substances or chemical releases from operated facilities. Our facilities are also subject to inspection by the South Florida Water Management District (“SFWMD”), a regional governmental district that oversees water resources in sixteen counties in Central and South Florida. The SFWMD works to improve the Kissimmee River and its floodplain, Lake Okeechobee and South Florida’s coastal estuaries where our properties are located. The SFWMD has made recommendations to our Company to improve the overall health of the littoral shelves on our properties, such as recommending we plant additional native aquatic plants around our ponds and lakes. These planting recommendations are subject to a “Permit Mitigation Plan” the SFWD has prescribed for Osceola County, Florida—where our properties are situated. Pursuant to that Permit Mitigation Plan it is also recommended we remove any unwanted invasive plants that can cause concerns to nearby homeowners and to the overall health of littoral shelves on our properties. The planting is intended to help control water flow during rain events on our property as to assist with treatment of the waters flowing into the nearby waterways before discharging into those waterways. We continue to review the SFWMD’s Permit Mitigation Plan as guidance and plant native aquatic plants accordingly with the recommendations stated therein.
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Environmental laws typically impose cleanup responsibility and liability without regard to whether the relevant entity knew of or caused the presence of the contaminants. We use certain substances and generate certain wastes that may be deemed hazardous or toxic under such laws, and under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removing hazardous substances that are released on or in its property and for remediation of its property. Such laws often impose liability regardless of whether a property owner or operator knew of, or was responsible for, the release of hazardous materials. In addition, the failure to remediate contamination at a property may adversely affect the ability of a property owner to sell such real estate or to pledge such property as collateral for a loan. The Company believes that it is in compliance in all material respects with applicable federal, state and local environmental laws and regulations and may from time to time in the future incur, costs related to cleaning up contamination or hazardous materials resulting from historical uses of certain of our current or former properties or our treatment, storage or disposal of wastes or hazardous materials at Company facilities. Our facilities are also subject to risks associated with mold, asbestos and other indoor building contaminants. The costs of investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use, transfer or obtain financing for our property. We may be required to incur costs to remediate potential environmental hazards, mitigate environmental risks in the future, or comply with other environmental requirements.
Zoning and Land Use. The ownership and operation of our facilities, as well as our re-development and expansion of clubs, subjects us to federal, state and local laws regulating zoning, land development, land use, building design and construction, and other real estate-related laws and regulations.
Other. We are also subject to various local, state and federal laws, regulations and administrative practices affecting our business. As of the date of this prospectus, we complied with provisions regulating environmental protection, water usage, health and safety standards, equal employment, minimum wages, and licensing requirements and regulations for the sale of food and alcoholic beverages and clubhouses.
Our Employees
As of the date of this prospectus, we had approximately 40 employees, all of whom are full-time employees. Our employees are non-unionized. We believe we have a good working relationship with our employees and have yet to experience an interruption of business as a result of labor disputes.
The following table sets forth the breakdown of our employees by function as of the date of this prospectus:
| Functional Area | Number of Employees(1) | ||
| Pro Shop | 6 | ||
| Golf Operations | 21 | ||
| Food and Beverage | 13 | ||
| Total | 40 |
| (1) | This figure does not include our approximately thirteen independently contracted employees of SSS Down to Earth Opco, LLC, as of the date of this prospectus. |
Description of Property
Our principal premises are located at 2995 Remington Blvd. Kissimmee, FL 34744. We own the underlying real estate for both of our golf country clubs consisting of over 289 acres of fee simple real estate.
As of the date of this prospectus, we believe our corporate office space at Remington Golf Club is well maintained and occupies sufficient space to meet our operating needs.
The following tables illustrate our golf country clubs by segment, location, type of club, and size in terms of golf holes.
| Golf Country Clubs Segment by Region | Type of Club | Market | State | Golf Holes | ||||||||||||
| Kissimmee Bay Country Club | Public Golf Country Club | Kissimmee | FL | 18 | ||||||||||||
| Remington Golf Club | Public Golf Country Club | Kissimmee | FL | 18 | ||||||||||||
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Insurance
We believe that our properties are covered by adequate property, casualty and commercial liability insurance with what we believe are commercially reasonable deductibles and limits for our industry. In addition, although we carry flood insurance on our properties in an amount and with deductibles that we believe are commercially reasonable, such policies are subject to limitations in certain active flood zones. Certain of the properties in our portfolio are located in areas known to be active flood zones. See “Risk Factors-Risks Related to Our Business and Operations-The level of insurance coverage that we purchases may prove to be inadequate”. Changes in the insurance market over the past few years have increased the risk that affordable insurance may not be available to us in the future. While we believe that our insurance coverage is adequate, if we were held liable for amounts and claims exceeding the limits of our insurance coverage or outside the scope of our insurance coverage, our business, results of operations and financial condition could be materially and adversely affected.
Intellectual Property
We are committed to protecting our intellectual property and, where appropriate, filing trademark applications to protect our brand. Since our establishment, we have focused on building an established brand for our golf-courses to achieve brand recognition and to increase our market share. We believe that increased brand awareness will increase our sales margins and improve customer loyalty. We have consistently marketed our golf-courses under the “Kissimmee Bay Country Club” and “Remington Golf Club” brands. While there can be no assurance that we can successfully register or maintain ownership for trademarks under those names, we are not currently aware of any facts that would negatively impact our continuing use of any of the foregoing tradenames.
We rely on trademarks and registered domains to protect our intellectual property rights and as of the date of this prospectus, we have three United States trademark applications pending with the United States Patent and Trademark Office, and ten registered domain names.
Trademarks
We have filed the following United States trademarks as of the application dates noted below:
| No. | Trademark | Owner | Country | Serial Number(s) |
Class | Application Date | ||||||
| 1. | Kissimmee Bay Country Club | FSC Clearwater LLC | United States | 98310045, 98310046 | (i) International Class 041: Country clubs; Entertainment in the nature of golf outings and golf tournaments; Golf club services; Golf courses; Golf fitness instruction; Golf instruction; Organization of golf tournaments; Providing golf facilities International
(ii) Class 043: Providing social meeting, banquet and social function facilities; Rental of banquet and social function facilities for special occasions, namely, weddings, corporate events, and parties; Restaurant services |
12/12/2023 | ||||||
| 2. | Remington Golf Club | FSC Clearwater II LLC | United States | 98326337 | International Class 041: Country clubs; Entertainment in the nature of golf outings and golf tournaments; Golf club services; Golf courses; Golf fitness instruction; Golf instruction; Organization of golf tournaments; Providing golf facilities International. |
12/21/2023 |
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Domain names.
We have registered and have the right to use the domain names listed below in the United States. We believe these domains allow golfers to easily find us on internet search engines and any other tee-time booking platforms. Domain names are generally renewable every year or every two years upon expiring.
| Number | Issue Date | Expiration Date | Registration Agency | Domain Name | Owner | |||||
| 1 | 10/23/2023 | 10/23/2026 | GoDaddy Operating Company, LLC. | aureusgreenway.com | Aureus Greenway | |||||
| 2 | 8/10/2022 | 8/10/2027 | GoDaddy Operating Company, LLC. | golf-kissimmee.com | Aureus Greenway | |||||
| 3 | 4/22/2021 | 4/22/2026 | GoDaddy Operating Company, LLC. | golfkissimmeebay.com | Aureus Greenway | |||||
| 4 | 4/22/2021 | 4/22/2026 | GoDaddy Operating Company, LLC. | golfremington.com | Aureus Greenway | |||||
| 5 | 1/29/2023 | 1/29/2025 | GoDaddy Operating Company, LLC. | kissimmee-golf.com | Aureus Greenway | |||||
| 6 | 11/5/2015 | 11/5/2024 | GoDaddy Operating Company, LLC. | kissimmeebay.golf | Aureus Greenway | |||||
7 |
9/3/2009 | 9/3/2025 | GoDaddy Operating Company, LLC. | playgolfinkissimmee.com | Aureus Greenway | |||||
| 8 | 4/28/2017 | 4/29/2025 | GoDaddy Operating Company, LLC. | playgolfinremington.com | Aureus Greenway | |||||
| 9 | 2/3/2018 | 2/4/2025 | GoDaddy Operating Company, LLC. | playgolfremington.com | Aureus Greenway | |||||
| 10 | 11/5/2015 | 11/5/2024 | GoDaddy Operating Company, LLC. | Remington.golf | Aureus Greenway |
Corporate History and Structure
In connection with this offering, we have undertaken a reorganization of our corporate structure in the following steps, collectively referred to as the “Reorganization Transactions”:
| ● | On May 23, 2023, Mr. S. Cheung and Mr. Y. C. Cheung transferred their entire issued share capital in Pine Ridge to Mr. C. P. Cheung in consideration of an aggregate of $100.00; |
| ● | On December 22, 2023, Aureus Greenway was incorporated under the laws of the State of Nevada; |
| ● | On January 17, 2024, Mr. C. P. Cheung, as the sole shareholder of Pine Ridge and the Company entered into an agreement and plan of share exchange whereby Mr. C. P. Cheung exchanged the entire issued share capital in Pine Ridge for 5,440,000 shares of common stock of the Company. Based on the equity interests exchanged in the foregoing agreement, Pine Ridge become a wholly-owned subsidiary of the Company; and |
| ● | On January 17, 2024, Mr. C. P. Cheung, and Chrome Fields entered into an assignment agreement, pursuant to which Mr. C. P. Cheung, assigned his right to receive shares of common stock of the Company through under that share exchange comprised of 5,440,000 shares of common stock of the Company to Chrome Fields. |
The following diagram illustrates our corporate structure as of the date of this prospectus and upon completion of this offering based on a proposed number of 3,000,000 shares of common stock being offered and the resale of 750,000 shares of common stock by the Selling Stockholders. All percentages reflect the voting ownership interests instead of the equity interests held by each of our stockholders given that each holder of common stock is entitled to one vote per one share of common stock and each holder of Series A Preferred Stock is entitled to twenty votes per one share of Series A Preferred Stock.
| (1) | Mr. C. P. Cheung has sole voting and dispositive power over the shares held by Chrome Fields Asset Management LLC. |
| (2) | Mr. S. Cheung has sole voting and dipositive power over the shares held by Ace Champion Investments Limited. |
| (3) | Mr. Y. C. Cheung and Ms. C. Lee have joint voting and dipositive power over the shares held by Trendy View Assets Management. |
For details of our principal stockholders’ ownership, please refer to the beneficial ownership table in the section captioned “Principal and Selling Stockholders.”
Legal Proceedings
From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to breach of contract, and labor and employment claims. As of the date of this prospectus, we are not a party to, and we are not aware of any threat of, any legal or administrative proceeding that, in the opinion of our management, is likely to have any material and adverse effect on our business, financial condition, cash flow, or results of operations.
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Set forth below is information concerning our directors, director nominees, and executive officers.
| Name | Age | Position(s) | ||
| Mr. C. P. Cheung | 56 | Director and Chief Executive Officer | ||
| Mr. S. Cheung | 52 | Designated Director and Chairman of the board of Directors | ||
| Mr. Sam Wai Sing Lui | 35 | Chief Financial Officer | ||
| Director Nominees: | ||||
| Mr. Kay Hwa Tang* | 64 | Independent director nominee | ||
| Mr. Joshua Tay* | 57 | Independent director nominee | ||
| Ms. Xinyue Jasmine Geffner * | 51 | Independent director nominee |
*Appointment to take effect on the effective date of this prospectus
The following is a brief biography of each of our executive officers, directors, and director nominees:
Mr. C. P. Cheung
Mr. C. P. Cheung is our executive director and Chief Executive Officer, and is responsible for overall operation and management of our business and formulation of our business plans and growth strategies.
Mr. C. P. Cheung worked at Deutsche Bank as Chief Operating Officer, Americas, Loan Exposure Management Group between May 1999 and April 2014. Previously, he worked at Bear Stearns & Co between August 1994 and May 1999 in the Financial Analytics and Structure Transaction Group. Mr. C. P. Cheung worked at Soros Associates between March 1993 and August 1994 involved in commodities transportation logistics modelling. Mr. C. P. Cheung obtained his bachelor’s degree in science from the University of California, Berkeley, California in 1992 and his executive MBA from the University of Connecticut, Stamford in 2008.
Mr. S. Cheung
Mr. S. Cheung is our designated executive director and Executive Chairman of the board and is responsible for daily operation and management of our Company. Mr. S. Cheung attained his bachelor’s degree in business administration from Boston University in December 1996. Prior to joining our Group as an executive director in 2024, since May 2000 Mr. S. Cheung has worked as associate director at UOB Kay Hian (Hong Kong) Ltd., where he provides brokerage and financial counseling services to clients on equity and derivative products. Prior to working at UOB Kay Hian, Mr. S. Cheung worked as a dealer representative in the institution sales department of Bank of China International Securities Ltd. from March 1997 to May 2000.
Mr. Sam Wai Sing Lui
Mr. Lui is our Chief Financial Officer and has served in this role since November 2023.
Mr. Lui is responsible for the following matters relating to our Group:
| ● | financial reporting of our managing accounting operations, statutory financial audit reporting and coordinating corporate tax submissions; | |
| ● | preparation of budget and financial forecasts; and | |
| ● | development and implementation of financial policies and procedures in business process. |
Mr. Lui has approximately 7 years’ professional experiences in auditing. From December 2020 to September 2023, Mr. Lui worked as a financial controller at Zeal Technology Solutions Limited, where he was in charge of financial analysis and reporting. He served as company secretary for Guan Chao Holdings Limited, a Hong Kong-listed company (stock code: 1872) and company secretary for Cool Link (Holdings) Limited, a Hong Kong-listed company (stock code: 8491), from January 2018 and from March 2017 to September 2020, respectively. From January 2015 to January 2017, he worked as a senior auditor at Deloitte Touche Tohmatsu. Prior to that, Mr. Lui worked as an assistant manager at BDO Limited from June 2011 to January 2015, where he was engaged in placing and acquisitions projects, audit for various listed companies in Hong Kong and overseas audit in New York. From June 2009 to February 2011, Mr. Lui worked as audit assistant at Philp Poon & Partners CPA Limited, where he performed annual audit to multi-national companies and small and medium size companies.
Mr. Sam Lui obtained his bachelor’s degree in business administration from Lingnan University in Hong Kong in 2009. He is a member of Hong Kong Institute of Certified Public Accountants.
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Independent Director Nominees
Mr. Tang Kay Hwa
Mr. Tang is an independent director nominee and will begin serving as an independent director immediately upon the effectiveness of this registration statement. Mr. Tang will serve as the chairman of the compensation committee and as member of the audit and nominating and corporate governance committees.
Mr. Tang currently holds key management positions in business administration and finance. Since September 2006, he has served as the chief executive officer of Centurion Investment Management (H.K.) Ltd., a family office managing private equity investments. Prior to that, from May 2002 to August 2006, Mr. Tang served as deputy managing director of UOB Kay Hian (Hong Kong) Ltd., where he managed the merged stockbroking unit of Overseas Union Bank and United Overseas Bank Singapore. From April 1997 to May 2002, Mr. Tang served as managing director of OUB Securities (H.K.) Ltd., where he managed the stockbroking unit of Overseas Union Bank Singapore.
Mr. Tang obtained his bachelor’s degree in business administration from the University of Hawaii (Manoa) in 1983.
Mr. Joshua Tay
Mr. Tay is an independent director nominee and will begin serving as an independent director immediately upon the effectiveness of this registration statement. Mr. Tay will serve as the chairman of the nominating and corporate governance committee and as member of the compensation and audit committees.
Mr. Tay is currently the chairman of the board of director of Neugen Fund, a charity fund primarily focuses on solving inter-generational offending since March 2022. He also serves as the independent board director of Nam Lee Pressed Metal Industries Limited, as chairman of its nominating committee and a member of the its audit and compensation committees.
Since September 2016, Mr. Tay serves as the member of the investment subcommittee for Titular Roman Catholic, Archbishop of Singapore. He is responsible for providing investment strategy recommendations for the Archbishop of Singapore and risk guidelines and controls. He has also been the member of the bursary committee for Yellow Ribbon Fund since January 2016.
Prior to that, from June 1996 to February 2012, Mr. Tay served as a managing director of JP Morgan Asset Management. From 1994 to 1996, he served as the marketing support at Paribas Asset Management. From 1993 to 1994, he served as an investment analyst at Nationsbanc Capital Market.
Mr. Tay obtained his Bachelor of Science degree with a major in Finance from Indiana University in 1993.
Ms. Xinyue Jasmine Geffner
Ms. Geffner is an independent director nominee and will begin serving as an independent director immediately upon effectiveness of this registration statement. Ms. Geffner will serve as the chairman of the audit committee and as member of the compensation and nominating and corporate governance committees.
Ms. Geffner is currently holding key management position in accounting and finance. She serves as chief financial officer of Dorsett Hospitality International Services Limited (part of HKSE: 0035.HK) since February 2019. She served as chief financial officer of GreenTree Hospitality Group Limited on the New York Stock Exchange (NYSE: GHG) from 2017 to 2018.
Ms. Geffner has been an independent director and chairwoman of the audit committee of Tristar Acquisition I Corp (NYSE:TRIS) since August 2023 and an independent director of NWTN INC. and sits on the latter’s compensation committee as well as the strategy and environmental social and governance (ESG) committee since November 2022. She was an independent director of the China Finance Online Co. Limited (Nasdaq: JRJC) from May to November 2021. She was an independent director of AG Semiconductor (Hong Kong) Ltd. from April 2013 to April 2017. Prior to that, from 2014 to 2016, she served as chief financial officer of Carnival Group International Holdings Limited (HKSE: 0996.HK). From 2008 to 2011, she was a director of corporate and institutional banking in ANZ Hong Kong. From 2005 to 2008, she worked for HSBC as a head of China business development and as a vice president of the consumer and retail group in New York.
Ms. Geffner obtained her Bachelor of Business Administration with a major in international marketing and finance from City University of New York in 1994, and a Master of Business Administration degree majoring in finance and accounting from New York University in 1997. She is a certified public accountant in Washington State, USA as well as in Hong Kong and is also a chartered financial analyst.
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Family Relationships
Mr. C. P. Cheung and Mr. S. Cheung are brothers . Mr. C. P. Cheung and Mr. S. Cheung are each the son of Mr. Y. C. Cheung and Ms. C. Lee. Mr. Y. C. Cheung and Ms. C. Lee are each shareholders of the Company beneficially owning more than 10% of our issued and outstanding shares of common stock as of the date of this prospectus.
Board of Directors
Our board of directors will consist of five directors upon closing of this offering, three of whom will be “independent” within the meaning of the corporate governance standards of the Nasdaq listing rules and will meet the criteria for independence set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act.”)
Director Independence and Financial Experts
Under the rules of the Nasdaq Stock Market, within one year of our initial public offering a majority of our board members must qualify as independent directors if we are not a “controlled company.” Although we are a “controlled company.” Our proposed board of directors will still include a majority of three independent directors and two non-independent directors upon completion of the offering. Although we are a controlled company, we do not intend to avail ourselves of the exemption available to controlled companies from having a majority of our board members qualify as independent directors pursuant to the rules of the Nasdaq Stock Market, and we intend to maintain a majority of independent directors following an initial public offering. Upon the effectiveness of this registration statement, our independent directors will be Mr. Tang Kay Hwa, Mr. Joshua Tay, and Ms. Xinyue Jasmine Geffner. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Any affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Our board of directors will review and approve all affiliated transactions with any interested director abstaining from such review and approval.
Ms. Xinyue Jasmine Geffner qualifies as an “audit committee financial expert” as defined under the rules and regulations of the SEC.
Board Leadership Structure and Risk Oversight
Our board of directors actively manages the Company’s risk oversight process and receives periodic reports from management on areas of material risk to the Company, including operational, financial, legal, and regulatory risks. The committees of the board of directors will assist the board of directors in fulfilling its oversight responsibilities in certain areas of risk. The audit committee will assist the board of directors with its oversight of the Company’s major financial risk exposure. The compensation committee will assist the board of directors with its oversight of risks arising from the Company’s compensation policies and programs. The nominating and corporate governance committee will assist the board of directors with its oversight of risks associated with board organization, board independence, and corporate governance. While each committee will be responsible for evaluating certain risks and overseeing the management of those risks, the entire board of directors will continue to be regularly informed about the risks.
Committees of the Board of Directors
Prior to the consummation of this offering, our board of directors intends to establish three committees under the board of directors prior to the closing of this offering: an audit committee, a compensation committee, and a nominating and corporate governance committee. The appointment to the committees will be effective immediately upon the effective date of the registration statement of which this prospectus forms a part. Each committee will adopt a charter approved by the board of directors. Copies of each charter will be posted on the Corporate Governance section of our website at www.aureusgreenway.com. The board may also establish other committees from time to time to assist our Company and the board of directors. Upon the effectiveness of the registration statement of which this prospectus is a part, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq and SEC rules and regulations, as applicable. Upon our listing on Nasdaq, each committee’s charter will be available on our website at www.aureusgreenway.com. Our website and the information contained on, or that can be accessed through, our website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. Each committee’s members and functions are further described below.
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Audit committee
Mr. Tang Kay Hwa, Mr. Joshua Tay, and Ms. Xinyue Jasmine Geffner, our independent director nominees will each serve on the audit committee, which will be chaired by Ms. Xinyue Jasmine Geffner. Our board of directors has determined that each are “independent” for audit committee purposes as that term is defined by the rules of the SEC and Nasdaq, and that each has sufficient knowledge in financial and auditing matters to serve on the audit committee. Our board of directors has designated Ms. Xinyue Jasmine Geffner as an “audit committee financial expert,” as defined under the applicable rules of the SEC. The audit committee’s responsibilities include:
| ● | appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm; | |
| ● | approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm; | |
| ● | reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements; | |
| ● | reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us; | |
| ● | coordinating the oversight and reviewing the adequacy of our internal control over financial reporting; | |
| ● | establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns; recommending, based upon the audit committee’s review and discussions with management and our independent registered public accounting firm, whether our audited financial statements shall be included in our Annual Report on Form 10-K; | |
| ● | monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters; | |
| preparing the audit committee report required by SEC rules to be included in our annual proxy statement; | ||
| ● | reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; and | |
| ● | reviewing earnings releases. |
The audit committee will operate under a written charter, which satisfies the applicable rules of the SEC and the listing standards of Nasdaq, and which will be available on our website. All audit services to be provided to us and all permissible non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm will be approved in advance by the audit committee.
Compensation committee
Mr. Tang Kay Hwa, Mr. Joshua Tay, and Ms. Xinyue Jasmine Geffner, our independent director nominees will serve on the compensation committee, which will be chaired by Mr. Tang Kay Hwa. Our board of directors has determined that each such member satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The compensation committee’s responsibilities include:
| ● | evaluating the performance of our chief executive officer in light of our Company’s corporate goals and objectives and based on such evaluation: (i) recommending to the board of directors the cash compensation of our chief executive officer, and (ii) reviewing and approving grants and awards to our chief executive officer under equity-based plans; | |
| ● | reviewing and recommending to the board of directors the cash compensation of our other executive officers; | |
| ● | reviewing and establishing our overall management compensation, philosophy and policy; | |
| ● | overseeing and administering our compensation and similar plans; | |
| ● | reviewing and approving the retention or termination of any consulting firm or outside advisor to assist in the evaluation of compensation matters and |
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| ● | evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in the applicable Nasdaq rules; | |
| ● | retaining and approving the compensation of any compensation advisors; | |
| ● | reviewing and approving our policies and procedures for the grant of equity-based awards; | |
| ● | reviewing and recommending to the board of directors the compensation of our directors; and | |
| ● | preparing the compensation committee report required by SEC rules, if and when required. |
The compensation committee will operate under a written charter, which satisfies the applicable rules of the SEC and the listing standards of Nasdaq, and which will be available on our website.
Nominating and Corporate Governance committee
Mr. Tang Kay Hwa, Mr. Joshua Tay, and Ms. Xinyue Jasmine Geffner, our independent director nominees will serve on the nominating and corporate governance committee, which will be chaired by Mr. Joshua Tay. Our board of directors has determined that each member of the nominating and corporate governance committee is “independent” as defined in the applicable Nasdaq rules. The nominating and corporate governance committee’s responsibilities include:
| ● | developing and recommending to the board of directors’ criteria for board and committee membership; | |
| ● | establishing procedures for identifying and evaluating Director candidates, including nominees recommended by stockholders; | |
| ● | reviewing the composition of the board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us; | |
| ● | advising the board of directors periodically with respect to significant developments in the law and practices of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
While we do not have a formal policy regarding board diversity, our nominating and corporate governance committee and board of directors consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity (not limited to race, gender or national origin). Our nominating and corporate governance committee’s and board of directors’ priority in selecting board members is identification of persons who will further the interests of our stockholders through their established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experience and expertise relevant to our growth strategy, None of the members of the compensation committee is or has been at any time one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee (or other board of directors committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving as a member of the board or compensation committee.
The nominating and corporate governance committee will operate under a written charter, which satisfies the applicable rules of the SEC and the Nasdaq listing standards and will be available on our website.
Board Diversity
Prior to the effectiveness of the registration statement of which this prospectus is a part, we intend to adopt a formal policy regarding board diversity and our nominating and corporate governance committee and Board will consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity (not limited to race, gender or national origin). Our nominating and corporate governance committee’s and board’s priority in selecting board members is identification of persons who will further the interests of our stockholders through their established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experience and expertise relevant to our growth strategy.
Code of Conduct and Code of Ethics
Prior to the effectiveness of the registration statement of which this prospectus is a part, we intend to adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our chief executive officer, chief financial officer, principal accounting officer or controller or persons performing similar functions. Following the effectiveness of the registration statement of which this prospectus is a part, a current copy of this code will be available on our website at www.aureusgreenway.com. The information on our website is deemed not to be incorporated in this prospectus or to be a part of this prospectus. We intend to disclose any amendments to the code of ethics, and any waivers of the code of ethics or the code of conduct for our directors, executive officers and senior finance executives, on our website to the extent required by applicable U.S. federal securities laws and the corporate governance rules of the Nasdaq.
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Insider Trading Policies
Effective October 23, 2000, the SEC adopted rules related to insider trading. Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense through the creation of formal 10b5-1 plans under which executives and other insiders may arrange the sale of securities of publicly traded companies on a regular pre-arranged basis pursuant to written 10b5-1 plans. Such 10b5-1 plans are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.
Our board of directors has adopted an insider trading policy that allows insiders to sell securities of our Company pursuant to pre-arranged trading plans.
Limitation on Liability and Indemnification of Directors and Officers
Our Articles of Incorporation limit our directors’ liability to the fullest extent permitted by the laws of the State of Nevada. Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner he/she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he/she is to be indemnified, we will indemnify him/her against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.
If the Nevada Revised Statutes is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the Nevada Revised Statutes, as so amended.
The Nevada Revised Statutes and our Bylaws provide that we will, in certain situations, indemnify our directors and officers and may indemnify other employees and other agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding.
We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in the Certificate of Incorporation, Bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
EXECUTIVE AND DIRECTOR COMPENSATION
We are an emerging growth company, as defined in the JOBS Act. As an emerging growth company, we will be exempt from certain requirements related to executive compensation, including, but not limited to, the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This section provides an overview of our executive compensation programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.
For the year ended December 31, 2023, our chief executive officer and principal executive officer, principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded $100,000 (the “named executive officers” or “NEOs”) were:
| ● | Mr. C. P. Cheung, director and chief executive officer of the Company; and |
| ● | Mr. Sam Wai Sing Lui, chief financial officer of the Company. |
The objective of our compensation program is to provide a total compensation package to each NEO that will enable us to attract, motivate and retain outstanding individuals, align the interests of our executive team with those of our equity holders, encourage individual and collective contributions to the successful execution of our short- and long-term business strategies and reward NEOs for performance.
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Compensation of Directors and Named Executive Officers
The following table presents information regarding the total compensation (excluding equity-based compensation reported) awarded to, earned by, and paid to our NEOs for services rendered to us in all capacities for the years indicated.
| Name and Principal Position | Year | Salary
($) | Bonus ($) | All
other Compensation ($) | Total
($) | |||||||||||||||
| C. P. Cheung | 2023 | $ | 110,000 | (1) | $ | - | $ | - | $ | 110,000 | ||||||||||
| Director and Chief Executive Officer | 2022 | $ | 100,000 | (1) | - | - | $ | 100,000 | ||||||||||||
| Sam Wai Sing Lui | 2023 | $ | 18,000 | $ | - | $ | - | $ | 18,000 | |||||||||||
| Chief Financial Officer | 2022 | - | - | - | $ | - | ||||||||||||||
| (1) | As of December 31, 2023 and 2022, outstanding director’s remuneration was deferred for the amounts of $185,900 and $85,900, respectively. |
Employment Agreements with Named Executive Officers
We have entered into executive agreements with Mr. C. P. Cheung, our chief executive officer and director, and Sam Wai Sing Lui, our Chief Financial Officer. A summary of the terms of each of these executive agreements is set forth below. Currently, the annual compensation of each of the executive officers is fixed by the board of directors. The named executive officers are also entitled to participate in the Company’s benefit plans, which benefits are generally available to all full-time employees.
Employment Agreement between Mr. C. P. Cheung and our Company
Retroactively effective as of January 1, 2022, Mr. C. P. Cheung entered into an Employment Agreement with the Company. The agreement provides for an annual base salary in the amount of $100,000, together with an additional discretionary bonus. As of January 1, 2023, we increased the annual base salary to $110,000. Mr. C. P. Cheung’s employment began for an initial term of 3 years. The initial term will automatically renew for successive 3-year terms subject to termination by either party to the agreement upon 60 days’ prior written notice or the equivalent salary in lieu of such notice and until Mr. C. P. Cheung’s successor in his capacity as a director of the Company is duly elected and qualified. The agreement also provides that Mr. C. P. Cheung shall not, during the term of the agreement and for 6 months after cessation of employment, carry on business in competition with us.
Employment Agreement between Mr. Lui and our Company
Retroactively effective as of January 1, 2023, Mr. Lui entered into an Employment Agreement with the Company, the Chief Financial Officer of the Company. The agreement provides for an annual base salary in the amount of $18,000. Under the terms of the agreement, Mr. Lui’s employment will begin for an initial term of one year. The initial term will automatically renew for successive one-year terms subject to termination by either party to the agreement upon one month’s prior written notice or the equivalent salary in lieu of such notice.
Directors’ Agreements
We have entered into director offer letters with each of our executive directors and independent director nominees.
On April 10, 2024, Mr. S. Cheung entered into an Employment Agreement with the Company that is effectual as of the effectiveness of this registration statement. The agreement provides for an annual base salary, in the amount of $60,000, together with such additional discretionary bonus. Mr. S. Cheung’s employment will begin for an initial term of one year. The initial term will automatically renew for successive one-year terms subject to termination by either party to the agreement upon 60 days’ prior written notice or the equivalent salary in lieu of such notice and until the Director successor is duly elected and qualified. The agreement also provides that Mr. S. Cheung shall not, during the term of the agreement and for 24 months after cessation of employment, carry on business in competition with us
Each of our independent director nominees has entered into a director’s agreement with our Company effective upon effectiveness of the registration statement of which this prospectus forms a part. We have entered into directorship agreements with each of our independent director nominees Mr. Tang Kay Hwa, Mr. Joshua Tay, and Ms. Xinyue Jasmine Geffner which become effective upon the effectiveness of this registration statement. Each agreement with our independent director nominees offers an annual compensation of $18,000 in cash for each of them respectively. We will also reimburse all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. Each director’s agreement is for an initial term of one year and will continue until the director’s successor is duly elected and qualified. Each director will be up for re-election each year at the annual stockholders’ meeting and, upon re-election, the terms, and provisions of his or her director’s agreement will remain in full force and effect. Any director’s agreement may be terminated for any or no reason by the director or at a meeting called expressly for that purpose by a vote of the stockholders holding more than 50% of the Company’s issued and outstanding shares of common stock entitled to vote. Under the directors’ agreements, the Company agrees, to the maximum extent provided under applicable law, to indemnify the directors against liabilities and expenses incurred in connection with any proceeding arising out of, or related to, the directors’ performance of their duties, other than any such losses incurred as a result of the directors’ gross negligence or willful misconduct.
In addition, our directors will be entitled to participate in any share option plan as may be adopted by the Company, as amended from time to time. The number of options granted, and the terms of those options will be determined from time to time by a vote of the board of directors; provided that each director shall abstain from voting on any such resolution or resolutions relating to the grant of options to that director. Other than as disclosed above, none of our directors has entered into a service agreement with our Company or any of our subsidiaries that provides for benefits upon termination of employment.
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PRINCIPAL AND SELLING STOCKHOLDERS
Principal Stockholders
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of shares of our common stock and shares of our Series A Preferred Stock as of the date of this prospectus, and the percentage of voting power as of the date of this prospectus and immediately after this offering, for:
| ● | each of our directors, director nominees and named executive officers; |
| ● | each person known to us to own beneficially more than 5% of our common stock; and |
| ● | all of our current directors, director nominees and executive officers as a group. |
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common stock shown as beneficially owned by them. For the purpose of voting power, each share of common stock entitles the holder to one vote and each share of Series A Preferred Stock entitles the holder to twenty (20) votes on any matter on which action of the stockholders of the corporation is sought. The Series A Preferred Stock votes together with the common stock. Percentage of beneficial ownership of each listed person prior to this offering is based on 10,880,000 shares of common stock and 10,000,000 shares of Series A Preferred Stock outstanding as of the date of this prospectus. Percentage of beneficial ownership of each listed person after this offering is based on 10,000,000 shares of Series A Preferred Stock and 13,880,000 shares of common stock outstanding immediately after the completion of this offering.
Information with respect to beneficial ownership has been furnished by each director, named executive officer, or beneficial owner of 5% or more of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to the securities. In computing the number of shares of common stock beneficially owned by persons listed below and the percentage ownership of such persons, shares of common stock underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this prospectus are outstanding, but are not outstanding for computing the percentage ownership of any other person.
| Common stock Beneficially Owned Prior to this Offering | Series A Preferred Stock Beneficially Owned Prior to this Offering | Percentage of Voting Power | ||||||||||||||||||||||
| Name of Beneficial Owner | Number | % | Number | % | Prior to the Offering | After the Offering | ||||||||||||||||||
| Directors and Named Executive Officers | ||||||||||||||||||||||||
| Mr. S. Cheung | 5,440,000 | 50 | % | 5,000,000 | 50 | % | 50 | % | 49.2 | % | ||||||||||||||
| Mr. C. P. Cheung | 4,352,000 | 40 | % | 4,000,000 | 40 | % | 40 | % | 39.4 | % | ||||||||||||||
| Independent Director Nominees: | ||||||||||||||||||||||||
| Mr. Kay Hwa Tang | - | - | % | - | - | % | - | % | - | % | ||||||||||||||
| Mr. Joshua Tay | - | - | % | - | - | % | - | % | - | % | ||||||||||||||
| Ms. Xinyue Jasmine Geffner | - | - | % | - | - | % | - | % | - | % | ||||||||||||||
| All directors and named executive officers as a group | 9,792,000 | 90 | % | 9,000,000 | 90 | % | 90 | % | 88.7 | % | ||||||||||||||
| Principal Stockholders holding 5% or more: | ||||||||||||||||||||||||
| Ace Champion Investments Limited(1) | 5,440,000 | 50 | % | 5,000,000 | 50 | % | 50 | % | 49.2 | % | ||||||||||||||
| Trendy View Assets Management(2) | 1,088,000 | 10 | % | 1,000,000 | 10 | % | 10 | % | 9.6 | % | ||||||||||||||
| Chrome Fields Asset Management(3) | 4,352,000 | 40 | % | 4,000,000 | 40 | % | 40 | % | 39.4 | % | ||||||||||||||
| (1) | Mr. S. Cheung has sole voting and dipositive power over the shares held by Ace Champion Investments Limited. |
| (2) | Mr. Y. C. Cheung and Ms. C. Lee have joint voting and dipositive power over the shares held by Trendy View Assets Management. |
| (3) | Mr. C. P. Cheung has sole voting and dispositive power over the shares held by Chrome Fields Asset Management LLC. |
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Selling Stockholders
We are registering shares of common stock held by the Selling Stockholders. The Selling Stockholders are offering an aggregate of 750,000 shares of our common stock. This prospectus and any prospectus supplement will only permit the Selling Stockholders to sell the number of shares of common stock identified in the column “Number of Shares of Common Stock to be Sold”. The shares of common stock owned by the Selling Stockholders are “restricted” securities under applicable United States federal and state securities laws and are being registered pursuant to this prospectus to enable the Selling Stockholders the opportunity to sell those shares of common stock.
Two of the Selling Stockholders inclusive of Mr. C. P. Cheung and Mr. S. Cheung are our executive director and designated executive director of the Company, respectively. Mr. C. P. Cheung and Mr. S. Cheung are brothers and both of Mr. C. P. Cheung and Mr. S. Cheung are the sons of Mr. Y. C. Cheung and Ms. C. Lee. Thus, material and familial relationships exist between each of the Selling Stockholders and the Company, and the Company’s officers and directors.
The following table sets forth the name of the Selling Stockholders, the number and percentage of shares of common stock beneficially owned by the Selling Stockholders, the number of shares of common stock sold in this offering and the number and percentage of shares of common stock the Selling Stockholders will own after the offering without regards to each Selling Shareholders’ holdings of Series A Preferred Stock. The information appearing in the table below is based on information provided by or on behalf of the named Selling Stockholders. We will not receive any proceeds from the sale of the shares of common stock by the Selling Stockholders.
Name of Selling Stockholder | Shares of Common Stock Beneficially Owned Prior to Offering | Shares of Common Stock Offered Pursuant to this Prospectus(1) | Percentage Ownership Prior to Offering(1) | Percentage Ownership After Offering# | ||||||||||||
| Ace Champion Investments Limited(2) | 5,440,000 | 150,000 | 50 | % | 38.1 | % | ||||||||||
| Trendy View Assets Management(3) | 1,088,000 | 600,000 | 10 | % | 3.5 | % | ||||||||||
Notes:
| # | Assumes that the Selling Stockholders dispose of all of the shares of common stock covered by this prospectus and does not acquire beneficial ownership of any additional shares of common stock. The registration of these shares of common stock does not necessarily mean that the Selling Stockholders will sell all or any portion of the shares of common stock covered by this prospectus. |
| + | The shares were acquired by sale from an existing stockholder who had originally acquired the shares from the issuer in an offer and sale which was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. There was no placement agent associated with any purchase of any of the shares. |
| (1) | Based on 10,880,000 shares of common stock issued and outstanding immediately prior to the offering and 13,880,000 shares of common stock to be issued and outstanding immediately after the offering. | |
| (2) | Mr. S. Cheung has sole voting and dipositive power over the shares held by Ace Champion Investments Limited. | |
| (3) | Mr. Y. C. Cheung and Ms. C. Lee have joint voting and dipositive power over the shares held by Trendy View Assets Management. |
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Other than employment and other agreements set out elsewhere in this prospectus, the following summarizes those of transactions since December 31, 2021 to which we have been a participant in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
As of the three years ended December 31, 2023, the Company owed two loans each dated April 24, 2014 for $1,447,739.16 and $1,307,619.69 and referenced to as the 2014 Loans to each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung in proportions of 50%, 40%, and 10% consisting of loans from (i) Mr. S. Cheung for an unsecured, non-interest-bearing loan with a principal balance of $723,869.58, and $653,809.85, respectively, (ii) Mr. C. P. Cheung for an unsecured, non-interest-bearing loan with a principal balance of $579,095.66, and $523,047.87, respectively, and (iii) Mr. Y. C. Cheung for an unsecured, non-interest-bearing demand loan with a principal balance of $ 144,773.91, and $ 130,761.97, respectively. Both of the 2014 Loans are repayable upon the listing of our common stock on Nasdaq. As of June 30, 2024, we had an outstanding balance with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for amounts of $617,272, $493,917, and $123,454, respectively. As of the date of this prospectus, we had an outstanding balance with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for amounts of $607,272, $485,917, and $121,454, respectively.
On September 7, 2023, the Company entered into a loan facility agreement or the Expense Loan with Mr. S. Cheung for a loan facility of up to $1,000,000. The Expense Loan is interest free, repayable within 30 days from the date our shares are listed on Nasdaq or December 31, 2024, whichever is earlier. As of June 30, 2024 and of the date of this prospectus, we had an outstanding balance under the Expense Loan with Mr. S. Cheung of $942,811 and $967,429.11, respectively.
On January 17, 2024, we issued (i) a total of 8,160,000 shares of common stock to Ace Champion Investments Limited (as to 6,800,000 shares of common stock), and Trendy View Assets Management (as to 1,360,000 shares of common stock), for total consideration of $8,160, (ii) a total of 10,000,000 shares of our Series A Preferred Stock to Ace Champion Investments Limited (as to 5,000,000 shares of Series A Preferred Stock), Trendy View Assets Management (as to 1,000,000 shares of Series A Preferred Stock), and Chrome Fields Asset Management LLC (as to 5,000,000 shares of Series A Preferred Stock), for total consideration of $10,000, and (iii) 5,440,000 shares of common stock to Chrome Fields Asset Management LLC, in exchange for the right to receive 100 ordinary shares, par value $1.00 of Pine Ridge Group Limited.
On April 15, 2024, the Company entered into a loan facility agreement or the 2024 Loan with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung in proportions of 50%, 40%, and 10% for a loan facility of up to $500,000 consisting of loans from (i) Mr. S. Cheung for an unsecured, non-interest-bearing loan with a principal balance of $250,000, (ii) Mr. C. P. Cheung for an unsecured, non-interest-bearing loan with a principal balance of $200,000, and (iii) Mr. Y. C. Cheung for an unsecured, non-interest-bearing demand loan with a principal balance of $50,000. The 2024 Loan is repayable upon the listing of our common stock on Nasdaq. As of June 21, 2024 and of the date of this prospectus, we had an outstanding balance with each of Mr. S. Cheung, Mr. C. P. Cheung and Mr. Y. C. Cheung for amounts of $250,000, $200,000, and $50,000, respectively.
The following description of our share capital is a summary only and not meant to be complete, but is subject to and qualified in its entirety by our amended and restated articles of incorporation and bylaws, as amended from time to time, and by the provisions of the applicable Nevada law. Reference is made to our amended and restated articles of incorporation, copies of which are filed as an exhibit to the registration statement of which this prospectus is a part.
Authorized Stock
The Company is authorized to issue 500,000,000 shares of capital stock, consisting of 450,000,000 shares of common stock, par value of $0.001 per share, and 50,000,000 shares of blank check preferred stock, par value of $0.001 per share. As of the date of this prospectus, there are 10,880,000 shares of common stock and 10,000,000 shares of Series A Preferred Stock issued and outstanding. The shares of common stock are held by three stockholders of record and the shares of Series A Preferred Stock are held by three stockholders of record.
Common Stock
Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought. The holders of our common stock possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing at least one-third our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors.
Preferred Stock
Our board of directors may authorize preferred shares of stock and to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our Articles of Incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including, but not limited to, the following:
| 1. | The number of shares constituting that series and the distinctive designation of that series, which may be by distinguishing number, letter or title; |
| 2. | The dividend rate on the shares of that series, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; |
| 3. | Whether that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; |
| 4. | Whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the board of directors determines; |
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| 5. | Whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; |
| 6. | Whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; |
| 7. | The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and |
| 8. | Any other relative rights, preferences and limitations of that series. |
On January 26, 2024, the Company filed a Certificate of Designation to our Articles of Incorporation with the Secretary of State of the State of Nevada to reflect the designation of our Series A Preferred Stock. As a result, as of the date of this prospectus the capital stock of the Company consists of 450,000,000 authorize shares of common stock, $0.001 par value, and 50,000,000 authorized shares of preferred stock. 20,000,000 shares were designated as Series A Preferred Stock out of the 50,000,000 shares of preferred stock.
Series A Preferred Stock
We have one designated class of preferred stock known as Series A Preferred Stock. Each share of Series A Preferred Stock entitles the holder to twenty (20) votes, in person or proxy, on any matter on which action of the stockholders of the corporation is sought. The Series A Preferred Stock will vote together with the common stock. The holders of Series A Preferred Stock shall not be entitled to receive dividends of any kind. The Series A Preferred Stock shall not be subject to conversion into common stock or other equity authorized to be issued by the Company.
Reverse Stock Split
On June 12, 2024, as approved by the board of directors and the majority shareholder of the Company, the Company effected a reverse split of our outstanding common stock at a ratio of 1.25-for-1. All references to common stock, share data, per share data, and related information have been retroactively adjusted, where applicable, in this prospectus to reflect the reverse stock split of our issued and outstanding common stock as if these events had occurred at the beginning of the earliest period presented.
Warrants and Options
We have not issued any warrants to purchase or options exercisable for our capital stock.
Anti-takeover Effects of Nevada Law
Business Combinations
The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the NRS generally prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status or the combination is approved by the board of directors and thereafter is approved at a meeting of the stockholders by the affirmative vote of stockholders representing at least 60% of the outstanding voting power held by disinterested stockholders, and extends beyond the expiration of the two-year
period, unless:
| ● | the combination was approved by the board of directors prior to the person becoming an interested stockholder or the transaction by which the person first became an interested stockholder was approved by the board of directors before the person became an interested stockholder or the combination is later approved by a majority of the voting power held by disinterested stockholders; |
| or | |
| ● | if the consideration to be paid by the interested stockholder is at least equal to the highest of: (i) the highest price per share paid by the interested stockholder within the two years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, or (ii) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher. |
A “combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (iii) 10% or more of the earning power or net income of the corporation, and (iv) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder.
In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within two years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our Company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
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Control Share Acquisitions
The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.
A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes, and will be subject to these statutes if we are an “issuing corporation” as defined in such statutes.
The effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of our Company.
Listing
We intend to apply to list our common stock on the Nasdaq Capital Market under the ticker symbol “AGH.” At this time, Nasdaq has not yet approved our application to list our common stock. The closing of this offering is conditioned upon Nasdaq’s final approval of our listing application, and there is no guarantee or assurance that our common stock will be approved for listing on Nasdaq.
Transfer Agent and Registrar
The transfer agent for our common stock is VStock Transfer LLC. The address is 18 Lafayette Pl, Woodmere, NY 11598. The telephone number is (212) 828-8436.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market after this offering, or the possibility of these sales or issuances occurring, could adversely affect the prevailing market price for our common stock or impair our ability to raise equity capital. Immediately prior to the offering, there were 10,880,000 shares of common stock and 10,000,000 shares of Series A Preferred Stock issued and outstanding. Upon completion of this offering, we will have 13,880,000 shares of common stock outstanding and 10,000,000 shares of Series A Preferred Stock issued and outstanding. All shares of common stock sold in this offering by the Company and Selling Stockholders will be freely transferable by persons other than our “affiliates” as that term is defined in Rule 144 under the Securities Act without restriction or further registration under the Securities Act.
Lock-up Arrangements
See “Underwriting — Lock-up Agreements.”
Rule 144
All of the shares of our common stock outstanding prior to the closing of this offering are “restricted securities,” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement, such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act.
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In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to have been our affiliate at any time during the three months preceding a sale and who has beneficially owned restricted securities within the meaning of Rule 144 for more than six months would be entitled to sell an unlimited number of those securities, subject only to the availability of current public information about us. A non-affiliate who has beneficially owned restricted securities for at least one year from the later of the date these shares of common stock were acquired from us or from our affiliate would be entitled to freely sell those shares.
A person who is deemed to be an affiliate of ours and who has beneficially owned “restricted securities” for at least six months would be entitled to sell, within any three-month period, a number of shares of common stock that is not more than the greater of:
| ● | 1% of the number of shares of common stock then outstanding, which will equal approximately 138,800 shares immediately after this offering; or |
| ● | the average weekly trading volume of our common stock on the Nasdaq Capital Market or other relevant national securities exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants, or advisors who purchases shares of our common stock from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell those shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Regulation S
Regulation S provides generally that sales made in offshore transactions are not subject to the registration or prospectus-delivery requirements of the Securities Act.
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MATERIAL INCOME TAX CONSIDERATIONS
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following discussion describes the material U.S. federal income tax consequences relating to the ownership and disposition of our Shares of our common stock by U.S. Holders (as defined below). This discussion applies to U.S. Holders that purchase our Shares of our common stock pursuant to this offering and hold such shares of our common stock as capital assets. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, U.S. Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions; insurance companies; dealers or traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes; tax-exempt entities or governmental organizations; retirement plans; regulated investment companies; real estate investment trusts; grantor trusts; brokers, dealers, or traders in securities, commodities, currencies, or notional principal contracts; certain former citizens or long-term residents of the United States; persons who hold our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” or integrated investment; persons that have a “functional currency” other than the U.S. dollar; persons that own directly, indirectly, or through attribution 10% or more of the voting power of our common stock; corporations that accumulate earnings to avoid U.S. federal income tax; partnerships and other pass-through entities; and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift, or alternative minimum tax consequences.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of our common stock who is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons has the authority to control all of its substantial decisions, or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax consequences relating to an investment in such common stock will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership, and disposition of our common stock.
Persons considering an investment in our common stock should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership, and disposition of our common stock, including the applicability of U.S. federal, state, and local tax laws and non-U.S. tax laws.
Sale, Exchange or Other Disposition of Our Common Stock
A U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange, or other disposition of our common stock in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange, or other disposition and such U.S. Holder’s adjusted tax basis in the shares of our common stock. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange, or other disposition, the shares of our common stock were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other disposition of our common stock will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Medicare Tax
Certain U.S. Holders that are individuals, estates, or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of our common stock. If you are a U.S. person that is an individual, estate, or trust, you are encouraged to consult your tax advisor regarding the applicability of this Medicare tax to your income and gains in respect to your investment in our common stock.
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Information Reporting and Backup Withholding
U.S. Holders may be required to file certain U.S. information reporting returns with the United States Internal Revenue Service (“IRS”) with respect to an investment in our common stock, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). A U.S. Holders paying more than $100,000 for our common stock may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting.
Dividends on and proceeds from the sale or other disposition of our common stock may be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder (i) fails to provide an accurate U.S. taxpayer identification number or otherwise establish a basis for exemption, or (ii) is described in certain other categories of persons. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
U.S. Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN OUR ORDINARY SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
Prospective investors should consult their professional advisers on the possible tax consequences of buying, holding, or selling any shares of our common stock under the laws of their country of citizenship, residence, or domicile.
The foregoing is a discussion on certain Cayman Islands income tax consequences of an investment in shares of our common stock. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands laws.
Dominari Securities, LLC or the representative, is acting as the lead managing underwriter and book-runner. Subject to the terms and conditions of an underwriting agreement between us, the Selling Stockholders and the representative, we and the Selling Stockholders have agreed to sell to the underwriter named below, and the underwriter named below has agreed to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name | Number of Shares of Common Stock | |||
| Dominari Securities, LLC | 3,750,000 | |||
| Total
| 3,750,000 |
The underwriting agreement provides that the obligations of the underwriter to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to various conditions and representations and warranties, including the approval of certain legal matters by their counsel and other conditions specified in the underwriting agreement. The shares of common stock are offered by the underwriter, subject to prior sale, when, as and if issued to and accepted by it. The underwriter reserves the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriter is obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares of common stock are taken.
We have agreed to indemnify the underwriter against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriter may be required to make in respect thereof.
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Underwriting Discounts and Expenses
The underwriter proposes initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession. If all of the shares of common stock offered by us are not sold at the public offering price, the underwriter may change the offering price and other selling terms by means of a supplement to this prospectus.
The following table shows the public offering price, underwriting discounts, and proceeds, before expenses, to us and the Selling Stockholders.
| Per Share | Total | |||||||
| Public offering price | $ | 4.00 | $ | 15,000,000 | ||||
| Underwriting discounts(1) and commissions to be paid by us: | $ | 0.28 | $ | 1,050,000 | ||||
| Proceeds, before expenses, to us | $ | 3.72 | $ | 11,160,000 | ||||
| Proceeds, before expenses, to the Selling Stockholders | $ | 3.72 | $ | 2,790,000 |
1 Represents an underwriting discount equal to 7% per share.
We have agreed to pay to the underwriter by deduction from the net proceeds of the offering contemplated herein, a non-accountable expense allowance equal to 1% of the gross proceeds received by us from the sale of the shares.
We have agreed to pay expenses relating to the offering, including: (i) all filing fees and communication expenses relating to the registration of the shares of our common stock to be sold in this offering with the SEC; (ii) all filing fees and expenses associated with the review of this offering by FINRA; (iii) all fees and expenses relating to the listing of our common stock on such stock exchanges as we and the representative together determine; (iv) all fees, expenses and disbursements relating to background checks of our officers and directors; (v) all fees, expenses, and disbursements relating to the registration or qualification of such shares under the “blue sky” securities laws of such states, if applicable, and other jurisdictions as the representative may reasonably designate; (vi) all fees, expenses, and disbursements relating to the registration, qualification, or exemption of such shares under the securities laws of such foreign jurisdictions as the representative may reasonably designate; (vii) the costs of all mailing and printing of the underwriting documents (including, without limitation, the underwriting agreement, any “blue sky” surveys, and, if appropriate, any agreement among underwriter, selected dealers’ agreement, underwriter’s questionnaire, and power of attorney), registration statement, prospectus, and all amendments, supplements, and exhibits thereto and as many preliminary and final prospectus as the representative may reasonably deem necessary; (viii) the costs of preparing, printing, and delivering certificates representing such shares; (ix) fees and expenses of the transfer agent for such shares; (x) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from our Company to the representative; (xi) the fees and expenses of our accountants; (xii) the fees and expenses of our legal counsel and other agents and representatives; (xiii) the costs associated with bound volumes of the public offering materials, each of which our Company or our designee will provide within a reasonable time after the closing of this offering in such quantities as representative may reasonably requests; and (xiv) the reasonable costs of our Company for “road show” meetings and the preparation of a power point presentation; provided that the actual accountable expenses of the representative shall not exceed $300,000.
We paid an expense deposit of $30,000 to the representative, upon the execution of letter of engagement between us and the representative for the representative’s anticipated out-of-pocket expenses. Any expense deposits will be returned to us to the extent the representative’s out-of-pocket accountable expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts referred to above and underwriter expense reimbursement, will be approximately $1,596,104, including a maximum aggregate reimbursement of $300,000 of representative’s accountable expenses.
In addition, during the engagement period of the representative, we agree that we will not, directly or indirectly, offer any securities or solicit an offer to purchase any securities, or otherwise contact or enter into a discussion with any other party in connection with structuring, issuance, sale, arrangement, offering, or purchase of securities, other than through the representative. Further, during the term of the engagement period, we agree not to permit any affiliates, advisors, or representatives of our Company to engage any other party to perform any services or act in any capacity for which the representative has been engaged with respect to any potential private and/or public offering, without prior written consent of the representative.
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Right of First Refusal
We have also agreed to provide the representative the right of first refusal (the “Right of First Refusal”), exercisable at the sole discretion of the representative, for a period of nine months from the closing date of our initial public offering, to provide investment banking service to the Company on an exclusive basis, including acting as leading manager for any underwritten public offering, as exclusive placement agent for any private financing by the Company, and as financial advisor in connection with any merger, business combination, or sale of a majority or controlling portion of the equity or assets of the Company. The Right of First Refusal shall be subject to FINRA Rule 5110(g)(5), including that it may be terminated by the Company for cause, which shall be a breach by the representative of the Underwriting Agreement or a material failure by the underwriter to provide the services as contemplated by the Underwriting Agreement.
Listing
We intend to apply to list our common stock on the Nasdaq Capital Market under the symbol “AGH.” At this time, Nasdaq has not yet approved our application to list our common stock. The closing of this offering is conditioned upon Nasdaq’s final approval of our listing application, and there is no guarantee or assurance that our common stock will be approved for listing on Nasdaq.
Indemnification
We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriter may be required to make in respect of those liabilities.
Lock-up Agreements
We have agreed not to, for a period of 180 days from the date of this prospectus, issue, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock (excluding, however, the issuance of any shares of our common stock or other equity awards pursuant to our executive compensation or employee benefit plan), without the prior written consent of the representative.
Furthermore, each of our directors and executive officers and our principal stockholders (5% or more stockholders) has also agreed to, other than as a Selling Stockholder, entered into a similar lock-up agreement for a period of six months from the date of this prospectus, subject to certain exceptions, with respect to our common stock and securities that are substantially similar to our common stock .
We cannot predict what effect, if any, future sales of our common stock, or the availability of common stock for future sale, will have on the trading price of our common stock from time to time. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the trading price of our common stock.
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock has been negotiated between us and the underwriter. Among the factors considered in determining the initial public offering price of our common stock, in addition to the prevailing market conditions, are our historical performance, estimates of our business potential and earnings prospects, an assessment of our management, and the consideration of the above factors in relation to market valuation of companies in related businesses.
Electronic Offer, Sale, and Distribution of Common stock
A prospectus in electronic format may be made available on the websites maintained by the underwriter or selling group members, if any, participating in this offering and the underwriter may distribute prospectuses electronically. The underwriter may agree to allocate a number of shares of common stock to selling group members for sale to their online brokerage account holders. The common stock to be sold pursuant to internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriter, and should not be relied upon by investors.
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Price Stabilization, Short Positions, and Penalty Bids
In connection with this offering, the underwriter may engage in transactions that stabilize, maintain, or otherwise affect the price of our common stock. Specifically, the underwriter may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares of common stock available for purchase by the underwriter under option to purchase additional shares of common stock. The underwriter can close out a covered short sale by exercising the option to purchase additional shares or purchasing common stock in the open market. In determining the source of common stock to close out a covered short sale, the underwriter will consider, among other things, the open market price of common stock compared to the price available under the option to purchase additional shares of common stock. The underwriter may also sell common stock in excess of the option to purchase additional shares of common stock, creating a naked short position. The underwriter must close out any naked short position by purchasing common stock in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering.
The underwriter may also impose a penalty bid. This occurs when the underwriter or dealer repays selling concessions allowed to it for distributing our common stock in this offering because such underwriter repurchases the shares of common stock in stabilizing or short covering transactions.
Finally, the underwriter may bid for, and purchase, our common stock in market making transactions, including “passive” market making transactions as described below.
These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriter is not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.
Passive Market Making
In connection with this offering, the underwriter may engage in passive market making transactions in our common stock on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of our common stock and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Potential Conflicts of Interest
The underwriter and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriter and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriter and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Other Relationships
The underwriter and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage activities. The underwriter and certain of their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us and our affiliates, for which they may in the future receive customary fees, commissions, and expenses.
In addition, in the ordinary course of their business activities, the underwriter and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriter and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long, and/or short positions in such securities and instruments.
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Stamp Taxes
If you purchase our common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of our common stock, or the possession, circulation or distribution of this prospectus or any other material relating to us or our common stock, where action for that purpose is required. Accordingly, our common stock may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with our common stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
European Economic Area
In relation to each Member State of the European Economic Area (each a “Relevant State”), no common stock has been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the common stock which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
| ● | to legal entities which are qualified investors as defined under the Prospectus Regulation; |
| ● | by the underwriter to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the representatives of the underwriter for any such offer; or |
| ● | in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer of common stock to the public” in relation to any common stock in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any common stock to be offered so as to enable an investor to decide to purchase or subscribe for our common stock, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
United Kingdom
This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000, or the FSMA) as received in connection with the issue or sale of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to our common stock in, from or otherwise involving the United Kingdom.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
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Canada
The shares of common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriter are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
China
This prospectus may not be circulated or distributed in China and the shares of common stock may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of China except pursuant to applicable laws, rules and regulations of China. For the purpose of this paragraph only, China does not include Taiwan and the special administrative regions of Hong Kong and Macau.
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The legality and validity of the securities offered from time to time under this prospectus will be passed upon by Ortoli Rosenstadt LLP. Sichenzia Ross Ference Carmel LLP is acting as counsel to the underwriter with respect to certain legal matters as to United States federal securities and New York State law.
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The consolidated financial statements for the fiscal years ended December 31, 2023 and 2022, included in this prospectus have been so included in reliance on the report of WWC, P.C., an independent registered public accounting firm as stated in their report appearing herein and elsewhere in the Registration Statement, given on the authority of said firm as experts in auditing and accounting. WWC, P.C. is headquartered at 2010 Pioneer Court, San Mateo, CA 94403, USA.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including relevant exhibits and schedules under the Securities Act, covering the common stock offered by this prospectus. You should refer to our registration statements and their exhibits and schedules if you would like to find out more about us and about our common stock. This prospectus summarizes material provisions of contracts and other documents that we refer you to. Since the prospectus may not contain all the information that you may find important, you should review the full text of these documents.
Upon the completion of our initial public offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. The SEC maintains a website that contains reports, proxy statements, and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov.
No dealers, salesperson, or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUREUS GREENWAY HOLDINGS INC. AND SUBSIDIARIES
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To: | The Board of Directors and Stockholders of |
| Aureus Greenway Holdings Inc. |
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Aureus Greenway Holdings Inc. and its subsidiaries (collectively the “Company”) as of December 31, 2023 and 2022 and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 3 - Revision, the Company has revised its consolidated financial statements to reflect the recognition of deferred tax liabilities as of December 31, 2023 and 2022. The revisions arise from the temporary differences between the use of accelerated depreciation method vs straight-line deprecation method for property and equipment in accordance with tax and U.S. GAAP reporting frameworks, respectively.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on our financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ WWC, P.C.
WWC, P.C.
Certified Public Accountants
PCAOB ID: 1171
We have served as the Company’s auditor since 2023
San Mateo, California
April 19, 2024, except for Notes 1, 11 and 14 which are dated June 20, 2024
| F-2 |
Aureus Greenway Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, | As of December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 646,294 | $ | 693,151 | ||||
| Accounts receivable, net | 36,299 | 29,219 | ||||||
| Inventories, net | 55,704 | 59,362 | ||||||
| Deferred offering costs | 252,964 | - | ||||||
| Other current assets | 125 | - | ||||||
| Total current assets | 991,386 | 781,732 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 3,054,921 | 3,081,175 | ||||||
| Prepayment for acquisition of property and equipment | 103,436 | - | ||||||
| Operating lease right-of-use assets | 363,296 | 578,513 | ||||||
| Deferred tax assets | 236,130 | 73,573 | ||||||
| Total non-current assets | 3,757,783 | 3,733,261 | ||||||
| Total Assets | $ | 4,749,169 | $ | 4,514,993 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 495,930 | $ | 308,394 | ||||
| Contract liabilities - deferred revenue | 158,429 | 19,456 | ||||||
| Bank and other borrowings – current | 135,970 | 67,681 | ||||||
| Operating lease liabilities – current | 222,275 | 215,217 | ||||||
| Due to related parties | 1,651,407 | 2,065,543 | ||||||
| Total current liabilities | 2,664,011 | 2,676,291 | ||||||
| Non-current liabilities | ||||||||
| Bank and other borrowings - non-current | 649,345 | 594,034 | ||||||
| Operating lease liabilities - non-current | 141,021 | 363,296 | ||||||
Deferred tax liabilities | 48,156 | 20,864 | ||||||
| Total non-current liabilities | 838,522 | 978,194 | ||||||
| Total Liabilities | 3,502,533 | 3,654,485 | ||||||
| Commitments and contingencies | ||||||||
| Stockholder’s Equity | ||||||||
| Preferred stock: 50,000,000 shares authorized; $0.001 par value, 20,000,000 shares of series A preferred stock designated; 10,000,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively* | 10,000 | 10,000 | ||||||
| Common stock: 450,000,000 shares authorized; $0.001 par value, 10,880,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively* | 10,880 | 10,880 | ||||||
| Additional paid-in capital | 2,082,456 | 2,082,456 | ||||||
| Subscription receivables | (18,160 | ) | (18,160 | ) | ||||
| Accumulated deficit | (838,540 | ) | (1,224,668 | ) | ||||
| Total Stockholder’s Equity | 1,246,636 | 860,508 | ||||||
| Total Liabilities and Stockholder’s Equity | $ | 4,749,169 | $ | 4,514,993 | ||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
Aureus Greenway Holdings Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Golf operations | $ | 2,643,856 | $ | 2,310,615 | ||||
| Sales of food and beverage | 682,281 | 517,694 | ||||||
| Sales of merchandise | 138,450 | 99,366 | ||||||
| Ancillary revenue | 90,125 | 80,979 | ||||||
| Total revenue | 3,554,712 | 3,008,654 | ||||||
| Operating costs: | ||||||||
| Golf operating costs (exclusive of depreciation and salaries and benefits shown separately below) | 1,189,889 | 1,015,852 | ||||||
| Cost of food and beverage sales (exclusive of depreciation and salaries and benefits shown separately below) | 209,226 | 167,614 | ||||||
| Cost of merchandise sales (exclusive of depreciation and salaries and benefits shown separately below) | 92,675 | 56,228 | ||||||
| Salaries and benefits | 683,941 | 556,880 | ||||||
| Depreciation | 174,207 | 163,371 | ||||||
| Other general and administration expenses | 951,616 | 580,463 | ||||||
| Total operating costs | 3,301,554 | 2,540,408 | ||||||
| Income from operations | 253,158 | 468,246 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (30,393 | ) | (36,196 | ) | ||||
| Other income | 28,098 | 8,900 | ||||||
| Total other expense | (2,295 | ) | (27,296 | ) | ||||
| Income before income tax | 250,863 | 440,950 | ||||||
| Income tax (benefits) expenses | (135,265 | ) | 117,757 | |||||
| Net Income | $ | 386,128 | $ | 323,193 | ||||
| Comprehensive Income | $ | 386,128 | $ | 323,193 | ||||
| Earnings per common share | ||||||||
| Basic and diluted* | $ | 0.04 | $ | 0.03 | ||||
| Weighted average number of common shares outstanding | ||||||||
| Basic and diluted* | 10,880,000 | 10,880,000 | ||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
Aureus Greenway Holdings Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2023 and 2022
| Preferred Stock* | Common Stock* | Additional paid-in | Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | receivables | deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2021 | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (1,547,861 | ) | $ | 537,315 | ||||||||||||||||
| Net income | - | - | - | - | - | - | 323,193 | 323,193 | ||||||||||||||||||||||||
| Balance, December 31, 2022 | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (1,224,668 | ) | $ | 860,508 | ||||||||||||||||
| Net income | - | - | - | - | - | - | 386,128 | 386,128 | ||||||||||||||||||||||||
| Balance, December 31, 2023 | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (838,540 | ) | $ | 1,246,636 | ||||||||||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
Aureus Greenway Holdings Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 386,128 | $ | 323,193 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 174,207 | 163,371 | ||||||
| Unpaid director’s remuneration | 100,000 | 30,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (7,080 | ) | 7,197 | |||||
| Inventories | 3,658 | (33,742 | ) | |||||
| Other current assets | (125 | ) | 7,279 | |||||
| Deferred tax assets | (162,557 | ) | 99,765 | |||||
| Accounts payable and accrued liabilities | 187,536 | (39,424 | ) | |||||
| Contract liabilities - deferred revenue | 138,973 | 625 | ||||||
Deferred tax liabilities | 27,292 | 17,992 | ||||||
| Net Cash Provided by Operating Activities | 848,032 | 576,256 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (147,953 | ) | (207,582 | ) | ||||
| Prepayment for acquisition of property and equipment | (103,436 | ) | - | |||||
| Net Cash Used in Investing Activities | (251,389 | ) | (207,582 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from related party loan | 520,964 | - | ||||||
| Repayments of related party loan | (1,035,100 | ) | (466,000 | ) | ||||
| Proceeds from bank and other borrowings | 181,721 | 270,905 | ||||||
| Repayments of bank and other borrowings | (58,121 | ) | (169,686 | ) | ||||
| Deferred offering costs | (252,964 | ) | - | |||||
| Net Cash Used in Financing Activities | (643,500 | ) | (364,781 | ) | ||||
| Net change in cash and cash equivalents | (46,857 | ) | 3,893 | |||||
| Cash and cash equivalents, beginning of year | 693,151 | 689,258 | ||||||
| Cash and cash equivalents, end of year | $ | 646,294 | $ | 693,151 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 30,393 | $ | 36,169 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash financing activity | ||||||||
| Initial recognition of lease obligations related to right-of-use assets | $ | - | $ | 243,127 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
Aureus Greenway Holdings Inc. and Subsidiaries
Notes to Audited Consolidated Financial Statements
December 31, 2023 and 2022
Note 1 - Organization and Business
Business
Aureus Greenway Holdings Inc. (the “Company” or “Aureus”) was incorporated on December 22, 2023 in the state of Nevada. We conduct business activities principally through our wholly-owned subsidiaries, Chrome Fields I, Inc. and Chrome Fields II, Inc. engaging in operation of golf course and selling of merchandise and food and beverages.
As of December 31, 2022, we own and operate two golf clubs in Florida that consisting of over 289 acres of multi-service recreational property.
Pine Ridge Group Limited (“Pine Ridge”) was acquired by Mr. Cheung Chi Ping from independent third parties on December 31, 2013.
Chrome Field I, Inc. (“Chrome I”) was incorporated on December 24, 2013 in the State of Delaware. Chrome I the is sole member of FSC Clearwater, LLC (“Clearwater I”) which was incorporated in the State of Florida on January 21, 2014. Clearwater I owns and operates Kissimmee Bay Country Club, a privately-owned golf course that is open to the general public.
Chrome Field II, Inc. (“Chrome II”) was incorporated on April 13, 2014 in the State of Delaware. Chrome II the is sole member of FSC Clearwater II, LLC (“Clearwater I”) which was incorporated in the State of Florida on March 20, 2014. Clearwater II owns and operates Remington Golf Club, a privately-owned golf course that is open to the general public.
| F-7 |
Reorganization
Pursuant to a Group Reorganization, to rationalize the structure of the Company and its subsidiaries (collectively, the “Group”) in preparation for the listing of the Company’s stocks, the Company became the holding company of the Group on January 17, 2024. According to revised memorandum and articles of association of the Company dated January 17, 2024, the authorized number of common stocks will be 450,000,000 shares at par value $0.001 per share, and 50,000,000 shares of blank check preferred stock at par value $0.001 per share. The Company has designated 20,000,000 preferred shares, par value $0.001, as Series A Preferred Stock. Initially, holders of Series A preferred stock would have 20 voting rights for each Series A preferred stock on any matter which action of the stockholders of the corporation is sought. The Series A preferred stock will vote together with the common stock. Common stock and Series A preferred stock are not convertible into each other. Holders of Series A preferred stock are not entitled to receive dividends. The Series A preferred stock does not have liquidation preference over the Company’s common stock, and therefore ranks pari passu with the common stock in the event of liquidation.
On the same date, January 17, 2024, a share exchange agreement was entered into between the Company and the sole shareholder of Pine Ridge, Mr. Cheung Chi Ping and pursuant to which the Company agreed to issue 5,440,000 common stocks of the Company to exchange for the entire equity interest in Pine Ridge from Mr. Cheung Chi Ping.
On January 17, 2024, the Company allotted 6,800,000 shares of common stock at par value $0.001 of the Company to Ace Champion Investments Limited (“Ace Champion”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Ching Ping, brother of Mr. Cheung Chi Ping; and the Company allotted 1,360,000 shares of common stock at par value $0.001 to Trendy View Assets Management (“Trendy View”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Yick Chung and Ms. Chan Lee, parents of Mr. Cheung Chi Ping. Total consideration for the subscription was $8,160. Mr. Cheung Chi Ping, Mr. Cheung Ching Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are collectively considered as Mr. Cheung’s family. After the allotment, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are ultimately holding 50%, 40% and 10% of the common stock of the Company.
On January 17, 2024, 5,000,000 shares of Series A Preferred Stock was issued to Ace Champion, 4,000,000 shares of Series A Preferred Stock was issued to Chrome Fields Asset Management LLC (“Chrome Fields”), wholly-owned by Mr. Cheung Chi Ping and 1,000,000 shares of Series A Preferred Stock was issued to Trendy View, at an aggregate cash consideration of $10,000.
On June 11, 2024, the Board of Directors approved to effect a 1.25-for-1 reverse stock split for the issued common stocks, such that every holder of 1.25 shares of common stock of the Company shall receive 1 share of common stock resulting in the issued common stocks to be 10,880,000 which are being held by Ace Champion of 5,440,000 shares of common stock, Chrome Fields of 4,352,000 shares of common stock and Trendy View of 1,088,000 shares of common stock.
After the issue of additional common stock and Series A Preferred Stock by the Company and reverse stock split, the Company, together with its wholly-owned subsidiaries, are effectively controlled by the same Controlling Shareholder, Mr. Cheung’s family before and after the Group Reorganization, respectively, and therefore the Group Reorganization is considered as a recapitalization of entities under common control. the ultimate Controlling The consolidation of the Company and its subsidiaries has been accounted for at historical cost. No amount is recognized in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination. The consolidated statements of income and comprehensive income, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows are prepared as if the current Group structure had been in existence throughout the two-year period ended December 31, 2023, or since the respective dates of incorporation/establishment of the relevant entity, where this is a shorter period. The consolidated balance sheets as of December 31, 2023 and 2022 present the assets and liabilities of the companies now comprising the Group which had been incorporated/established as at the relevant balance sheet date as if the current group structure had been in existence at those dates.
Upon the Group Reorganization and as at the date of this report, details of the subsidiaries company are as follows:
| Name | Place and date of formation | Ownership | Principal activity | |||
| Pine Ridge Group Limited (“Pine Ridge”) | British Virgin Islands | 100% (directly) | Investment holding | |||
| Chrome Fields I, Inc. (“Chrome I”) | Delaware | 100% (indirectly) | Investment holding | |||
| Chrome Fields II, Inc. (“Chrome II”) | Delaware | 100% (indirectly) | Investment holding | |||
| FSC Clearwater, LLC (“Clearwater I”) | Florida | 100% (indirectly) | Operation of golf course and selling of food and beverages and merchandise (Kissimmee Bay Country Club) | |||
| FSC Clearwater II, LLC (“Clearwater II”) | Florida | 100% (indirectly) | Operation of golf course and selling of food and beverages and merchandise (Remington Golf Club) |
| F-8 |
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All significant inter-company transactions and balances between members of the Group are eliminated upon consolidation.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates and assumptions made by management include allowance for expected credit loss/doubtful accounts, allowance for deferred tax assets, the useful lives and impairment assessment of property and equipment and estimated incremental borrowing rate of lease. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new accounting standard introduced the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including accounts receivable. ASU 2016-13 is effective for the Company, as an Emerging Growth Company (“EGC”), for annual and interim reporting periods beginning after December 15, 2022. The Company adopted the standard on January 1, 2023 using the modified retrospective method for all financial assets in scope. The adoption of the standard did not have a material impact on our consolidated statements of loss, or consolidated statements of cash flows.
| F-9 |
Cash and Cash Equivalents
Cash and cash equivalents include cash at bank and demand deposits which have original maturities less than three months and are unrestricted as to withdrawal or use. As of December 31, 2023 and 2022, the Company had cash of $646,294 and $693,151, respectively, and did not have cash equivalents.
Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $250,000 per institution. The amount in excess of the Federal Deposit Insurance Corporation insurance as of December 31, 2023, was approximately $5,000. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Accounts Receivable, net
Accounts receivable mainly represent amounts due from customers paid by credit cards for provision of golf operations services and sales of merchandise and food and beverages which are recorded net of allowance for doubtful accounts/expected credit loss. The credit cards payment is to be settled either within few days after the year end date due to the timing difference for the payment transfer from credit card center to the bank accounts of the Company or within one month after the services were utilized by the customers who have authorized the Company to make the payment through their credit cards. The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts/expected credit loss and records allowance for doubtful accounts/expected credit loss expense when deemed necessary. The Company records an allowance for doubtful accounts/expected credit loss that is based on historical trends, customer knowledge, any known disputes, future expectation, future economic situation consideration and considers the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Accounts receivable are written off against the allowance after all attempts to collect a receivable have failed. As of December 31, 2023 and 2022, the Company had no allowance for doubtful/expected credit loss due to no experiences on default from customers or failure of transfer from credit card center after payment authorization was made by customers and all outstanding accounts receivable as of December 31, 2023 and 2022 were subsequently settled before the report date.
| F-10 |
Inventories, net
Our inventories consist of merchandise goods such as golf balls, gloves, men’s wear and women’s wears, food and beverages and we value inventories using the lower first-in, first-out (“FIFO”) method and net realizable value, which is generally based on the selling price expectations of the merchandise goods. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise. For foods and beverages, the turnaround time is short, usually within one to two weeks. For the merchandise goods, all goods are aged less than one year and the Company will offer discounts to customers to speed the selling but higher than that of purchase price. As of December 31, 2023 and 2022, no obsolescent goods were noted.
Deferred offering costs
The Company follows the requirements of the FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering”. Deferred offering costs consist of underwriting, legal and other expenses incurred through the balance sheet date that are directly related to the intended initial public offering (“IPO”). Deferred offering costs will be charged to stockholders’ equity netted against the proceeds upon the completion of the IPO. Should the IPO prove to be unsuccessful, these deferred offering costs, as well as additional expenses to be incurred, will be charged to statements of income. As of December 31, 2023 and 2022, the Company deferred $252,964 and Nil of offering costs. Such costs will be deferred until the closing of the IPO, at which time the deferred costs will be offset against the offering proceeds and recognized in equity of the Company.
Property and Equipment, net
Property and equipment, net are stated at cost less accumulated depreciation and any impairment losses. Property and equipment, consisting of land, buildings, properties improvements, equipment, furniture and fixture. We capitalize costs that materially add value and appreciably extend the useful life of an asset. With respect to golf course improvements (included in land improvements), only costs associated with original construction, complete replacements, or the addition of new trees, sand traps, fairways or greens are capitalized while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Land is not depreciated.
| F-11 |
Depreciation is calculated using the straight-line method based on the following estimated useful lives:
| Depreciable land improvements | 15 years | |
| Building and recreational facilities | 39 years | |
| Properties improvements | 5-7 years | |
| Furniture and equipment | 5-7 years |
The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Impairment for Long-Lived Assets
Long-lived assets, representing property and equipment with finite lives, are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with FASB ASC 360-10-15. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell. If an impairment is identified, The Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2023 and 2022, no impairment of long-lived assets was recognized.
Fair Value of Financial Instruments
The Company follows accounting guidelines on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:
| ● | Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. | |
| ● | Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a significant judgment or estimation. |
| F-12 |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires the Company to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded, may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.
The carrying amounts shown of the Company’s financial instruments including cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued liabilities, current portion of bank and other borrowings and lease liabilities and amount due to related party are approximate fair value due to their short-term nature. Non-current portion of bank and other borrowings and lease liabilities have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group’s own non-performance risk for bank and other borrowings and lease liabilities as of December 31, 2023 and 2022 were assessed to be insignificant.
Leases
ASC 842 supersedes the lease requirements in ASC 840 “Leases”, and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. All leases in the Group as of December 31, 2023 and 2022 are accounted for as operating leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
| F-13 |
Any lease with a term of 12 months or less is considered short-term. As permitted by ASC 842, short-term leases are excluded from the ROU assets and lease liabilities on the consolidated balance sheets. Consistent with all other operating leases, short-term lease expense is recorded on a straight-line basis over the lease term.
The Company determines the present value of minimum future lease payments for operating leases by estimating a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments and a similar economic environment (the “incremental borrowing rate” or “IBR”).The Company determines the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances.
Accrued Liabilities
Accrued liabilities primarily include accrued property tax and sales tax and other accrual and payable for the operation of the ordinary course of business.
Bank and Other Borrowings
Borrowings are initially recognized at fair value, net of upfront fees incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in statements of operations over the period of the borrowings using the effective interest method.
Related Parties
The Company adopted ASC Topic 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation.
The details of related party transactions during the years ended December 31, 2023 and 2022 and balances as of December 31, 2023 and 2022 are set out in the Note 9.
| F-14 |
Revenue Recognition
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers in accordance with Accounting Standards Codification (“ASC”) 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
| ● | identification of performance obligations in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company recognizes revenue when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of promised goods or services are transferred to customers. Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues.
In addition, the Company defers certain costs to fulfill the Company’s contracts with customers to the extent such costs relate directly to the contracts, are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contracts, and are expected to be recovered through revenue generated under the contracts. Contract fulfillment costs are incurred as the Company satisfies the related performance obligations.
| F-15 |
Revenue from golf operations
There are two types of service charges maintained by the Company, the players can either (1) subscribe to the entertainment services for a period of time of one year at a discount (i.e. annual subscription green fees); or (2) purchase the services at the counter by one-time payment (i.e. one-time green fees). The golf courses are open to public and hence our customers include both local and overseas citizens. The charges comprise of both the cart fee and fees for playing in the golf course, which is fixed without variable consideration, and the customers either pay via cash or credit card. The entire service fee from customers is non-refundable and required to be paid in advance.
The Company sells annual green fee subscriptions to local patrons. The performance obligation of the annual subscription is for the Company to provide a patron with access to the golf course and cart, subject to availability of a tee time for a patron to play a single round on the 18-hole course; the round of golf is expected to be completed before sunset of the day of the booking of that tee time. The Company recognizes revenue from these annual subscriptions on a monthly basis over twelve months. The annual subscriptions are non-refundable. Payments for subscriptions in the form of cash or credit card are received in advance, and are recorded as contract liabilities-deferred revenue, and recognized to revenue at the end of each month. Management believes that the services provided each month are substantially similar and result in the transfer of substantially similar services to the customers each month. That is, the benefit consumed by the customers is substantially similar for each month, even though the exact volume of services may vary. The Company concludes that the annual green fees subscription satisfies the requirements of ASC 606-10-25-14(b) to be accounted for as a single performance obligation. The annual subscriptions fees are fixed and there is no variable consideration, significant financing components or noncash consideration. There is no contract asset related to these annual green fee subscriptions. As of December 31, 2023 and 2022, the Company recorded contract liabilities - deferred revenue of $158,429 and $19,456, respectively.
One-time green fees require the Company to provide to a patron access to a designated 18-hole golf course and cart to play a single round of golf subject to non-hazardous weather conditions that is expected to be completed before sunset of the day of booking of that tee time. Management believes access to the golf course and the card constitute a single performance obligation as either service is not available to be purchased separately. Payments for tee times are non-refundable and are received via cash or credit card immediately prior to the initiation of the patron playing the round of 18-hole golf; therefore, and one-time green fees are not refundable. Typically, in the event that weather is not expected to permit the patron to play and complete the single round of golf, the Company will not undertake the transaction and take payment from the patron. The one-time green fees are fixed and there is no variable consideration.
| F-16 |
Sales of merchandise, food and beverage
Golf course patrons regularly buy golf balls, clothing, paraphernalia, and gloves, or will enjoy food and beverage offered at the clubhouses. Patrons make orders at the counter. The price is fixed without variable consideration. The Company recognizes revenue when the merchandise or food and beverage are delivered, net of discounts, if any and control of the product has been passed to the customer. If the clothing or wearables have product defects, they are subject to exchange, but all sales are final and not subject to return. Product delivery is evidenced by a payment receipt record. Payments are settled via cash or credit card. The respective revenue is recognized at a point in time. There are no warranties, sales returns and refunds after the orders are delivered to the customers at the counter.
Ancillary revenue
Ancillary revenue represented the lease of its clubhouse for several hours for events held by associations or individuals such as golf tournaments and lease of golf club to individuals for one day playing golf in the Company’s golf course. The revenue was recognized upon services were rendered (i.e. on daily basis when the venue or golf club was used that day). Deposit was received in advance for booking of clubhouse and recognized as contract liabilities – deferred income upon receipt and recognized as revenue in the statements of income when service was rendered or no show after booking. Deposit received is non-refundable.
Operating Costs
Golf operating costs consist of costs associated with golf course upkeep expenses and are expensed as incurred.
Other General and Administrative Expense
Other General and administrative expense consists of costs associated with corporate and administrative functions that support development and operations.
Income Tax
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
| F-17 |
The Company follows the accounting guidance for uncertainty In income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
As of December 31, 2023 and 2022, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements, respectively.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded during the years ended December 31, 2023 and 2022, respectively.
Earnings Per Share
The Company computes earnings per share, or EPS, in accordance with ASC Topic 260, Earnings per Share (“ASC 260”). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the years ended December 31, 2023 and 2022, there were no dilutive shares.
Segment Information
ASC Topic 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products or services. Based on management’s assessment, the Company has determined that it has only one operating segment. All assets of the Company are located in Florida and all revenue is generated from Florida.
| F-18 |
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
Recently Issued Accounting Pronouncements
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). ASU No. 2021-01 is an update of ASU No. 2020-04, which is in response to concerns about structural risks of interbank offered rates, and particularly the risk of cessation of LIBOR. Regulators have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation.
ASU No. 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU No. 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU No. 2021-01 update clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are effective immediately through December 31, 2022, for all entities. On December 21, 2022, the FASB issued a new Accounting Standards Update ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, that extends the sunset (or expiration) date of ASC Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. The Company does not expect the cessation of LIBOR to have a material impact on the financial position, results of operations, cash flows or disclosures.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
Note 3 – Revision
The Company determined that previously issued consolidated financial statements for the years ended December 31, 2023 and 2022 contained in the Company’s Confidential Draft Registration Statement No. 2 of Form S-1 filed on March 26, 2024 required the recognition of deferred tax liabilities on the accelerated depreciation of property and equipment in the consolidated financial statements. The revision is to properly reflect the tax position of the Company as of December 31, 2023 and 2022. These revisions had increased the Company’s total liabilities as of December 31, 2023 and 2022 by $48,156 and $20,864, respectively, and decreased he Company’s net income for the years ended December 31, 2023 and 2022 by $27,292 and $17,992, respectively, which are not material to our consolidated financial statements. Moreover, there was an increase of total liabilities by $2,872 as an opening effect and decrease of net income by $2,872 for prior year. There is no impact on the consolidated statements of cash flows for the years ended December 31, 2023 and 2022.
The effects of these items in the Company’s previously issued consolidated balance sheets as of December 31, 2023 and 2022 are summarized as follows:
| December 31, 2023 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Total non-current liabilities | $ | 790,366 | $ | 48,156 | $ | 838,522 | ||||||
| Total Liabilities | 3,454,377 | 48,156 | 3,502,533 | |||||||||
| Total Stockholder’s Equity | 1,294,792 | (48,156 | ) | 1,246,636 | ||||||||
| December 31, 2022 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Total non-current liabilities | $ | 957,330 | $ | 20,864 | $ | 978,194 | ||||||
| Total Liabilities | 3,633,621 | 20,864 | 3,654,485 | |||||||||
| Total Stockholder’s Equity | 881,372 | (20,864 | ) | 860,508 | ||||||||
The effects of these items in the Company’s previously issued consolidated statements of income and comprehensive income for the years ended December 31, 2023 and 2022 are summarized as follows:
| Year ended December 31, 2023 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Net Income | $ | 413,420 | $ | (27,292 | ) | $ | 386,128 | |||||
| Comprehensive Income | 413,420 | (27,292 | ) | 386,128 | ||||||||
| Earnings per common share | ||||||||||||
| Basic and diluted | 0.08 | (0.01 | ) | 0.07 | ||||||||
| Year ended December 31, 2022 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Net Income | $ | 341,185 | $ | (17,992 | ) | $ | 323,193 | |||||
| Comprehensive Income | 341,185 | (17,992 | ) | 323,193 | ||||||||
| F-19 |
Note 4 – Inventories, net
As of December 31, 2023 and 2022, the inventories of finished goods consisted of the following:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Merchandise | $ | 34,336 | $ | 39,174 | ||||
| Food and beverage | 21,368 | 20,188 | ||||||
| Less: impairment of obsolete goods | - | - | ||||||
| $ | 55,704 | $ | 59,362 | |||||
Note 5 – Property and Equipment, net
As of December 31, 2023 and 2022, the property and equipment consisted of the following:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Land | $ | 444,906 | $ | 444,906 | ||||
| Buildings and recreational facilities | 2,242,904 | 2,237,774 | ||||||
| Properties improvements | 1,790,213 | 1,672,682 | ||||||
| Furniture and equipment | 128,888 | 103,596 | ||||||
| 4,606,911 | 4,458,958 | |||||||
| Less - accumulated depreciation | (1,551,990 | ) | (1,377,783 | ) | ||||
| $ | 3,054,921 | $ | 3,081,175 | |||||
Depreciation expenses for the years ended December 31, 2023 and 2022, were $174,207 and $163,371, respectively.
| F-20 |
Note 6 – Accounts Payables and Accrued Liabilities
As of December 31, 2023 and 2022, the accounts payable and accrued liabilities consisted of the following:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable | $ | 329,655 | $ | 168,823 | ||||
| Credit cards payables | 49,019 | 29,107 | ||||||
| Sales tax payable | 20,050 | 20,106 | ||||||
| Property tax payable | 97,206 | 90,358 | ||||||
| $ | 495,930 | $ | 308,394 | |||||
Note 7 – Bank and Other Borrowings
As of December 31, 2023 and 2022, the bank and other borrowings consisted of the following:
| Fixed | ||||||||||||||||||||
| Principal | Interest | December 31, | December 31, | |||||||||||||||||
| Initiation date | Loan No. | Amount | Maturity date | Rate | 2023 | 2022 | ||||||||||||||
| May 13, 2020 | #1 | $ | 500,000 | April 13,2050 | 3.75 | % | $ | 488,961 | $ | 499,650 | ||||||||||
| May 17, 2022 | #2 | $ | 25,050 | August 1,2025 | 5.5 | % | 13,975 | 23,431 | ||||||||||||
| September 9, 2022 | #3 | $ | 150,000 | September 9, 2025 | 6.75 | % | 91,202 | 138,634 | ||||||||||||
| August 1, 2023 | #4 | $ | 87,199 | July 1, 2031 | 6.50 | % | 74,089 | - | ||||||||||||
| November 13, 2023 | #5 | $ | 120,000 | November 13, 2026 | 9.25 | % | 117,088 | - | ||||||||||||
| Total loans payable | 785,315 | 661,715 | ||||||||||||||||||
| Current portion | (135,970 | ) | (67,681 | ) | ||||||||||||||||
| Non-current portion | $ | 649,345 | $ | 594,034 | ||||||||||||||||
Notes:
| (1) | Loan #1 is guaranteed by Cheung Chi Ping (“Mr. Cheung”), director of the Company, and Chrome I and secured by all intangible and tangible personal property of Mr. Cheung. |
| (2) | Loan #2 is secured by the land of the golf course of the Company. |
| (3) | Loan #3 is secured by the buildings of the golf clubs of the Company. |
| (4) | Loan #4 is secured by the golf course and repayable in eight years |
| (5) | Loan #5 is unsecured. |
| F-21 |
During the years ended December 31, 2023 and 2022, the Company recognized interest expenses of $30,393 and $36,196, respectively.
Future minimum payments under bank and other borrowings at December 31, 2023 were as follows:
| Total | ||||
| 2024 | $ | 135,970 | ||
| 2025 | 128,162 | |||
| 2026 | 66,817 | |||
| 2027 | 12,423 | |||
| 2028 | 12,897 | |||
| Thereafter | 429,046 | |||
| Total bank and other borrowings | $ | 785,315 | ||
Note 8 – Leases
During the years ended December 31, 2023 and 2022, the Company had six operating lease agreements for a period of 4 years to 5 years. The leases were for corporate office, golf carts and golf equipment.
The components of leases related expenses charged to statements of operations were as follows:
| Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost | $ | 230,865 | $ | 183,382 | ||||
| F-22 |
Supplemental cash flow information related to leases was as follows:
| Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 230,865 | $ | 183,382 | ||||
| Financing cash flows from financing leases | $ | - | $ | - | ||||
| Initial recognition of lease obligations related to right-of-use assets | $ | - | $ | 243,127 | ||||
Supplemental balance sheet information related to leases was as follows:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating lease right-of-use asset | $ | 363,296 | $ | 578,513 | ||||
| Operating lease liabilities: | ||||||||
| Current portion | $ | 222,275 | $ | 215,217 | ||||
| Non-current portion | 141,021 | 363,296 | ||||||
| $ | 363,296 | $ | 578,513 | |||||
Future minimum lease payments under operating leases as of December 31, 2023 were as follows:
| Future minimum lease payments as of December 31, 2023: | ||||
| 2024 | $ | 230,865 | ||
| 2025 | 97,439 | |||
| 2026 | 47,482 | |||
| Thereafter | - | |||
| $ | 375,786 | |||
| Less imputed interest | (12,490 | ) | ||
| Operating lease liabilities | $ | 363,296 | ||
| Weighted average discount rate | 3.44 | % | 3.26 | % | ||||
| Weighted average remaining lease term (years) | 2.08 | 2.85 |
| F-23 |
Note 9 – Related Party Transactions
Relationships with related parties
| Name | Relationship | |
| Mr. Cheung Ching Ping | Shareholder of the Company | |
| Mr. Cheung Chi Ping | Shareholder and Director of the Company | |
| Mr. Cheung Yick Chung | Shareholder of the Company |
Amounts due to related parties
Amounts due to related parties consists of the following:
| Name | Nature | December 31, 2023 | December 31, 2022 | |||||||
| Mr. Cheung Ching Ping | Interest-free listing expense loans(1) | $ | 520,964 | $ | - | |||||
| Mr. Cheung Ching Ping | Interest-free shareholder’s loans(2) | 472,272 | 989,822 | |||||||
| Mr. Cheung Chi Ping | Interest-free shareholder’s loans(2) | 377,817 | 791,857 | |||||||
| Mr. Cheung Chi Ping | Director’s remuneration(3) | 185,900 | 85,900 | |||||||
| Mr. Cheung Yick Chung | Interest-free shareholder’s loans(2) | 94,454 | 197,964 | |||||||
| $ | 1,651,407 | $ | 2,065,543 | |||||||
Notes:
| (1) | On September 7, 2023, Mr. Cheung Ching Ping, a shareholder of the Company, entered into a loan facility agreement with the Company that Mr. Cheung Ching Ping agreed to pay the listing expenses incurred for the initial public offering in Nasdaq on behalf of the Company before listing with a maximum principal amount of $1,000,000. Pursuant to the facility agreement, the loan is interest-free, unsecured and repayable on the earlier of the listing of our common stock on Nasdaq, or December 31, 2024. As of December 31, 2023 and 2022, amount of listing expenses paid by Mr. Cheung Ching Ping on behalf of the Company was $520,964 and Nil. |
| (2) | On April 24, 2014, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung entered into two shareholders’ loan agreements with Chrome Field I, Inc. and Chrome Field II, Inc., wholly-owned subsidiaries of the Company, respectively. Pursuant to the shareholders’ loan agreements, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung agreed to grant shareholders’ loans at principal amounts of $1,307,619.69 and $1,447,739.16 to Chrome Field I, Inc. and Chrome Field II, Inc., respectively, in a proportion of 50%, 40% and 10%, respectively, in connection with the acquisition of Kissimmee Bay and Remington in 2014. Pursuant to the shareholders’ loan agreements, the loans are interest-free, unsecured and to repayable on demand. As of December 31, 2023, amount of outstanding shareholders’ loans owned by the Company to Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung was $472,272, $377,817 and $94,454, respectively. As of December 31, 2022, amount of outstanding shareholders’ loans owned by the Company to Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung was $989,822, $791,857 and $197,964, respectively. |
| (3) | For the sake of compensating Mr. Cheung Chi Ping’s involvement in the daily operations and management of golf operations of the Company, director’s remuneration was granted by the Company every year based on the performance of the Company. For the years ended December 31, 2023 and 2022, the Company charged $110,000 and $100,000 as director’s remuneration to Mr. Cheung Chi Ping and recognized under salaries and benefits of statements of income. As of December 31, 2023 and 2022, outstanding director’s remuneration was $185,900 and $85,900, respectively. The balance is interest-free, unsecured and repayable on demand. |
Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung signed an undertaking that no demand on repayment from the Company since December 31, 2022 and the balances will be fully settled upon listing of the Group.
| F-24 |
Note 10 – Revenue
Revenues disaggregated by major revenue streams and timing of revenue recognition for the years ended December 31, 2023 and 2022 are disclosed in the table below:
| Years ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Over time: | ||||||||
| Golf operations – annual subscription green fees | $ | 168,723 | $ | 230,874 | ||||
| Point in time: | ||||||||
| Golf operations – one-time green fees | 2,475,133 | 2,079,741 | ||||||
| Sales of food and beverage | 682,281 | 517,694 | ||||||
| Sales of merchandise | 138,450 | 99,366 | ||||||
| Ancillary revenue | 90,125 | 80,979 | ||||||
| 3,385,989 | 2,777,780 | |||||||
| $ | 3,554,712 | $ | 3,008,654 | |||||
Note 11 – Stockholders’ Equity
Preferred stock
The Company has authorized 50,000,000 shares of preferred stock with a par value of $0.001. 20,000,000 preferred shares have been designated.
Series A Preferred Stock
The Company has designated 20,000,000 preferred shares, par value $0.001, as Series A Preferred Stock. Initially, holders of series A preferred stock would have 20 voting rights for each series A preferred stock on any matter which action of the stockholders of the corporation is sought. The series A preferred stock will vote together with the common stock. Common stock and series A preferred stock are not convertible into each other. Holders of series A preferred stock are not entitled to receive dividends. The series A preferred stock does not have liquidation preference over the Company’s common stock, and therefore ranks pari passu with the Common Stock in the event of liquidation.
On January 17, 2024, 5,000,000 shares of Series A Preferred Stock was issued to Ace Champion, 4,000,000 shares of Series A Preferred Stock was issued to Chrome Fields Asset Management LLC, wholly-owned by Mr. Cheung Chi Ping and 1,000,000 shares of Series A Preferred Stock was issued to Trendy View, at an aggregate cash consideration of $10,000. As a result, as of December 31, 2023 and 2022, 10,000,000 shares of Series A Preferred Stock are issued and outstanding. This has been retrospectively reflected in the consolidated financial statements as discussed in Note 1.
| F-25 |
Common stock
The Company has authorized 450,000,000 shares of common stock with a par value of $0.001 per share. Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which an action of the shareholders of the Company is sought.
The Company issued 5,440,000 shares of common stock for the exchange of 100 ordinary shares owned by the shareholder of our acquired subsidiary, Pine Ridge.
On January 17, 2024, the Company allotted 6,800,000 shares of common stock at par value $0.001 of the Company to Ace Champion, a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Ching Ping, brother of Mr. Cheung Chi Ping; and the Company allotted 1,360,000 shares of common stock at par value $0.001 to Trendy View, a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Yick Chung and Ms. Chan Lee, parents of Mr. Cheung Chi Ping. Total consideration for the subscription was $8,160. Mr. Cheung Chi Ping, Mr. Cheung Ching Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are collectively considered as Mr. Cheung’s family. After the allotment, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are ultimately holding 50%, 40% and 10% of the common stock of the Company.
On June 11, 2024, the Board of Directors approved to effect a 1.25-for-1 reverse stock split for the issued common stocks, such that every holder of 1.25 shares of common stock of the Company shall receive 1 share of common stock resulting in the issued common stocks to be 10,880,000 which are being held by Ace Champion of 5,440,000 shares of common stock, Chrome Fields of 4,352,000 shares of common stock and Trendy View of 1,088,000 shares of common stock.
As a result, as of December 31, 2023 and 2022, 10,880,000 shares of common stock are issued and outstanding. All the above transactions have been retrospectively reflected in the consolidated financial statements as discussed in Note 1.
Note 12 – Income Tax
The Company provides for income tax under ASC 740, “Income Taxes” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
The Company is incorporated in the State of Nevada and is not subject to tax on income or capital gains under current Nevada law. In addition, upon payments of dividends by these entities to their shareholders, no Nevada withholding tax will be imposed.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the new federal statutory rate of 21% and state of Florida tax rate of 5.5% to the income tax amount recorded for the years ended December 31, 2023 and 2022 are as follows:
Taxation in the statements of income represents:
| Years ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Tax provision for the year: | ||||||||
| Current | $ | - | $ | - | ||||
| Deferred | ||||||||
| ● Federal statutory tax | ||||||||
| - Deferred tax assets | ||||||||
| - recognition of prior year NOLs | $ | (217,364 | ) | $ | - | |||
| - utilization of NOLs brought forward | 24,587 | 75,512 | ||||||
| - utilization of NOLs recognized during the year for prior year NOLs | 66,300 | - | ||||||
| - Deferred tax liabilities | ||||||||
| - recognition for the year | 19,115 | 17,685 | ||||||
| (107,362 | ) | 93,197 | ||||||
| ● State of Florida tax | ||||||||
| - Deferred tax assets | ||||||||
| - recognition of prior year NOLs | (56,711 | ) | - | |||||
| - utilization of NOLs brought forward | 7,025 | 24,253 | ||||||
| - utilization of NOLs recognized during the year for prior year NOLs | 13,606 | - | ||||||
| - Deferred tax liabilities | ||||||||
| - recognition for the year | 8,177 | 307 | ||||||
| (27,903 | ) | 24,560 | ||||||
| Total income tax (benefits) expenses | $ | (135,265 | ) | $ | 117,757 | |||
| F-26 |
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of income to the federal statutory rate of 21% for the years ended December 31, 2023 and 2022 is as follows:
| Years ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | ||||
| Effect of state of Florida tax | 11.5 | % | 5.6 | % | ||||
| Effect of state of Nevada tax | 0.0 | % | 0.0 | % | ||||
| Effect of British Virgin Islands tax | 0.0 | % | 0.0 | % | ||||
| Permanent difference | 0.4 | % | 0.1 | % | ||||
| Effect of deferred tax assets for prior years NOLs recognized in the current year at Federal statutory tax rate | (86.6 | )% | 0.0 | % | ||||
| Effect of deferred tax assets for prior years NOLs recognized in the current year at state of Florida tax rate | (22.6 | )% | 0.0 | % | ||||
| Tax holiday* | 22.4 | % | 0.0 | % | ||||
| Effective tax rate | (53.9 | )% | 26.7 | % | ||||
* Tax holiday represented the audit fee expenses in relation to IPO incurred by the Company which is incorporated in the state of Nevada which is not subject to state income tax.
Significant components of the deferred tax assets and deferred tax liabilities are presented below:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax liabilities: | ||||||||
| Accelerated depreciation | ||||||||
| Federal statutory tax: | ||||||||
| Beginning of the year | $ | 21,058 | $ | 3,373 | ||||
| Recognized during the year | 19,115 | 17,685 | ||||||
| End of the year | 40,173 | 21,058 | ||||||
| State of Florida tax: | ||||||||
| Beginning of the year | (194 | ) | (501 | ) | ||||
| Recognized during the year | 8,177 | 307 | ||||||
| End of the year | 7,983 | (194 | ) | |||||
| Deferred tax liabilities | $ | 48,156 | $ | 20,864 | ||||
| Deferred tax assets: | ||||||||
| Net operating losses | ||||||||
| Federal statutory tax: | ||||||||
| Beginning of the year | $ | 68,914 | $ | 144,426 | ||||
| Recognized during the year | 217,364 | - | ||||||
| Utilized during the year | (90,887 | ) | (75,512 | ) | ||||
| End of the year | 195,391 | 68,914 | ||||||
| State of Florida tax: | ||||||||
| Beginning of the year | $ | 4,659 | 28,912 | |||||
| Recognized during the year | 56,711 | - | ||||||
| Utilized during the year | (20,631 | ) | (24,253 | ) | ||||
| End of the year | 40,739 | 4,659 | ||||||
| Less: valuation allowance | - | - | ||||||
| Deferred tax assets, net | $ | 236,130 | $ | 73,573 | ||||
The Group evaluated the recoverable amounts of deferred tax assets to the extent that future taxable profits will be available against which the net operating loss and temporary difference can be utilized.
| F-27 |
As of December 31, 2022, the deferred tax assets of $73,573 represented the net operating losses (“NOLs”) of $277,634 recognized for Chrome I due to the opinion of the management that Chrome I has taxable income to be utilized the NOLs in the foreseeable future. During the year ended December 31, 2023, deferred tax assets of $26,604 recognized under Chrome I was further utilized. As of December 31, 2023, deferred tax assets of Chrome I carried forward indefinitely was $46,969.
During the year ended December 31, 2023, the management believed that the NOLs of Chrome II has taxable income to utilize the NOLs in the foreseeable future and recognized the NOLs carryforwards of $1,034,247 as deferred tax assets of $274,075 and among which $84,914 of deferred tax assets were utilized during the current year. As of December 31, 2023, deferred tax assets of Chrome II carried forward indefinitely was $189,161.
As of December 31, 2023, the Company had $891,049 of NOLs which can be carried forward indefinitely.
The NOLs carry forwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382.
Note 13 – Risk and Uncertainties
Credit Risk
The Company’s principal financial assets are cash and cash equivalents and accounts receivables. The Company’s credit risk is primarily concentrated in its cash which is held with institutions with a high credit worthiness. The Company has not experienced losses on their accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
The Company mitigates its credit risk on receivables by actively managing and monitoring its receivables. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. Since all accounts receivable as at years ended December 31, 2023 and 2022 are aged within one year and collected all receivables subsequent to year end, minimum credit risk was noted for accounts receivable.
Vendor concentration risk
As of December 31, 2023 and 2022, the Company owed 85% and 84% of accounts payable to a key supplier, respectively.
| F-28 |
For the years ended December 31, 2023 and 2022, one vendor accounted for 31% and 32% of our total operating costs. No other vendor accounts for more than 10% of our total operating costs for the years ended December 31, 2023 and 2022, respectively.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as its financial liabilities carry interest at fixed rates.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of twelve months, including through operations and financial support from our stockholders and financial institutions. We are continuing to focus on improving operational efficiency and cost reductions and enhancing efficiency, as well as servicing of financial obligations: this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Our ability to continue as a going concern is dependent upon obtaining the necessary financing or negotiating the terms of the existing short-term liabilities to meet our current and future liquidity needs.
Note 14 – Commitments and Contingencies
Lease Commitments
We entered into operating leases for corporate office, golf cars and golf equipment for terms of four to five years. Our commitments for minimum lease payment under these operating leases and finance lease obligations as of December 31, 2022 are listed in section “Note 8 — “Leases”.
| F-29 |
Litigation
From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, we do not believe that the ultimate outcome of any unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and our view of these matters may change in the future. We record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review the need for any such liabilities on a regular basis.
Note 14 – Subsequent Events
The Company evaluated all events and transactions that occurred after December 31, 2023 up through June 20, 2024, which is the date that these consolidated financial statements are available to be issued, there were no other any material subsequent events that require disclosure in these consolidated financial statements other than disclosed below.
The Company performed the Group Reorganization as detailed in Note 1 above.
On January 17, 2024, the Company approved the following transactions:
| ● | Authorized 50,000,000 shares of preferred stock with a par value of $0.001. The Company has designated 20,000,000 preferred shares, par value $0.001, as Series A Preferred Stock. Initially, holders of Series A preferred stock would have 20 voting rights for each Series A preferred stock on any matter which action of the stockholders of the corporation is sought. The Series A preferred stock will vote together with the common stock. Common stock and Series A preferred stock are not convertible into each other. Holders of Series A preferred stock are not entitled to receive dividends. The Series A preferred stock does not have liquidation preference over the Company’s common stock, and therefore ranks pari passu with the Common Stock in the event of liquidation. | |
| ● | Issued 10,000,000 shares of Series A preferred to founders of the Company for $10,000. | |
| ● | Issued 5,440,000 shares of common stock, for the entire issued share capital of Pine Ridge. | |
| ● | Issued a total of 8,160,000 shares of common stock, to founders of the Company for $8,160. |
On April 15, 2024, Chrome I and Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung, the shareholders of the Company, entered into a shareholder agreement. Pursuant to which, the shareholders agreed to grant a shareholder loan with principal amount of $500,000 with Mr. Cheung Ching Ping providing $250,000 (50%), Mr. Cheung Chi Ping providing $200,000 (40%), and Mr. Cheung Yick Chung providing $50,000 (10%). These loans are interest free and is repayable on demand and is not secured for the purpose of repayment of a working capital loan borrowed from third parties.
Subsequent to the year end and up to April 19, 2024, the Company has early repaid a 3.75% annual interest-bearing borrowing with outstanding balance of $488,961 as of December 31, 2023 in full.
On June 11, 2024, the Board of Directors approved to effect a 1.25-for-1 reverse stock split for the issued common stocks, such that every holder of 1.25 shares of common stock of the Company shall receive 1 share of common stock resulting in the issued common stocks to be 10,880,000 which are being held by Ace Champion of 5,440,000 shares of common stock, Chrome Fields of 4,352,000 shares of common stock and Trendy View of 1,088,000 shares of common stock.
| F-30 |
Aureus Greenway Holdings Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 799,078 | $ | 646,294 | ||||
| Accounts receivable, net | 14,604 | 36,299 | ||||||
| Inventories, net | 54,840 | 55,704 | ||||||
| Deferred offering costs | 559,373 | 252,964 | ||||||
| Other current assets | 125 | 125 | ||||||
| Total current assets | 1,428,020 | 991,386 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 3,166,914 | 3,054,921 | ||||||
| Prepayment for acquisition of property and equipment | - | 103,436 | ||||||
| Operating lease right-of-use assets | 234,884 | 363,296 | ||||||
| Deferred tax assets | 111,820 | 236,130 | ||||||
| Total non-current assets | 3,513,618 | 3,757,783 | ||||||
| Total Assets | $ | 4,941,638 | $ | 4,749,169 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 308,096 | $ | 495,930 | ||||
| Contract liabilities - deferred revenue | 180,058 | 158,429 | ||||||
| Bank and other borrowings – current | 109,334 | 135,970 | ||||||
| Operating lease liabilities – current | 161,167 | 222,275 | ||||||
| Due to related parties | 2,403,354 | 1,651,407 | ||||||
| Total current liabilities | 3,162,009 | 2,664,011 | ||||||
| Non-current liabilities | ||||||||
| Bank and other borrowings - non-current | 137,310 | 649,345 | ||||||
| Operating lease liabilities - non-current | 73,717 | 141,021 | ||||||
| Deferred tax liabilities | 61,683 | 48,156 | ||||||
| Total non-current liabilities | 272,710 | 838,522 | ||||||
| Total Liabilities | 3,434,719 | 3,502,533 | ||||||
| Commitments and contingencies | ||||||||
| Stockholder’s Equity | ||||||||
| Preferred stock: 50,000,000 shares authorized; $0.001 par value, 20,000,000 shares of series A preferred stock designated; 10,000,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively* | 10,000 | 10,000 | ||||||
| Common stock: 450,000,000 shares authorized; $0.001 par value, 10,880,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively* | 10,880 | 10,880 | ||||||
| Additional paid in capital | 2,082,456 | 2,082,456 | ||||||
| Subscription receivables | (18,160 | ) | (18,160 | ) | ||||
| Accumulated deficit | (578,257 | ) | (838,540 | ) | ||||
| Total Stockholder’s Equity | 1,506,919 | 1,246,636 | ||||||
| Total Liabilities and Stockholder’s Equity | $ | 4,941,638 | $ | 4,749,169 | ||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-31 |
Aureus Greenway Holdings Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
| For the Three months ended | For the Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Golf operations | $ | 458,728 | $ | 500,069 | $ | 1,679,609 | $ | 1,947,671 | ||||||||
| Sales of food and beverage | 146,824 | 150,286 | 392,085 | 421,166 | ||||||||||||
| Sales of merchandise | 24,732 | 28,188 | 75,824 | 88,081 | ||||||||||||
| Ancillary revenue | 18,253 | 16,078 | 54,654 | 56,544 | ||||||||||||
| Total revenue | 648,537 | 694,621 | 2,202,172 | 2,513,462 | ||||||||||||
| Operating costs: | ||||||||||||||||
| Golf operating costs (exclusive of depreciation and salaries and benefits shown separately below) | 315,464 | 283,835 | 706,695 | 580,802 | ||||||||||||
| Cost of food and beverage sales (exclusive of depreciation and salaries and benefits shown separately below) | 43,232 | 46,327 | 114,040 | 126,322 | ||||||||||||
| Cost of merchandise sales (exclusive of depreciation and salaries and benefits shown separately below) | 9,968 | 20,943 | 34,084 | 55,193 | ||||||||||||
| Salaries and benefits | 141,795 | 159,928 | 377,643 | 415,096 | ||||||||||||
| Depreciation | 50,031 | 43,104 | 100,038 | 85,108 | ||||||||||||
| Other general and administration expenses | 182,822 | 178,082 | 484,337 | 346,377 | ||||||||||||
| Total operating costs | 743,312 | 732,219 | 1,816,837 | 1,608,898 | ||||||||||||
| (Loss) income from operations | (94,775) | (37,598) | 385,335 | 904,564 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (6,296) | (7,075) | (16,482 | ) | (14,252 | ) | ||||||||||
| Other income | 9,825 | 6,371 | 29,267 | 14,220 | ||||||||||||
| Total other income, net | 3,529 | (704) | 12,785 | (32 | ) | |||||||||||
| (Loss) income before income tax | (91,246) | (38,302) | 398,120 | 904,532 | ||||||||||||
| Income tax (benefits) expense | (22,145) | (10,059) | 137,837 | (34,012 | ) | |||||||||||
| Net (Loss) Income | $ | (69,101) | $ | (28,243) | $ | 260,283 | $ | 938,544 | ||||||||
| Comprehensive (Loss) Income | $ | (69,101) | $ | (28,243) | $ | 260,283 | $ | 938,544 | ||||||||
| (Loss) earnings per common share | ||||||||||||||||
| Basic and diluted* | $ | (0.006) | $ | (0.003) | $ | 0.024 | $ | 0.086 | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic and diluted* | 10,880,000 | 10,880,000 | 10,880,000 | 10,880,000 | ||||||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-32 |
Aureus Greenway Holdings Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months and Six Months Ended June 30, 2024 and 2023
| Preferred Stock* | Common Stock* | Additional paid-in | Subscription | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | receivables | deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2022 (Audited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (1,224,668 | ) | $ | 860,508 | ||||||||||||||||
| Net income | - | - | - | - | - | - | 966,787 | 966,787 | ||||||||||||||||||||||||
| Balance, March 31, 2023 (Unaudited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (257,881 | ) | $ | 1,827,295 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (28,243 | ) | (28,243 | ) | ||||||||||||||||||||||
| Balance, June 30, 2023 (Unaudited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | (286,124 | ) | 1,799,052 | ||||||||||||||||||
| Balance, December 31, 2023 (Audited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (838,540 | ) | $ | 1,246,636 | ||||||||||||||||
| Net income | - | - | - | - | - | - | 329,384 | 329,384 | ||||||||||||||||||||||||
| Balance, March 31, 2024 (Unaudited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | $ | (509,156 | ) | $ | 1,576,020 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (69,101 | ) | (69,101 | ) | ||||||||||||||||||||||
| Balance, June 30, 2024 (Unaudited) | 1,000,000 | $ | 10,000 | 10,880,000 | $ | 10,880 | $ | 2,082,456 | $ | (18,160 | ) | (578,257 | ) | 1,506,919 | ||||||||||||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the reorganization (Note 1). |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-33 |
Aureus Greenway Holdings Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
| For the six months ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 260,283 | $ | 938,544 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 100,038 | 85,108 | ||||||
| Unpaid director’s remuneration | 40,000 | 110,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 21,695 | 23,472 | ||||||
| Inventories | 864 | 4,492 | ||||||
| Deferred tax assets | 124,310 | (39,245 | ) | |||||
| Accounts payable and accrued liabilities | (187,834 | ) | (19,691 | ) | ||||
| Contract liabilities - deferred revenue | 21,629 | (437 | ) | |||||
| Deferred tax liabilities | 13,527 | 5,233 | ||||||
| Net Cash Provided by Operating Activities | 394,512 | 1,107,476 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (108,595 | ) | (101,401 | ) | ||||
| Net Cash Used in Investing Activities | (108,595 | ) | (101,401 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from related party loan | 921,947 | - | ||||||
| Repayments of related party loan | (210,000 | ) | (1,035,100 | ) | ||||
| Proceeds from bank and other borrowings | - | 87,199 | ||||||
| Repayments of bank and other borrowings | (538,671 | ) | (43,899 | ) | ||||
| Deferred offering costs | (306,409 | ) | - | |||||
| Net Cash Used in Financing Activities | (133,133 | ) | (991,800 | ) | ||||
| Net change in cash and cash equivalents | 152,784 | 14,275 | ||||||
| Cash and cash equivalents, beginning of period | 646,294 | 693,151 | ||||||
| Cash and cash equivalents, end of period | $ | 799,078 | $ | 707,426 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 16,482 | $ | 14,252 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-34 |
Aureus Greenway Holdings Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2024 and 2023
Note 1 - Organization and Business
Business
Aureus Greenway Holdings Inc. (the “Company” or “Aureus”) was incorporated on December 22, 2023 in the state of Nevada. We conduct business activities principally through our wholly-owned subsidiaries, Chrome Fields I, Inc. and Chrome Fields II, Inc. engaging in operation of golf course and selling of merchandise and food and beverages.
As of December 31, 2022, we own and operate two golf clubs in Florida that consisting of over 289 acres of multi-service recreational property.
Pine Ridge Group Limited (“Pine Ridge”) was acquired by Mr. Cheung Chi Ping from independent third parties on December 31, 2013.
Chrome Field I, Inc. (“Chrome I”) was incorporated on December 24, 2013 in the State of Delaware. Chrome I the is sole member of FSC Clearwater, LLC (“Clearwater I”) which was incorporated in the State of Florida on January 21, 2014. Clearwater I owns and operates Kissimmee Bay Country Club, a privately-owned golf course that is open to the general public.
Chrome Field II, Inc. (“Chrome II”) was incorporated on April 13, 2014 in the State of Delaware. Chrome II the is sole member of FSC Clearwater II, LLC (“Clearwater I”) which was incorporated in the State of Florida on March 20, 2014. Clearwater II owns and operates Remington Golf Club, a privately-owned golf course that is open to the general public.
Reorganization
Pursuant to a Group Reorganization, to rationalize the structure of the Company and its subsidiaries (collectively, the “Group”) in preparation for the listing of the Company’s stocks, the Company became the holding company of the Group on January 17, 2024. According to revised memorandum and articles of association of the Company dated January 17, 2024, the authorized number of common stocks will be 450,000,000 shares at par value $0.001 per share, and 50,000,000 shares of blank check preferred stock at par value $0.001 per share. The Company has designated 20,000,000 preferred shares, par value $0.001, as Series A Preferred Stock. Initially, holders of Series A preferred stock would have 20 voting rights for each Series A preferred stock on any matter which action of the stockholders of the corporation is sought. The Series A preferred stock will vote together with the common stock. Common stock and Series A preferred stock are not convertible into each other. Holders of Series A preferred stock are not entitled to receive dividends. The Series A preferred stock does not have liquidation preference over the Company’s common stock, and therefore ranks pari passu with the common stock in the event of liquidation.
On the same date, January 17, 2024, a share exchange agreement was entered into between the Company and the sole shareholder of Pine Ridge, Mr. Cheung Chi Ping and pursuant to which the Company agreed to issue 5,440,000 common stocks of the Company to exchange for the entire equity interest in Pine Ridge from Mr. Cheung Chi Ping. After the Group Reorganization as of January 17, 2024, Mr. Cheung Chi Ping is holding the entire equity interest in the Company.
On January 17, 2024, the Company allotted 6,800,000 shares of common stock at par value $0.001 of the Company to Ace Champion Investments Limited (“Ace Champion”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Ching Ping, brother of Mr. Cheung Chi Ping; and the Company allotted 1,360,000 shares of common stock at par value $0.001 to Trendy View Assets Management (“Trendy View”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Yick Chung and Ms. Chan Lee, parents of Mr. Cheung Chi Ping. Total consideration for the subscription was $8,160. Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are collectively considered as Mr. Cheung’s family. After the allotment, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are ultimately holding 50%, 40% and 10% of the common stock of the Company.
| F-35 |
On January 17, 2024, 5,000,000 shares of Series A Preferred Stock was issued to Ace Champion, 4,000,000 shares of Series A Preferred Stock was issued to Chrome Fields Asset Management LLC (“Chrome Fields”), wholly-owned by Mr. Cheung Chi Ping and 1,000,000 shares of Series A Preferred Stock was issued to Trendy View, at an aggregate cash consideration of $10,000.
On June 11, 2024, the Board of Directors approved to effect a 1.25-for-1 reverse stock split for the issued common stocks, such that every holder of 1.25 shares of common stock of the Company shall receive 1 share of common stock resulting in the issued common stocks to be 10,880,000 which are being held by Ace Champion of 5,440,000 shares of common stock, Chrome Fields of 4,352,000 shares of common stock and Trendy View of 1,088,000 shares of common stock.
After the issue of additional common stock and Series A Preferred Stock by the Company and reverse stock split, the Company, together with its wholly-owned subsidiaries, are effectively controlled by the same Controlling Shareholder, Mr. Cheung’s family before and after the Group Reorganization, respectively, and therefore the Group Reorganization is considered as a recapitalization of entities under common control. the ultimate Controlling The consolidation of the Company and its subsidiaries has been accounted for at historical cost. No amount is recognized in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination. The unaudited condensed consolidated statements of income and comprehensive income, unaudited condensed consolidated statements of changes in stockholders’ equity and unaudited condensed consolidated statements of cash flows are prepared as if the current Group structure had been in existence throughout the six months ended June 30, 2024 and 2023, or since the respective dates of incorporation/establishment of the relevant entity, where this is a shorter period. The unaudited condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 present the assets and liabilities of the companies now comprising the Group which had been incorporated/established as at the relevant balance sheet date as if the current group structure had been in existence at those dates.
Upon the Group Reorganization and as at the date of this report, details of the subsidiaries company are as follows:
| Name | Place and date of formation |
Ownership | Principal activity | |||
| Pine
Ridge Group Limited (“Pine Ridge”) |
British Virgin Islands | 100%
(directly) |
Investment holding | |||
| Chrome
Fields I, Inc. (“Chrome I”) |
Delaware | 100%
(indirectly) |
Investment holding | |||
| Chrome
Fields II, Inc. (“Chrome II”) |
Delaware | 100%
(indirectly) |
Investment holding | |||
| FSC
Clearwater, LLC (“Clearwater I”) |
Florida | 100%
(indirectly) |
Operation of golf course and selling of food and beverages and merchandise (Kissimmee Bay Country Club) | |||
| FSC
Clearwater II, LLC (“Clearwater II”) |
Florida | 100%
(indirectly) |
Operation of golf course and selling of food and beverages and merchandise (Remington Golf Club) |
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Basis of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim financial statements include the accounts of the Company and its wholly-owned subsidiaries. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All significant inter-company transactions and balances between members of the Group are eliminated upon consolidation.
| F-36 |
The unaudited condensed consolidated financial statements do not include all the information and footnotes required by the U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with the U.S. GAAP have been condensed or omitted in accordance with SEC rules and regulations. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, in normal recurring nature, as necessary for the fair statement of the Company’s financial position as of June 30, 2024, and results of operations and cash flows for the six months ended June 30, 2024 and 2023. The unaudited condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by the U.S. GAAP. Interim results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period. These financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022, and related notes included in the Company’s audited consolidated financial statements.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates and assumptions made by management include allowance for expected credit loss/doubtful accounts, allowance for deferred tax assets, the useful lives and impairment assessment of property and equipment and estimated incremental borrowing rate of lease. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Cash and Cash Equivalents
Cash and cash equivalents include cash at bank and demand deposits which have original maturities less than three months and are unrestricted as to withdrawal or use. As of June 30, 2024 and December 31, 2023, the Company had cash of $799,078 and $646,294, respectively, and did not have cash equivalents.
Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $250,000 per institution. The amount in excess of the Federal Deposit Insurance Corporation insurance as of June 30, 2024, was approximately $444,000. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Accounts Receivable, net
Accounts receivable mainly represent amounts due from customers paid by credit cards for provision of golf operations services and sales of merchandise and food and beverages which are recorded net of allowance for expected credit losses. The credit cards payment is to be settled either within few days after the year end date due to the timing difference for the payment transfer from credit card center to the bank accounts of the Company or within one month after the services were utilized by the customers who have authorized the Company to make the payment through their credit cards. The Company reviews accounts receivable periodically for collectability and establishes an allowance for expected credit losses and records allowance for expected credit losses expense when deemed necessary. The Company records an allowance for expected credit losses that is based on historical trends, customer knowledge, any known disputes, future expectation, future economic situation consideration and considers the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Accounts receivable are written off against the allowance after all attempts to collect a receivable have failed. As of June 30, 2024 and December 31, 2023, the Company had no allowance for expected credit losses due to no experiences on default from customers or failure of transfer from credit card center after payment authorization was made by customers and all outstanding accounts receivable as of June 30, 2024 and December 31, 2023 were subsequently settled before the report date.
| F-37 |
Inventories, net
Our inventories consist of merchandise goods such as golf balls, gloves, men’s wear and women’s wears, food and beverages and we value inventories using the lower first-in, first-out (“FIFO”) method and net realizable value, which is generally based on the selling price expectations of the merchandise goods. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise. For foods and beverages, the turnaround time is short, usually within one to two weeks. For the merchandise goods, all goods are aged less than one year and the Company will offer discounts to customers to speed the selling but higher than that of purchase price. As of June 30, 2024 and December 31, 2023, no obsolescent goods were noted.
Deferred offering costs
The Company follows the requirements of the FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering”. Deferred offering costs consist of underwriting, legal and other expenses incurred through the balance sheet date that are directly related to the intended initial public offering (“IPO”). Deferred offering costs will be charged to stockholders’ equity netted against the proceeds upon the completion of the IPO. Should the IPO prove to be unsuccessful, these deferred offering costs, as well as additional expenses to be incurred, will be charged to statements of income. As of June 30, 2024 and December 31, 2023, the Company deferred $559,373 and $252,964 of offering costs. Such costs will be deferred until the closing of the IPO, at which time the deferred costs will be offset against the offering proceeds and recognized in equity of the Company.
Property and Equipment, net
Property and equipment, net are stated at cost less accumulated depreciation and any impairment losses. Property and equipment, consisting of land, buildings, properties improvements, equipment, furniture and fixture. We capitalize costs that materially add value and appreciably extend the useful life of an asset. With respect to golf course improvements (included in land improvements), only costs associated with original construction, complete replacements, or the addition of new trees, sand traps, fairways or greens are capitalized while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Land is not depreciated.
Depreciation is calculated using the straight-line method based on the following estimated useful lives:
| Depreciable land improvements | 15 years | |
| Building and recreational facilities | 39 years | |
| Properties improvements | 5-7 years | |
| Furniture and equipment | 5-7 years |
The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Impairment for Long-Lived Assets
Long-lived assets, representing property and equipment with finite lives, are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with FASB ASC 360-10-15. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell. If an impairment is identified, The Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of June 30, 2024 and December 31, 2023, no impairment of long-lived assets was recognized.
| F-38 |
Fair Value of Financial Instruments
The Company follows accounting guidelines on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:
| ● | Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. | |
| ● | Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a significant judgment or estimation. |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires the Company to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded, may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.
The carrying amounts shown of the Company’s financial instruments including cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued liabilities, current portion of bank and other borrowings and lease liabilities and amount due to related party are approximate fair value due to their short-term nature. Non-current portion of bank and other borrowings and lease liabilities have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group’s own non-performance risk for bank and other borrowings and lease liabilities as of June 30, 2024 and December 31, 2023 were assessed to be insignificant.
Leases
ASC 842 supersedes the lease requirements in ASC 840 “Leases”, and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. All leases in the Group as of June 30, 2024 and December 31, 2023 are accounted for as operating leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
Any lease with a term of 12 months or less is considered short-term. As permitted by ASC 842, short-term leases are excluded from the ROU assets and lease liabilities on the consolidated balance sheets. Consistent with all other operating leases, short-term lease expense is recorded on a straight-line basis over the lease term.
The Company determines the present value of minimum future lease payments for operating leases by estimating a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments and a similar economic environment (the “incremental borrowing rate” or “IBR”).The Company determines the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances.
| F-39 |
Accrued Liabilities
Accrued liabilities primarily include accrued property tax and sales tax and other accrual and payable for the operation of the ordinary course of business.
Bank and Other Borrowings
Borrowings are initially recognized at fair value, net of upfront fees incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in statements of operations over the period of the borrowings using the effective interest method.
Related Parties
The Company adopted ASC Topic 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation.
The details of related party transactions during the six months ended June 30, 2024 and 2023 and balances as of June 30, 2024 and December 31, 2023 are set out in the Note 9.
Revenue Recognition
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers in accordance with Accounting Standards Codification (“ASC”) 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
| ● | identification of performance obligations in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company recognizes revenue when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of promised goods or services are transferred to customers. Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues.
In addition, the Company defers certain costs to fulfill the Company’s contracts with customers to the extent such costs relate directly to the contracts, are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contracts, and are expected to be recovered through revenue generated under the contracts. Contract fulfillment costs are incurred as the Company satisfies the related performance obligations.
| F-40 |
Revenue from golf operations
There are two types of service charges maintained by the Company, the players can either (1) subscribe to the entertainment services for a period of time of one year at a discount (i.e. annual subscription green fees); or (2) purchase the services at the counter by one-time payment (i.e. one-time green fees). The golf courses are open to public and hence our customers include both local and overseas citizens. The charges comprise of both the cart fee and fees for playing in the golf course, which is fixed without variable consideration, and the customers either pay via cash or credit card. The entire service fee from customers is non-refundable and required to be paid in advance.
The Company sells annual green fee subscriptions to local patrons. The performance obligation of the annual subscription is for the Company to provide a patron with access to the golf course and cart, subject to availability of a tee time for a patron to play a single round on the 18-hole course; the round of golf is expected to be completed before sunset of the day of the booking of that tee time. The Company recognizes revenue from these annual subscriptions on a monthly basis over twelve months. The annual subscriptions are non-refundable. Payments for subscriptions in the form of cash or credit card are received in advance, and are recorded as contract liabilities-deferred revenue, and recognized to revenue at the end of each month. Management believes that the services provided each month are substantially similar and result in the transfer of substantially similar services to the customers each month. That is, the benefit consumed by the customers is substantially similar for each month, even though the exact volume of services may vary. The Company concludes that the annual green fees subscription satisfies the requirements of ASC 606-10-25-14(b) to be accounted for as a single performance obligation. The annual subscriptions fees are fixed and there is no variable consideration, significant financing components or noncash consideration. There is no contract asset related to these annual green fee subscriptions. As of June 30, 2024 and December 31, 2023, the Company recorded contract liabilities - deferred revenue of $180,058 and $158,429, respectively.
One-time green fees require the Company to provide to a patron access to a designated 18-hole golf course and cart to play a single round of golf subject to non-hazardous weather conditions that is expected to be completed before sunset of the day of booking of that tee time. Management believes access to the golf course and the card constitute a single performance obligation as either service is not available to be purchased separately. Payments for tee times are non-refundable and are received via cash or credit card immediately prior to the initiation of the patron playing the round of 18-hole golf; therefore, and one-time green fees are not refundable. Typically, in the event that weather is not expected to permit the patron to play and complete the single round of golf, the Company will not undertake the transaction and take payment from the patron. The one-time green fees are fixed and there is no variable consideration.
Sales of merchandise, food and beverage
Golf course patrons regularly buy golf balls, clothing, paraphernalia, and gloves, or will enjoy food and beverage offered at the clubhouses. Patrons make orders at the counter. The price is fixed without variable consideration. The Company recognizes revenue when the merchandise or food and beverage are delivered, net of discounts, if any and control of the product has been passed to the customer. If the clothing or wearables have product defects, they are subject to exchange, but all sales are final and not subject to return. Product delivery is evidenced by a payment receipt record. Payments are settled via cash or credit card. The respective revenue is recognized at a point in time. There are no warranties, sales returns and refunds after the orders are delivered to the customers at the counter.
Ancillary revenue
Ancillary revenue represented the lease of its clubhouse for several hours for events held by associations or individuals such as golf tournaments and lease of golf club to individuals for one day playing golf in the Company’s golf course. The revenue was recognized upon services were rendered (i.e. on daily basis when the venue or golf club was used that day). Deposit was received in advance for booking of clubhouse and recognized as contract liabilities – deferred income upon receipt and recognized as revenue in the statements of income when service was rendered or no show after booking. Deposit received is non-refundable.
| F-41 |
Operating Costs
Golf operating costs consist of costs associated with golf course upkeep expenses and are expensed as incurred.
Other General and Administrative Expense
Other General and administrative expense consists of audit fees for initial public offering, costs associated with corporate and administrative functions that support development and operations.
Income Tax
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty In income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
As of June 30, 2024 and December 31, 2023, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements, respectively.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded during the six months ended June 30, 2024 and 2023, respectively.
Earnings Per Share
The Company computes earnings per share, or EPS, in accordance with ASC Topic 260, Earnings per Share (“ASC 260”). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the six months ended June 30, 2024 and 2023, there were no dilutive shares.
Segment Information
ASC Topic 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products or services. Based on management’s assessment, the Company has determined that it has only one operating segment. All assets of the Company are located in Florida and all revenue is generated from Florida.
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
| F-42 |
Recently Issued Accounting Pronouncements
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). ASU No. 2021-01 is an update of ASU No. 2020-04, which is in response to concerns about structural risks of interbank offered rates, and particularly the risk of cessation of LIBOR. Regulators have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. ASU No. 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU No. 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU No. 2021-01 update clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are effective immediately through December 31, 2022, for all entities. On December 21, 2022, the FASB issued a new Accounting Standards Update ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, that extends the sunset (or expiration) date of ASC Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. The Company does not expect the cessation of LIBOR to have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to compare entities subject more easily to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. We are currently evaluating the impact the adoption of ASU 2023-06 will have on its unaudited condensed consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. We are currently evaluating the impact the adoption of ASU 2023-06 will have on its unaudited condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income taxes (Topic 740), Improvements to Income Tax Disclosures, which provides guidance on the requirements such as the requirement that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business entities (non-PBEs), the requirements will be effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The ASU should be applied prospectively. Retrospective application is permitted. We are currently evaluating the impact the adoption of ASU 2023-09 will have on its unaudited condensed consolidated financial statements and related disclosures.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the unaudited condensed consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
Note 3 – Revision
The Company determined that previously issued consolidated financial statements for the year ended December 31, 2023 contained in the Company’s Confidential Draft Registration Statement No. 2 of Form S-1 filed on March 26, 2024 required the recognition of deferred tax liabilities on the accelerated depreciation of property and equipment in the consolidated financial statements. The revision is to properly reflect the tax position of the Company as of December 31, 2023. These revisions had increased the Company’s total liabilities as of December 31, 2023 by $48,156, and decreased the Company’s net income for the year ended December 31, 2023 by $27,292. There is no impact on the consolidated statements of cash flows for the year ended December 31, 2023.
The effects of these items in the Company’s previously issued consolidated balance sheets as of December 31, 2023 are summarized as follows:
| December 31, 2023 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Total non-current liabilities | $ | 790,366 | $ | 48,156 | $ | 838,522 | ||||||
| Total Liabilities | 3,454,377 | 48,156 | 3,502,533 | |||||||||
| Total Stockholder’s Equity | 1,294,792 | (48,156 | ) | 1,246,636 | ||||||||
The effects of these items in the Company’s previously issued consolidated statements of income and comprehensive income for the year ended December 31, 2023 are summarized as follows:
| Year ended December 31, 2023 | ||||||||||||
| Previously | ||||||||||||
| Reported | Revisions | Revised | ||||||||||
| Net Income | $ | 413,420 | $ | (27,292 | ) | $ | 386,128 | |||||
| Comprehensive Income | 413,420 | (27,292 | ) | 386,128 | ||||||||
| Earnings per common share | ||||||||||||
| Basic and diluted | 0.08 | (0.01 | ) | 0.07 | ||||||||
| F-43 |
Note 4 – Inventories, net
As of June 30, 2024 and December 31, 2023, the inventories of finished goods consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Merchandise goods | $ | 31,103 | $ | 34,336 | ||||
| Food and beverage | 23,737 | 21,368 | ||||||
| Less: Impairment of obsolete goods | - | - | ||||||
| $ | 54,840 | $ | 55,704 | |||||
Note 5 – Property and Equipment, net
As of June 30, 2024 and December 31, 2023, the property and equipment consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Land | $ | 444,906 | $ | 444,906 | ||||
| Buildings and recreational facilities | 2,262,814 | 2,242,904 | ||||||
| Properties improvements | 1,933,834 | 1,790,213 | ||||||
| Furniture and equipment | 176,388 | 128,888 | ||||||
| 4,818,942 | 4,606,911 | |||||||
| Less - accumulated depreciation | (1,652,028 | ) | (1,551,990 | ) | ||||
| $ | 3,166,914 | $ | 3,054,921 | |||||
Depreciation expenses for the six months ended June 30, 2024 and 2023, were $100,038 and $85,108, respectively.
Note 6 – Accounts Payables and Accrued Liabilities
As of June 30, 2024 and December 31, 2023, the accounts payable and accrued liabilities consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable | $ | 217,316 | $ | 329,655 | ||||
| Credit cards payables | 31,907 | 49,019 | ||||||
| Sales tax payable | 12,837 | 20,050 | ||||||
| Property tax payable | 45,977 | 97,206 | ||||||
| Accrual for salaries | 59 | - | ||||||
| $ | 308,096 | $ | 495,930 | |||||
| F-44 |
Note 7 – Bank and Other Borrowings
As of June 30, 2024 and December 31, 2023, the bank and other borrowings consisted of the following:
| Principal | Fixed Interest | June 30, | December 31, | |||||||||||||||||||
| Initiation date | Loan No. | Amount | Maturity date | Rate | 2024 | 2023 | ||||||||||||||||
| May 13, 2020 | #1 | $ | 500,000 | April 13, 2050 | 3.75 | % | $ | - | $ | 488,961 | ||||||||||||
| May 17, 2022 | #2 | $ | 25,050 | August 1,2025 | 5.50 | % | 10,380 | 13,975 | ||||||||||||||
| September 9, 2022 | #3 | $ | 150,000 | September 9, 2025 | 6.75 | % | 66,255 | 91,202 | ||||||||||||||
| August 1, 2023 | #4 | $ | 87,199 | July 1, 2031 | 6.50 | % | 70,785 | 74,089 | ||||||||||||||
| November 13, 2023 | #5 | $ | 120,000 | November 13, 2026 | 9.25 | % | 99,224 | 117,088 | ||||||||||||||
| Total loans payable | 246,644 | 785,315 | ||||||||||||||||||||
| Current portion | (109,334 | ) | (135,970 | ) | ||||||||||||||||||
| Non-current portion | $ | 137,310 | $ | 649,345 | ||||||||||||||||||
Notes:
| (1) | Loan #1 is guaranteed by Cheung Chi Ping (“Mr. Cheung”), director of the Company, and Chrome I and secured by all intangible and tangible personal property of Mr. Cheung. |
| (2) | Loan #2 is secured by the land of the golf course of the Company. |
| (3) | Loan #3 is secured by the buildings of the golf clubs of the Company. |
| (4) | Loan #4 is secured by the golf course and repayable in eight years |
| (5) | Loan #5 is secured by the land and building of the golf clubs of the Company. |
During the six months ended June 30, 2024 and 2023, the Company recognized interest expenses of $16,482 and $14,252, respectively.
Future minimum payments under bank and other borrowings at June 30, 2024 were as follows:
| Year ending December 31, | Total | |||
| 2024 (excluding the six months ended June 30, 2024) | $ | 54,321 | ||
| 2025 | 94,196 | |||
| 2026 | 49,225 | |||
| 2027 | 9,661 | |||
| 2028 | 10,456 | |||
| Thereafter | 28,785 | |||
| Total bank and other borrowings | $ | 246,644 | ||
Note 8 – Leases
During the six months ended June 30, 2024 and 2023, the Company had six operating lease agreements for a period of 4 years to 5 years. The leases were for corporate office, golf carts and golf equipment.
The components of leases related expenses charged to statements of income were as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease cost | 56,256 | 57,716 | $ | 113,972 | $ | 115,432 | ||||||||||
| F-45 |
Supplemental cash flow information related to leases was as follows:
| For the six months ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 113,972 | $ | 115,432 | ||||
| Weighted average discount rate | 3.52 | % | 3.37 | % | ||||
| Weighted average remaining lease term (years) | 1.59 | 2.61 | ||||||
Supplemental balance sheet information related to leases was as follows:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Operating lease right-of-use asset | $ | 234,884 | $ | 363,296 | ||||
| Operating lease liabilities: | ||||||||
| Current portion | 161,167 | 222,275 | ||||||
| Non-current portion | 73,717 | 141,021 | ||||||
| $ | 234,884 | $ | 363,296 | |||||
Future minimum lease payments under operating leases as of June 30, 2024 were as follows:
| Year ending December 31, | ||||
| 2024 (excluding six months ended June 30, 2024) | $ | 109,755 | ||
| 2025 | 88,566 | |||
| 2026 | 43,235 | |||
| $ | 241,556 | |||
| Less imputed interest | (6,672 | ) | ||
| Operating lease liabilities | $ | 234,884 | ||
Note 9 – Related Party Transactions
Relationships with related parties
| Name | Relationship | |
| Mr. Cheung Ching Ping | Shareholder of the Company | |
| Mr. Cheung Chi Ping | Shareholder and Director of the Company | |
| Mr. Cheung Yick Chung | Shareholder of the Company |
Amounts due to related parties
Amounts due to related parties consists of the following:
| June 30, | December 31, | |||||||||
| Name | Nature | 2024 | 2023 | |||||||
| Mr. Cheung Ching Ping | Interest-free listing expense loans (1) | $ | 942,811 | $ | 520,964 | |||||
| Mr. Cheung Ching Ping | Interest-free shareholder’s loans (2) | 617,272 | 472,272 | |||||||
| Mr. Cheung Chi Ping | Interest-free shareholder’s loans (2) | 493,917 | 377,817 | |||||||
| Mr. Cheung Chi Ping | Director’s remuneration (3) | 225,900 | 185,900 | |||||||
| Mr. Cheung Yick Chung | Interest-free shareholder’s loans (2) | 123,454 | 94,454 | |||||||
| $ | 2,403,354 | $ | 1,651,407 | |||||||
| F-46 |
Notes:
| (1) | On September 7, 2023, Mr. Cheung Ching Ping, a shareholder of the Company, entered into a loan facility agreement with the Company that Mr. Cheung Ching Ping agreed to pay the listing expenses incurred for the initial public offering in Nasdaq on behalf of the Company before listing with a maximum principal amount of $1,000,000. Pursuant to the facility agreement, the loan is interest-free, unsecured and repayable on the earlier of the listing of our common stock on Nasdaq, or December 31, 2024. As of June 30, 2024 and December 31, 2023, amount of listing expenses paid by Mr. Cheung Ching Ping on behalf of the Company was $942,811 and $520,964. |
| (2) | On April 24, 2014, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung entered into two shareholders’ loan agreements with Chrome Field I, Inc. and Chrome Field II, Inc., wholly-owned subsidiaries of the Company, respectively. Pursuant to the shareholders’ loan agreements, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung agreed to grant shareholders’ loans at principal amounts of $1,307,619.69 and $1,447,739.16 to Chrome Field I, Inc. and Chrome Field II, Inc., respectively, in a proportion of 50%, 40% and 10%, respectively, in connection with the acquisition of Kissimmee Bay and Remington in 2014. Pursuant to the shareholders’ loan agreements, the loans are interest-free, unsecured and to repayable on demand. As of June 30, 2024, amount of outstanding shareholders’ loans owned by the Company to Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung was $617,272, $493,917 and $123,454, respectively. As of December 31, 2023, amount of outstanding shareholders’ loans owned by the Company to Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung was $472,272, $377,817 and $94,454, respectively. |
| (3) | For the sake of compensating Mr. Cheung Chi Ping’s involvement in the daily operations and management of golf operations of the Company, director’s remuneration was granted by the Company every year based on the performance of the Company. For the six months ended June 30, 2024 and 2023, the Company charged $40,000 and $110,000, respectively, as director’s remuneration to Mr. Cheung Chi Ping and recognized under salaries and benefits on the statements of income. The balance is interest-free, unsecured and repayable on demand. As of June 30, 2024 and December 31, 2023, outstanding director’s remuneration was $225,900 and $185,900, respectively. |
Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung signed an undertaking that no demand on repayment from the Company since December 31, 2022 and the balances will be fully settled upon listing of the Group.
Note 10 – Revenue
Revenues disaggregated by major revenue streams and timing of revenue recognition for the six months ended June 30, 2024 and 2023 are disclosed in the table below:
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Over time: | ||||||||||||||||
| Golf operations – annual subscription green fees | 76,156 | 62,905 | $ | 150,380 | $ | 142,548 | ||||||||||
| Point in time: | ||||||||||||||||
| Golf operations – one-time green fees | 382,572 | 437,164 | 1,529,229 | 1,805,123 | ||||||||||||
| Sales of food and beverage | 146,824 | 150,286 | 392,085 | 421,166 | ||||||||||||
| Sales of merchandise | 24,732 | 28,188 | 75,824 | 88,081 | ||||||||||||
| Ancillary revenue | 18,253 | 16,078 | 54,654 | 56,544 | ||||||||||||
| 572,381 | 631,716 | 2,051,792 | 2,370,914 | |||||||||||||
| 648,537 | 694,621 | $ | 2,202,172 | $ | 2,513,462 | |||||||||||
| F-47 |
Note 11 – Stockholders’ Equity
Preferred stock
The Company has authorized 50,000,000 shares of preferred stock with a par value of $0.001. 20,000,000 preferred shares have been designated.
Series A Preferred Stock
The Company has designated 20,000,000 preferred shares, par value $0.001, as Series A Preferred Stock. Initially, holders of series A preferred stock would have 20 voting rights for each series A preferred stock on any matter which action of the stockholders of the corporation is sought. The series A preferred stock will vote together with the common stock. Common stock and series A preferred stock are not convertible into each other. Holders of series A preferred stock are not entitled to receive dividends. The series A preferred stock does not have liquidation preference over the Company’s common stock, and therefore ranks pari passu with the Common Stock in the event of liquidation.
On January 17, 2024, 5,000,000 shares of Series A Preferred Stock was issued to Ace Champion, 4,000,000 shares of Series A Preferred Stock was issued to Chrome Fields Asset Management LLC, wholly-owned by Mr. Cheung Chi Ping and 1,000,000 shares of Series A Preferred Stock was issued to Trendy View, at an aggregate cash consideration of $10,000. As a result, as of June 30, 2024 and December 31, 2023 and 2022, 10,000,000 shares of Series A Preferred Stock are issued and outstanding. This has been retrospectively reflected in the unaudited condensed consolidated financial statements as discussed in Note 1
Common stock
The Company has authorized 450,000,000 shares of common stock with a par value of $0.001 per share. Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which an action of the shareholders of the Company is sought.
The Company issued 5,440,000 shares of common stock for the exchange of 100 ordinary shares owned by the shareholder of our acquired subsidiary, Pine Ridge.
On January 17, 2024, the Company allotted 6,800,000 shares of common stock at par value $0.001 of the Company to Ace Champion Investments Limited (“Ace Champion”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Ching Ping, brother of Mr. Cheung Chi Ping; and the Company allotted 1,360,000 shares of common stock at par value $0.001 to Trendy View Assets Management (“Trendy View”), a company formed under the laws of the British Virgin Islands, which is wholly-owned by Mr. Cheung Yick Chung and Ms. Chan Lee, parents of Mr. Cheung Chi Ping. Total consideration for the subscription was $8,160. Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are collectively considered as Mr. Cheung’s family. After the allotment, Mr. Cheung Ching Ping, Mr. Cheung Chi Ping and Mr. Cheung Yick Chung and Ms. Chan Lee are ultimately holding 50%, 40% and 10% of the common stock of the Company.
On June 11, 2024, the Board of Directors approved to effect a 1.25-for-1 reverse stock split for the issued common stocks, such that every holder of 1.25 shares of common stock of the Company shall receive 1 share of common stock resulting in the issued common stocks to be 10,880,000 which are being held by Ace Champion of 5,440,000 shares of common stock, Chrome Fields of 4,352,000 shares of common stock and Trendy View of 1,088,000 shares of common stock.
As a result, as of June 30, 2024 and December 31, 2023, 10,880,000 shares of common stock are issued and outstanding. All the above transactions have been retrospectively reflected in the unaudited condensed consolidated financial statements as discussed in Note 1.
Note 12 – Income Tax
The Company provides for income tax under ASC 740, “Income Taxes” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
| F-48 |
The Company is incorporated in the State of Nevada and is not subject to tax on income or capital gains under current Nevada law. In addition, upon payments of dividends by these entities to their shareholders, no Nevada withholding tax will be imposed.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the new federal statutory rate of 21% and state of Florida tax rate of 5.5% to the income tax amount recorded for the six months ended June 30, 2024 and 2023 are as follows:
Taxation in the statements of income represents:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Tax provision for the period: | ||||||||||||||||
| Current | $ | - | $ | - | $ | - | $ | - | ||||||||
| Deferred | ||||||||||||||||
| ● Federal statutory tax | ||||||||||||||||
| - Deferred tax assets | ||||||||||||||||
| - recognition of prior year NOLs | $ | - | $ | - | $ | - | $ | (217,364 | ) | |||||||
| - utilization of NOLs brought forward | - | - | 96,631 | 86,597 | ||||||||||||
| - utilization of NOLs recognized during the period for prior year NOLs | - | - | - | 97,802 | ||||||||||||
| - overprovision of DTA for first quarter | (22,548 | ) | (15,084 | ) | - | - | ||||||||||
| - Deferred tax liabilities | ||||||||||||||||
| - recognition for the period | 4,998 | 7,123 | 12,598 | 5,851 | ||||||||||||
| (17,550 | ) | (7,961 | ) | 109,229 | (27,114 | ) | ||||||||||
| ● State of Florida tax | ||||||||||||||||
| - Deferred tax assets | ||||||||||||||||
| - recognition of prior year NOLs | - | - | - | (56,711 | ) | |||||||||||
| - utilization of NOLs brought forward | - | - | 27,679 | 23,668 | ||||||||||||
| - utilization of NOLs recognized during the period for prior year NOLs | - | - | - | 26,763 | ||||||||||||
| - overprovision of DTA for first quarter | (3,464 | ) | (1,885 | ) | - | - | ||||||||||
| - Deferred tax liabilities | ||||||||||||||||
| - recognition for the period | (1,132 | ) | (213 | ) | 929 | (618 | ) | |||||||||
| (4,596 | ) | (2,098 | ) | 28,608 | (6,898 | ) | ||||||||||
| Total income tax (benefits) expenses | (22,146 | ) | (10,059 | ) | $ | 137,837 | $ | (34,012 | ) | |||||||
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of income to the federal statutory rate of 21% for the six months ended June 30, 2024 and 2023 is as follows:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||
| Effect of state of Florida tax | 5.0 | % | 5.3 | % | 7.2 | % | 5.5 | % | ||||||||
| Effect of state of Nevada tax | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
| Effect of British Virgin Islands tax | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
| Permanent difference | 0.0 | % | 0.0 | % | 0.1 | % | 0.0 | % | ||||||||
| Effect of deferred tax assets for prior years NOLs recognized in the current period at Federal statutory tax rate | 0.0 | % | 0.0 | % | 0.0 | % | (24.0 | )% | ||||||||
| Effect of deferred tax assets for prior years NOLs recognized in the current period at state of Florida tax rate | 0.0 | % | 0.0 | % | 0.0 | % | (6.3 | )% | ||||||||
| Tax holiday* | (1.7 | )% | 0.0 | % | 6.4 | % | 0.0 | % | ||||||||
| Effective tax rate | 24.3 | % | 26.3 | % | 34.6 | % | (3.8 | )% | ||||||||
* Tax holiday represented the audit fee expenses in relation to IPO incurred by the Company which is incorporated in the state of Nevada which is not subject to state income tax.
| F-49 |
Significant components of the deferred tax assets and deferred tax liabilities are presented below:
| June 30, 2024 | December 31, 2023 | |||||||
| Deferred tax liabilities: | ||||||||
| Accelerated depreciation | ||||||||
| Federal statutory tax: | ||||||||
| Beginning of the period/year | $ | 40,173 | $ | 21,058 | ||||
| Recognized during the period/year | 12,598 | 19,115 | ||||||
| End of the period/year | 52,771 | 40,173 | ||||||
| State of Florida tax: | ||||||||
| Beginning of the period/year | 7,983 | (194 | ) | |||||
| Recognized during the period/year | 929 | 8,177 | ||||||
| End of the period/year | 8,912 | 7,983 | ||||||
| Deferred tax liabilities | $ | 61,683 | $ | 48,156 | ||||
| Deferred tax assets: | ||||||||
| Net operating losses | ||||||||
| Federal statutory tax: | ||||||||
| Beginning of the period/year | $ | 195,391 | $ | 68,914 | ||||
| Recognized during the period/year | - | 217,364 | ||||||
| Utilized during the period/year | (96,631 | ) | (90,887 | ) | ||||
| End of the period/year | 98,760 | 195,391 | ||||||
| State of Florida tax: | ||||||||
| Beginning of the period/year | $ | 40,739 | 4,659 | |||||
| Recognized during the period/year | 56,711 | |||||||
| Utilized during the period/year | (27,679 | ) | (20,631 | ) | ||||
| End of the period/year | 13,060 | 40,739 | ||||||
| Less: valuation allowance | - | - | ||||||
| Deferred tax assets, net | $ | 111,820 | $ | 236,130 | ||||
The Group evaluated the recoverable amounts of deferred tax assets to the extent that future taxable profits will be available against which the net operating loss and temporary difference can be utilized.
As of June 30, 2024, the Company had $421,963 of NOLs which can be carried forward indefinitely.
The NOLs carry forwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382.
Note 13 – Risk and Uncertainties
Credit Risk
The Company’s principal financial assets are cash and cash equivalents and accounts receivables. The Company’s credit risk is primarily concentrated in its cash which is held with institutions with a high credit worthiness. The Company has not experienced losses on their accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
| F-50 |
The Company mitigates its credit risk on receivables by actively managing and monitoring its receivables. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. Since all accounts receivable as of June 30, 2024 and December 31, 2023 are aged within one year and collected all receivables subsequent to year end, minimum credit risk was noted for accounts receivable.
Vendor concentration risk
As of June 30, 2024 and December 31, 2023, the Company owed 81% and 85% of accounts payable to a key supplier, respectively.
For the six months ended June 30, 2024 and 2023, one vendor accounted for 31% and 28% of our total operating costs, respectively. No other vendor accounts for more than 10% of our total operating costs for the six months ended June 30, 2024 and 2023, respectively.
For the three months ended June 30, 2024 and 2023, one vendor accounted for 35% and 30% of our total operating costs, respectively. No other vendor accounts for more than 10% of our total operating costs for the three months ended June 30, 2024 and 2023, respectively.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as its financial liabilities carry interest at fixed rates.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of twelve months, including through operations and financial support from our stockholders and financial institutions. We are continuing to focus on improving operational efficiency and cost reductions and enhancing efficiency, as well as servicing of financial obligations: this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Our ability to continue as a going concern is dependent upon obtaining the necessary financing or negotiating the terms of the existing short-term liabilities to meet our current and future liquidity needs.
Note 12 – Commitments and Contingencies
Lease Commitments
We entered into operating leases for corporate office, golf cars and golf equipment for terms of four to five years. Our commitments for minimum lease payment under these operating leases as of June 30, 2024 are listed in section “Note 8 — “Leases”.
Litigation
From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, we do not believe that the ultimate outcome of any unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and our view of these matters may change in the future. We record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review the need for any such liabilities on a regular basis.
Note 14 – Subsequent Events
The Company evaluated all events and transactions that occurred after June 30, 2024 up through September 16, 2024, which is the date that these unaudited condensed consolidated financial statements are available to be issued, there were no other any material subsequent events that require disclosure in these unaudited condensed consolidated financial statements.
| F-51 |
Until [●], 2024 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.
3,000,000 Shares of Common stock being offered by the Company
750,000 Shares of Common Stock being offered by the Selling Stockholders
AUREUS GREENWAY HOLDINGS INC.
Prospectus dated [●], 2024
|
|
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in connection with the securities being registered hereby. With the exception of the SEC registration fee, the FINRA filing fee, and the Nasdaq Capital Market listing fee, all amounts are estimates.
| Securities and Exchange Commission Registration Fee | $ | 2,480 | ||
| Nasdaq Capital Market Listing Fee | $ | 75,000 | ||
| FINRA Filing Fee | $ | 3,088 | ||
| Legal Fees and Expenses | $ | 570,000 | ||
| Accounting Fees and Expenses | $ | 420,628 | ||
| Printing Expenses | $ | 6,995 | ||
| Transfer Agent and Registrar Expenses | $ | 29,013 | ||
| Underwriting Accountable Expenses | $ | 305,000 | ||
| Miscellaneous Expenses | $ | 183,900 | ||
| Total Expenses | $ | 1,596,104 |
These expenses will be borne by us. Underwriting discounts and the non-accountable expense allowance will be borne by us in proportion to the numbers of shares of common stock sold in the offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are a Nevada corporation and generally governed by the Nevada Private Corporations Code, Title 78 of the NRS.
Section 78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of the law. Our articles of incorporation provide the personal liability of our directors is eliminated to the fullest extent permitted under the NRS.
Section 78.7502 of the NRS permits a Nevada corporation to indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding, if the officer or director (i) is not liable pursuant to NRS 78.138, or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful.
Section 78.7502 of the NRS precludes indemnification by the corporation if the officer or director has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court determines that in view of all the circumstances, the person is fairly and reasonably entitled to indemnity for such expenses.
Discretionary indemnification pursuant to Section 78.7502 may be made as authorized upon determination that the indemnification is proper under the circumstances. Such determination may be made by (i) the stockholders; (ii) the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding; or (iii) independent legal counsel if ordered by a majority of the quorum consisting of directors who were not parties to the action, suit, or proceeding or if a quorum of directors who were not parties to the action, suit, or proceeding cannot be obtained.
Section 78.751 of the NRS requires a Nevada corporation to indemnify its officers and directors to the extent such person is successful on the merits or otherwise in defense of any actual or threatened civil, criminal, administrative, or investigative action, suit, or proceeding or any claim, issue, or matter therein, including an action by or in the right of the corporation, if such person is or was serving as an officer or director of the corporation or, at the request of the corporation, as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. Such indemnification shall be for expenses actually and reasonably incurred by the person, including attorney’s fees, in connection with defending any such action, suit, or proceeding.
Unless otherwise restricted by the articles of incorporation, bylaws, or an agreement made by the corporation, Section 78.751 of the NRS provides that a corporation may pay expenses as incurred and in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the company. Section 78.751 of the NRS further permits the corporation to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws, or other agreement, including the requirement of mandatory advance payment of expenses.
| II-1 |
Section 78.752 of the NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the company, or is or was serving at the request of the company as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.
Our bylaws implement the indemnification provisions permitted by Chapter 78 of the NRS by providing that we shall indemnify our directors and officers to the fullest extent permitted by the NRS against expense, liability, and loss reasonably incurred or suffered by them in connection with their service as an officer or director. Our bylaws require the payment of costs and expenses incurred with respect to any proceeding to which a person is made a party as a result of being a director or officer in advance of final disposition of such proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it is ultimately determined that such person is not entitled to indemnification. We may purchase and maintain liability insurance, or make other arrangements for such obligations or otherwise, to the extent permitted by the NRS.
At the present time, there is no pending litigation or proceeding involving a director, officer, employee, or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception, we have issued the following securities which were not registered under the Securities Act. We believe that each of the following issuance was exempt from registration under the Securities Act in reliance on Regulation D under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering or Regulation S under the Securities Act regarding sales by an issuer in offshore transactions. No underwriter was involved in these issuances of securities.
Founding Transactions
| ● | Aureus Greenway Holdings Inc. was incorporated on December 22, 2023. In connection with the incorporation, on January 17, 2024, we issued (i) a total of 8,160,000 shares of common stock to Ace Champion Investments Limited (as to 6,800,000 shares of common stock), and Trendy View Assets Management (as to 1,360,000 shares of common stock), for total consideration of $8,160, (ii) a total of 10,000,000 shares of our Series A Preferred Stock to Ace Champion Investments Limited (as to 5,000,000 shares of Series A Preferred Stock), Trendy View Assets Management (as to 1,000,000 shares of Series A Preferred Stock), and Chrome Fields Asset Management LLC (as to 5,000,000 shares of Series A Preferred Stock), for total consideration of $10,000, and (iii) 5,440,000 shares of common stock to Chrome Fields Asset Management LLC, in exchange for the right to receive 100 ordinary shares, par value $1.00 of Pine Ridge Group Limited. The transactions were not registered under the Securities Act in reliance on an exemption from registration set forth in Section 4(a)(2) and/or Regulation D and/or Regulation S thereof. |
ITEM 16. EXHIBITS
| (a) | Exhibits. The following exhibits are included herein or incorporated herein by reference: |
| + | Filed herewith |
| * | Previously filed |
| II-2 |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(4) For the purpose of determining any liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, NY, on October 16, 2024.
| By: | /s/ ChiPing Cheung | |
| ChiPing Cheung | ||
| Chief
Executive Officer (Principal Executive Officer) |
We, the undersigned directors and officers of the Registrant, hereby severally constitutes and appoints ChiPing Cheung or his/her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) under the Securities Act of 1933 increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Capacity | Date | ||
| /s/ ChiPing Cheung | Chief Executive Officer, President, and Director | October 16, 2024 | ||
| ChiPing Cheung | (Principal Executive Officer) | |||
| /s/ Sam Wai Sing Lui | Chief Financial Officer | October 16, 2024 | ||
| Sam Wai Sing Lui | (Principal Financial Officer and Principal Accounting Officer) | |||
| /s/ Stephen ChiPing Cheung | Designated Director and Chairman of the Board of Directors | October 16, 2024 | ||
| Stephen ChiPing Cheung |
| II-4 |
Exhibit 1.1
UNDERWRITING AGREEMENT
between
AUREUS GREENWAY HOLDINGS INC.,
and
DOMINARI SECURITIES LLC,
as Representative of the Several Underwriters
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AUREUS GREENWAY HOLDINGS INC.
UNDERWRITING AGREEMENT
New York, New York
[●], 2024
Dominari Securities LLC
725 Fifth Avenue, 23rd Fl.
New York, Ny 10022
As Representative of the several Underwriters named on Schedule 1 attached hereto
Ladies and Gentlemen:
The undersigned, AUREUS GREENWAY HOLDINGS INC., a corporation formed under the laws of Nevada (the “Company”) and [●], stockholders of the Company (the “Selling Stockholders”), hereby confirm their agreement (this “Agreement”) with several underwriters named on Schedule 1 hereto (such underwriters, including the Representative (as defined below), the “Underwriters” and each an “Underwriter”) for which Dominari Securities LLC is acting as representative to the several underwriters (in such capacity, the “Representative”) as follows:
1. Purchase and Sale of Shares.
1.1 Firm Shares.
1.1.1. Nature and Purchase of Firm Shares.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell and the Selling Stockholders agree to sell to the several Underwriters, an aggregate of [●] and [●] (“Firm Shares”) of the Company’s shares of common stock, par value $0.001 per share (the “Common Stock”), respectively and each Underwriter agrees to purchase, severally and not jointly, at the Closing, an aggregate of the Firm Shares. The offering and sale of the Firm Shares is herein referred to as the “Offering.”
(ii) The Underwriters, severally and not jointly, agree to purchase from the Company and the Selling Stockholders the number of Firm Shares set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of $[●] per Firm Share (93.00% of the per Firm Share public offering price) (the “Purchase Price”). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Firm Shares Payment and Delivery.
(i) Delivery and payment for the Shares (as hereinafter defined) shall be made no later than 4:00 p.m., Eastern time, on the second (2nd) Business Day following the commencement of trading of the Shares, or at such earlier time as shall be agreed upon by the Representatives and the Company, at the offices of Sichenzia Ross Ference Carmel LLP, 1185 Avenue of the Americas, 31st Floor, New York, NY 10036 (“Representatives’ Counsel”), or at such other place (or remotely by facsimile or other electronic transmissions) as shall be agreed upon by the Representatives and the Company. The hour and date of delivery and payment for the Shares is called the “Closing Date.”
(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company and the Selling Stockholders, as the case may be, upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Shares. The term “Business Day” means any day other than a Saturday, a Sunday, or a legal holiday, or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
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1.2. [Omitted.]
2. Representations and Warranties of the Company and the Selling Stockholders. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date as follows:
2.1. Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission ( the “Commission”), a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. [●]), including any related prospectus or prospectuses for the registration of the Shares under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits, and all other documents filed as a part thereof and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the Registration Statement being declared effective by the Commission, and each prospectus that omitted the Rule 430A Information that was used after being declared effective and prior to the execution and delivery of this Agreement is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated February 9, 2024 that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means 5:00 p.m., Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Shares that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Shares or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus, and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. A registration statement in respect of the Common Stock has been filed on Form 8-A pursuant to Section 12(b) of the Exchange Act, which registration statement complies in all material respects with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the shares of Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.
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2.2. Stock Exchange Listing. The Shares of Common Stock have been approved for listing on the NASDAQ Capital Market (the “Exchange”), subject only to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting of the Shares of Common Stock from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.3. No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus, or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4. Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission’s “Electronic Data Gathering, Analysis, and Retrieval” filing system (“EDGAR”), except to the extent permitted by Regulation S-T promulgated under the Securities Act (“Regulation S-T”).
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with the Underwriters’ Information (as defined herein).
(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date, did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: (i) the table showing the number of securities to be purchased by each Underwriter and the name(s) of the underwriters on the cover page, (ii) the third and fourth full paragraphs, (iii) the second, third, and fourth sentences of the first paragraph under the heading “Underwriting Discounts and Expenses” and (iv), the sub-sections titled “Selling Restrictions,” “Price Stabilization, Short Positions and Penalty Bids,” and “Electronic Offer, Sale, and Distribution of Common stock” (the “Underwriters’ Information”).
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(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b) and at the Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business of the Company and its Subsidiaries (as defined below) taken as a whole, has been duly authorized and validly executed by the Company and/or its Subsidiaries, is in full force and effect in all material respects and is enforceable against the Company and/or its Subsidiaries and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company and/or its Subsidiaries, and neither the Company and/or its Subsidiaries nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder except for such defaults or events that would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). To the Company’s knowledge, performance by the Company and/or its Subsidiaries of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental or regulatory agency, authority, body, entity or court, domestic or foreign, having jurisdiction over the Company and/or its Subsidiaries or any of their/its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations, that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change as defined in Section 2.5.1 below.
2.4.3. Prior Securities Transactions. No securities of the Company have been sold by the Company or, to the Company’s knowledge, by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign laws, rules and regulations relating to the Offering and the Company’s business as currently conducted or contemplated are, to the Company’s knowledge, correct and complete in all material respects and no other such laws, rules or regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.4.5. No Other Distribution of Offering Materials. The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the Offering other than any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act and consistent with Section 3.2 below, prior to the completion of the Underwriters’ purchase of the Firm Shares.
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2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein or in accordance with its ordinary business operations: (i) there has been no material adverse change in the financial position or results of operations of the Company or its Subsidiaries taken as a whole, nor to the Company’s knowledge any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company or its Subsidiaries taken as a whole (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company or its Subsidiaries, other than as contemplated pursuant to this Agreement; and (iii) no executive officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
2.6 Disclosures in Commission Filings. None of the Company’s filings as of the Effective Date, or other documents furnished to, the Commission contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
2.7 Independent Accountants. To the knowledge of the Company, WWC, P.C., the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.8 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods stated therein; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) since the date of the last balance sheet included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its Shares of Common Stock or other capital stock (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, other than in the ordinary course of business, or pursuant to any grants under any stock compensation plan, and (d) there has not been any Material Adverse Change in the Company’s long-term or short-term debt. The Company represents that it has no direct or indirect subsidiaries other than those listed in Exhibit 21.1 to the Registration Statement.
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2.9 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capital as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued Shares of Common Stock of the Company or any security convertible or exercisable into Shares of Common Stock of the Company, or any contracts or commitments to issue or sell Shares of Common Stock or any such options, warrants, rights or convertible securities.
2.10 Valid Issuance of Securities, etc.
2.10.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no contractual rights of rescission or the ability to force the Company to repurchase such securities with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights, rights of first refusal or rights of participation of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Shares of Common Stock conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Shares of Common Stock, were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such Shares of Common Stock, exempt from such registration requirements.
2.10.2. Securities Sold Pursuant to this Agreement. The Shares have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Shares are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Shares has been duly and validly taken. The Shares conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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2.11 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any options, warrants, rights or other securities exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in the Registration Statement or any other registration statement to be filed by the Company.
2.12 Validity and Binding Effect of Agreements. The execution, delivery and performance of this Agreement has been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with its terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
2.13 No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with, any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to which the Company is a party or as to which any property of the Company is a party except breaches, conflicts or defaults that would not reasonably be expected to result in a Material Adverse Change; (ii) result in any violation of the provisions of the Company’s articles of incorporation (as may be amended or restated from time to time, the “Charter”); or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof having jurisdiction over the Company or any of its properties or business as constituted as of the date hereof, except in the case of clause (iii) above, for such violations which would not reasonably be expected to result in a Material Adverse Change.
2.14 No Defaults; Violations. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject except for any such default that would not be reasonably expected to result in a Material Adverse Change. The Company is not (i) in violation of any term or provision of its Charter, or (ii) in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity, except in the case of clause (ii) above, for such violations which would not reasonably be expected to result in a Material Adverse Change.
2.15 Corporate Power; Licenses; Consents.
2.15.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary consents, authorizations, approvals, licenses, certificates, clearances, permits and orders and supplements and amendments thereto (collectively, “Authorizations”) of and from all Governmental Entities that it needs as of the date hereof to conduct its business purpose in all material respects as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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2.15.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all Authorizations required in connection therewith have been obtained. No Authorization of, and no filing with, any Governmental Entity, the Exchange or another body is required for the valid issuance, sale and delivery of the Firm Shares and the consummation of the transactions and agreements contemplated by this Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable federal and state securities or blue-sky laws and the rules and regulations of the Financial Industry Regulatory Authority (“FINRA”).
2.16 D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors, officers and principal equity owners or control persons prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors and officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.17 Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director of the Company, or in connection with the Company’s listing application for the listing of the Shares on the Exchange, which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and is required to be disclosed therein.
2.18 Good Standing. The Company has been duly incorporated and is validly existing as a corporation and is in good standing under the laws of the state of Nevada as of the date hereof, and is duly qualified to do business and is in good standing as a foreign corporation in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to be so qualified or in good standing, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.19 Insurance. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks which the Company believes are adequate, and as are customary for companies of its size and to the Company’s knowledge all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.
2.20 Transactions Affecting Disclosure to FINRA.
2.20.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Shares hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.20.2. Payments Within Twelve (12) Months. Except as disclosed in writing to the Representative or as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments in connection with the Offering (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
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2.20.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.20.4. FINRA Affiliation. There is no (i) officer or director of the Company, (ii) to the Company’s knowledge, beneficial owner of 10% or more of any class of the Company’s securities or (iii) to the Company’s knowledge, beneficial owner of the Company’s unregistered equity securities who acquired any equity securities of the Company during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.20.5. Information. All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.21 Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of, and with authority from, the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any Governmental Entity (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.22 Compliance with OFAC. Neither the Company nor its Subsidiaries, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries, the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not knowingly, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.23 Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in all material respects in compliance with applicable financial recordkeeping and reporting requirements of the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
2.24 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to the Representative or to Representative Counsel on the Closing Date shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.25 Lock-Up Agreements. Schedule 3 hereto contains a complete and accurate list of the Company’s officers, directors of the Company’s outstanding Shares of Common Stock (or securities convertible or exercisable into Shares of Common Stock) (collectively, the “Lock-Up Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit A (the “Lock-Up Agreement”), simultaneously with or prior to the execution of this Agreement.
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2.26 Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company and the Subsidiaries taken as a whole. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.27 Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required by the rules and regulations of the Commission to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.
2.28 Board of Directors. The Board of Directors of the Company will on the Effective Date be comprised of the persons set forth under the section of the Pricing Prospectus and the Prospectus titled “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act , the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.29 Sarbanes-Oxley Compliance.
2.29.1. Disclosure Controls. The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act , and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.29.2. Compliance. The Company is or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.
2.30 Accounting Controls. The Company and its Subsidiaries shall maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act ) that comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls over financial reporting. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
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2.31 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.32 No Labor Disputes. To the knowledge of the Company: (i) no labor dispute with the employees of the Company or any of its Subsidiaries exists or, , is imminent, and (ii) no key employee or significant group of employees of the Company plans to terminate employment with the Company.
2.33 Intellectual Property Rights. The Company and each of its Subsidiaries have, or have rights to use, all patents, patent applications, registered trademarks, trademark applications, registered service marks, registered trade names, trade secrets, inventions, registered copyrights, licenses and other intellectual property rights necessary for use, or currently used in connection with their respective businesses as described in the Registration Statement and which the failure to so have would have or reasonably be expected to result in a Material Adverse Change (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received written notice that any of the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the Registration Statement, the Pricing Disclosure Package and the Prospectus, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another person of any of the Intellectual Property Rights. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Change.
2.34 Taxes. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are, sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales , use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.35 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) (if any are applicable and subject to ERISA) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
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2.36 Compliance with Laws. Each of the Company and each Subsidiary: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the business of the Company as currently conducted (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any Governmental Entity alleging or asserting noncompliance with any Applicable Laws or any Authorizations; (C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any activity conducted by the Company is in violation of any Applicable Laws or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E) has not received notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity is considering such action; and (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct in all material respects on the date filed (or were corrected or supplemented by a subsequent submission).
2.37 Emerging Growth Company. From the time of the initial submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly in or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications.
2.38 Environmental Laws. The Company is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.
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2.39 Title to Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that singly or in the aggregate, would materially affect the value of such property and interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
2.40 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
2.41 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries, or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.42 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the Effective Date and at the time of any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Shares and at the Effective Date, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.43 [Omitted]
2.44 Industry Data; Forward Looking Statements. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
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2.45 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.46 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Shares of Common Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.47 Dividends and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, no Subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock (in each case, to the extent that any such prohibition or restriction on dividends and/or distributions would have a material effect to the Company), from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company.
2.48 Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
2.49 Integration. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under the Securities Act.
2.50 Confidentiality and Non-Competitions. To the Company’s knowledge, no director, officer, key employee or consultant of the Company or any Subsidiary is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the Company or such Subsidiary or be expected to result in a Material Adverse Change.
2.51 Corporate Records. The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes of all material meetings and actions of the Board of Directors (including each board committee) and shareholders of the Company, and (ii) reflect all material transactions referred to in such minutes.
2.52 Diligence Materials. The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material respects to the diligence request submitted to the Company by the Representative.
2.53 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Representative) has taken, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
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2A. Each of the Selling Stockholders further represents and warrants to, and agrees with, the Underwriters, as of the date hereof and as of the Closing Date, as follows:
2A.1 All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholders of this Agreement, and for the sale and delivery of the Shares to be sold by such Selling Stockholders (the “Stockholder Shares”) hereunder, have been obtained, except for the registration under the Securities Act of the Stockholder Shares or approval for listing on the Nasdaq and such consents, approvals, authorizations and orders (x) as may be required under federal or state securities or Blue Sky laws or the rules and regulations of FINRA or (y) that have already been obtained; and such Selling Stockholders have full right, power and authority to enter into this Agreement, and to sell, assign, transfer and deliver the Stockholder Shares to be sold by such Selling Stockholders hereunder.
2A.2 The sale of the Stockholder Shares to be sold by such Selling Stockholders hereunder and the compliance by such Selling Stockholders with this Agreement, and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholders are a party or by which such Selling Stockholders are bound or to which any of the property or assets of such Selling Stockholders are subject, except as would not reasonably be expected to affect the validity of the Stockholder Shares being sold by such Selling Stockholders or impact the ability of such Selling Stockholders to perform their obligations under this Agreement; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental body or agency is required for the performance by such Selling Stockholders of their obligations under this Agreement and the consummation by such Selling Stockholders of the transactions contemplated by this Agreement in connection with the Stockholder Shares to be sold by such Selling Stockholders hereunder, except the registration under the Securities Act of the Stockholder Shares or approval for listing on Nasdaq and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under federal or state securities or Blue Sky laws or the rules and regulations of FINRA in connection with the purchase and distribution of the Stockholder Shares by the Underwriters.
2A.3 Such Selling Stockholders have, and immediately prior to the time of delivery such Selling Stockholders will have, good and valid title to, or a valid “security entitlement” within the meaning of Section 8-501 of the New York Uniform Commercial Code in respect of, the Stockholder Shares to be sold by such Selling Stockholders hereunder at such time of delivery, free and clear of all liens, encumbrances, equities or adverse claims; and, upon delivery of such Stockholder Shares and payment therefor pursuant hereto, good and valid title to such Stockholder Shares, free and clear of all liens, encumbrances, equities or adverse claims, will pass to the Underwriters.
2A.4 On or prior to the date of the Prospectus, such Selling Stockholders have executed and delivered to the Underwriters a Lock-Up Agreement.
2A.5 Such Selling Stockholders have not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Stockholder Shares.
2A.6 To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholders expressly for use therein (it being understood and agreed upon that the only such information furnished by any Selling Stockholder consists of the following information furnished on behalf of such Selling Stockholder: the legal name, address and the number of securities owned by such Selling Stockholder before and after the offering contemplated hereby and the other information with respect to such Selling Stockholder (other than percentages) that appears in the table and corresponding footnotes under the caption “Principal and Selling Stockholders” in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, such statements or omissions made in the Registration Statement and Preliminary Prospectus did, and such statements or omissions made in the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.
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2A.7 In order to facilitate the Underwriters’ documentation of their compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholders will deliver to the Representatives prior to or at the first time of delivery a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).
2A.8 The obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, or in the case of a partnership or corporation, by the dissolution of such partnership, limited liability company or corporation, or by the occurrence of any other event; if any such partnership, limited liability company or corporation should be dissolved, or if any other such event should occur, before the delivery of the Stockholder Shares to be sold by such Selling Stockholders hereunder, certificates or book entry securities entitlements representing the Stockholder Shares to be sold by such Selling Stockholders hereunder shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement.
2A.9 Such Selling Stockholders will not directly or indirectly use the proceeds of the offering of the Stockholder Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, (i) to fund or facilitate any activities of or business with any person, or in any country or territory, that, at the time of such funding, is the subject or the target of any sanctions administered or enforced by the U.S. government, including, without limitation, the OFAC, of the Treasury or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person,” the European Union, His Majesty’s Treasury, the United Nations Security Council, or other relevant sanctions authority, or in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions, or (ii) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-money laundering laws, including, but not limited to, the Bank Secrecy Act of 1970, as amended by the USA PATRIOT ACT of 2001, the Currency and Foreign Transactions Reporting Act of 1970, as amended, Russian Federal Law No. 115-FZ “On Combating the Legalization (Laundering) of Criminally Obtained Income and Funding of Terrorism” dated August 7, 2001, as amended, and the rules and regulations promulgated thereunder, and the anti-money laundering laws of the various jurisdictions in which the Company and its subsidiaries conduct business or any anti-corruption laws.
2A.10 Such Selling Stockholders are not prompted by any material information concerning the Company or any of its subsidiaries that is not disclosed in the Registration Statement or Prospectus to sell their Stockholder Shares pursuant to this Agreement.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
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3.2 Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply in all material respects with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of its receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Shares. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
3.2.2. Continued Compliance. The Company shall comply in all material respects with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Shares is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Shares, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of Representative Counsel or Company Counsel, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative’s Counsel shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within two (2) Business Days prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the Closing Date and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or Representative’s Counsel shall reasonably object.
3.2.3. Exchange Act Registration. The Company will use its commercially reasonable efforts, in cooperation with the Representative, at or prior to the time of effectiveness of the Registration Statement, to qualify the Shares for offering and sale under the securities laws relating to the Offering or sale of the Shares of such jurisdictions as the Representative may reasonably designate and to maintain such qualifications in effect for so long as required for the distribution thereof. For a period of two (2) years after the date of this Agreement, (i) the Company shall use its reasonable best efforts to maintain the registration of the Ordinary Shares under the Exchange Act, and (ii) the Company shall not deregister any of the Ordinary Shares under the Exchange Act without the prior written consent of the Representative.
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3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus set forth in Schedule 2-B, if any. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5 Testing-the-Waters Communications. If at any time following the distribution of any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 of the Securities Act Regulations (a “Written Testing-the-Waters Communication”) there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company shall upon written request from the Representative deliver or make available to the Representative and Representative Counsel, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith), and will also deliver to each Underwriter, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) upon receipt of a written request therefor from such Underwriter. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Shares is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative promptly and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii)of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Shares for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall use its commercially reasonable efforts to obtain promptly the lifting of such order.
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3.6 Future Reports to the Underwriters. For two full years after the date of this Agreement, the Company will furnish, if not otherwise available on EDGAR, to the Representative (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders’ equity and cash flows for the year then ended and the opinion thereon of the Company’s independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, quarterly financial statements using a Form 8-K or other report filed by the Company with the Commission; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its share capital.
3.5 Listing. The Company shall use its commercially reasonable efforts to maintain the listing of the Shares of Common Stock on the Exchange for at least three (3) years from the date of this Agreement.
3.6 Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the “Transfer Agent”) and , for a period of one (1) year from the anniversary of the Closing Date, the Company shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. VStock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the Shares of Common Stock.
3.7 Trading Reports. During such time as the Shares are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Shares, as the Representative shall reasonably request.
3.8 Payment of Expenses
3.8.1. General Expenses Related to the Offering The Company hereby agrees to pay on the Closing Date, to the extent not paid at the Closing Date, all expenses related to the Offering or otherwise incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Shares to be sold in the Offering with the Commission; (b) all Public Filing System filing fees and expenses relating to the listing of such Shares on the Exchange and such other stock exchanges as the Company and the Representative together determine or associated with the review of the Offering by FINRA; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Shares under the securities laws of such foreign jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, opinion in all jurisdictions of the Company and its subsidiaries and affiliates, and the reasonable fees and disbursements of the Company’s “blue sky” counsel, which will be the Representative’s counsel) unless such filings are not required in connection with the Company’s proposed listing on a national exchange, if applicable; (d) the costs of all mailing and printing of documents in connection with the Offering; (e) transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; and (f) the fees and expenses of the Company’s accountants; and (g) a maximum of $300,000 for all accountable fees and expenses incurred by the Underwriters in connection with the Offering, including “road show,” diligence including directors’ and officers’ background check and reasonable legal fees and disbursements for Representative’s counsel, travel, preparation and other professional services and other out-of-pocket expenses. The parties acknowledge that the Company has paid an expense advance to the Representative of $ 30,000(together, the “Advance”) towards the foregoing accountable expense allowance and other expenses from time to time which shall be calculated at Closing. For the sake of clarity, it is understood and agreed that the Company shall be responsible for the Representative’s external legal counsel costs and other actually incurred expenses detailed in this section irrespective of whether the Offering is consummated or not and any unearned portions of advances shall be refunded. The Advance shall be applied towards out-of-pocket accountable expenses set forth herein and pursuant to Section 8.3 and any portion of the Advance shall be returned back to the Company to the extent not actually incurred. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date the expenses set forth herein to be paid by the Company to the Underwriters. The Company further agrees that, in addition to the aforementioned accountable expenses, it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1%) of the gross proceeds received by the Company from the sale of the Shares.
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3.9 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.10 Delivery of Earnings Statements to Security Holders. The Company shall make generally available (within the meaning of Section 11(a) of the Securities Act) to its security holders as soon as practicable, but not later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.11 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
3.12 Internal Controls. For a period of one (1) year after the date of this Agreement, the Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.13 Accountants. As of the date of this Agreement, the Company has retained an independent registered public accounting firm, as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board, reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.14 FINRA. For a period of 60 days from the Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 10% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the one hundred and eighty (180) days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.15 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
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3.16 Company Lock-Up. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 180 days after the date the Offering is completed (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, change the terms of, or grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; or (iii) enters into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), or (iii) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The restrictions contained in this Section 3.16 shall not apply to (i) the Shares of Common Stock to be sold hereunder, (ii) the issuance (but not registration) by the Company of Shares of Common Stock upon the exercise of an outstanding stock option or warrant or the conversion of a security outstanding on the date hereof, of which the Representative has been advised in writing and, (iii) the issuance by the Company of any security under any equity compensation plan of the Company, or (iv) any issuance of securities disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus.
3.17 Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.25 hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.18 Blue Sky Qualifications. The Company shall use its commercially reasonable efforts, in cooperation with the Underwriters, if necessary, to qualify the Shares for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Shares; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.19 Reporting Requirements. The Company, during the period when a prospectus relating to the Shares is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act. Additionally, the Company shall report the use of proceeds from the issuance of the Shares as may be required under Rule 463 under the Securities Act Regulations.
3.20 Emerging Growth Company Status. The Company shall promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Securities Act and (ii) fifteen (15) days following the completion of the Lock-Up Period.
3.21 Press Releases. Prior to the Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is in the ordinary course of business, required by law or requirement of Nasdaq.
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3.22 Sarbanes-Oxley. For a period of one (1) year after the date of this Agreement, the Company shall at all times comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
3.23 IRS Forms. If requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service (“IRS”) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.
4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Shares, as provided herein, shall be subject to (i) the continuing accuracy in all material respects of the representations and warranties of the Company and the Selling Stockholders as of the date hereof and as of each of the Closing; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company and the Selling Stockholders of their obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at the Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) under the Securities Act Regulations (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the Securities Act Regulations.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Clearance. On the Closing Date, the Shares shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsels. On the Closing Date, the Representative shall have received:
(i) the favorable opinion and written statement providing for certain “10b-5” negative assurances of Ortoli Rosenstadt LLP (“Company Counsel”), U.S. securities counsel to the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Representative, and
(ii) the favorable opinion of[●], British Virgin Islands counsel to the Company and the Selling Stockholders (“BVI Counsel”), dated the Closing Date, in form and substance reasonably satisfactory to the Representative.
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The Representative shall rely on the (i) opinions of the Company’s Company Counsel, filed as Exhibit 5.1 to the Registration Statement as to the due incorporation, validity of the Shares offered in the Offering and due authorization, execution and delivery of this or any other agreement relating to said offering and issuance.
4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to the Representative and to Representative’s Counsel from the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At the Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date, of its Chief Executive Officer or President, and its Chief Financial Officer stating on behalf of the Company and not in an individual capacity that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto after the Effective Date, as of the Applicable Time and as of the Closing Date did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date, any Issuer Free Writing Prospectus as of its date and as of the Closing Date, the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of the Closing Date, the representations and warranties of the Company in this Agreement are true and correct in all material respects (except for those representations and warranties qualified as to materiality, which shall be true and correct in all respects and except for those representations and warranties which refer to facts existing at a specific date, which shall be true and correct as of such date) and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, a Material Adverse Change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, involves a Material Adverse Change in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company, except as set forth in the Prospectus.
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4.4.2. Chief Financial Officer’s Certificate. At the Closing Date, the Representative shall have received a certificate of the Company signed by the Chief Financial Officer of the Company, dated the Closing Date or the Option Date, as the case may be, respectively, certifying on behalf of the Company and not in an individual capacity: (i) that the Charter is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; and (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on the Closing Date: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
4.6 No Material Misstatement or Omission. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the reasonable opinion of Representative Counsel, is material or omits to state any fact which, in the reasonable opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the reasonable opinion of Representative Counsel, is material or omits to state any fact which, in the reasonable opinion of Representative Counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.
4.7 Corporate Proceedings. All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Shares, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
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4.8 Delivery of Agreements.
4.8.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.
4.9 Additional Documents. At the Closing Date, Representative and Representative’s Counsel shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling Representative’s Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Shares as herein contemplated shall be reasonably satisfactory in form and substance to the Representative and Representative’s Counsel.
4.10 Delivery of Shares. On the Closing Date, (i) the Company shall deliver or cause the Firm Shares to be delivered by the Company, and (ii) the Selling Stockholders shall deliver or cause the Stockholder Shares to be delivered by the Selling Stockholders to the Representative, which shares shall be delivered via DTC’s “Deposit or Withdrawal at Custodian” system for the accounts of the several Underwriters.
4.11 Selling Stockholders’ Certificate. On the Closing Date, there shall have been furnished to the Representative a certificate, dated the Closing Date and addressed to the Representative, duly executed by the Selling Stockholders, to the effect that the Selling Stockholders have carefully examined the Registration Statement, the Preliminary Prospectus, Prospectus, any free writing prospectus and this Agreement and that the representations and warranties of the Selling Stockholders in this Agreement are true and correct as if made at and as of such Closing Date in customary form reasonably acceptable to the Representative.
5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1. General. The Company and each of the Selling Stockholders shall indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability (or actions, including shareholder actions, in respect thereof), claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties, the Selling Stockholders and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise, to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company and/or the Selling Stockholders or based upon written information furnished by the Company and/or the Selling Stockholders in any jurisdiction in order to qualify the Shares under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Pricing Disclosure Package, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Shares to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.3 hereof. The Company and/or the Selling Stockholders will not be liable to any Underwriter Indemnified Party under the foregoing indemnification and reimbursement provisions: (i) for any settlement by an Underwriter Indemnified Party effected without the Company’s and/or the Selling Stockholders’ prior written consent (not to be unreasonably withheld); or (ii) to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the Underwriter Indemnified Party’s bad faith, willful misconduct, or gross negligence. The Company and the Selling Stockholders also agree that no Underwriter Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company and/or the Selling Stockholders or their security holders or creditors related to or arising out of the engagement of the Underwriters pursuant to, or the performance by the Underwriters of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Underwriter Indemnified Party’s bad faith, willful misconduct, or gross negligence.
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5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company and the Selling Stockholders pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company and the Selling Stockholders in writing of the institution of such action and the Company and the Selling Stockholders shall be entitled to participate therein and, to the extent that they wish, jointly with any other similarly notified indemnifying party, to assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses. Any failure or delay by an Underwriter Indemnified Party to give the notice referred to herein shall not affect such Underwriter Indemnified Party’s right to be indemnified hereunder, except to the extent that such failure or delay causes actual material harm to the Company and the Selling Stockholders, or materially prejudices their ability to defend such action, suit or proceeding on behalf of such Indemnified Party. If any such action is brought against any Underwriter Indemnified Party and such Underwriter Indemnified Party notifies the Company and the Selling Stockholders of the commencement thereof, the Company and the Selling Stockholders may elect to assume the defense thereof, with counsel reasonably satisfactory to the Underwriter Indemnified Party. After notice from the Company and the Selling Stockholders to the Underwriter Indemnified Party of their election to assume the defense of such action, the Company and the Selling Stockholders shall not be liable to the Underwriter Indemnified Party under Section 5.1.1 for any legal or other expenses subsequently incurred by the Underwriter Indemnified Party in connection with the defense of such action other than reasonable costs of investigation; provided, however, that such Underwriter Indemnified Party shall have the right to employ its, or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter Indemnified Party unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company and the Selling Stockholders in connection with the defense of such action, or (ii) the Company and the Selling Stockholders shall not have employed counsel reasonably satisfactory to the Underwriter Indemnified Party to have charge of the defense of such action within a reasonable time after receiving notice of the action, suit, or proceeding, or (iii) such Underwriter Indemnified Party shall have reasonably concluded (based upon advice of counsel to such indemnified party) that there may be legal defenses available to it or them which are different from or additional to those available to the Company and the Selling Stockholders, or that there exists a conflict or potential conflict of interest (based upon advice of counsel to such indemnified party) between such Underwriter Indemnified Party and the Company and the Selling Stockholders that makes it impossible or inadvisable for counsel to the Company and the Selling Stockholders to conduct the defense of the Underwriter Indemnified Party (in which case the Company shall not have the right to direct the defense of such action on behalf of the Underwriter Indemnified Party), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by the Underwriter Indemnified Parties who are party to such action (in addition to local counsel) shall be borne by the Company and the Selling Stockholders. Notwithstanding anything to the contrary contained herein, if any Underwriter Indemnified Party shall assume the defense of such action as provided above, the Company and the Selling Stockholders shall have the right to approve the terms of any settlement of such action, which approval shall not be unreasonably withheld. The Company and the Selling Stockholders shall not be liable for settlement of any pending or threatened action or any claim whatsoever that is effected without their written consent; provided, however, that if the Company and the Selling Stockholders do not consent, and the Underwriter Indemnified Party does not settle as a result of such withholding of consent, then the Company and the Selling Stockholders agree unconditionally to assume any liabilities that are incurred as related to such rejection of settlement or withholding of consent.
5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company and the Selling Stockholders, their directors, their officers who signed the Registration Statement and persons who control the Company and the Selling Stockholders within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company and the Selling Stockholders to the several Underwriters, as incurred, but only with respect to such losses, liabilities, claims, damages and expenses (or actions in respect thereof) which arise out of or are based upon untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company and the Selling Stockholders or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company and the Selling Stockholders, and the Company, the Selling Stockholders and each other person so indemnified shall have the rights and duties given to the Underwriter Indemnified Parties by the provisions of Section 5.1.2. The Company and the Selling Stockholders agree promptly to notify the Representative of the commencement of any litigation or proceedings against the Company and the Selling Stockholders or any of their officers, directors or any person, if any, who controls the Company and the Selling Stockholders within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Shares or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other hand, from the Offering, or (ii) if, but only if, the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds actually received by the Company and the Selling Stockholders from the Offering of the Shares purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions actually received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and/or the Selling Stockholders, on the one hand, or the Underwriters, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of any Underwriter for use in any Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters’ Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1, no Underwriters shall be required to contribute any amount in excess of the total discount and commission received by such Underwriter in connection with the Offering (excluding reimbursable expenses) less the amount of any damages which such Underwriter has otherwise paid or becomes liable to pay by reason of such untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
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5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. The Underwriters’ obligations to contribute as provided in this Section 5.3 are several and in proportion to their respective underwriting obligation, and not joint.
5.4. Survival & Third-Party Beneficiaries. The advancement, reimbursement, indemnity and contribution obligations set forth in this Section 5 shall remain in full force and effect regardless of any termination of, or the completion of any Underwriter Indemnified Party’s services under or in connection with, this Agreement. Each Underwriter Indemnified Party’s is an intended third-party beneficiary of this Section 5, and has the right to enforce the provisions of Section 5 as if he/she/it was a party to this Agreement.
6. Default by an Underwriter.
6.1. Default Not Exceeding 10% of Firm Shares. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares and if the number of the Firm Shares with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
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6.2 Default Exceeding 10% of Firm Shares. In the event that the default addressed in Section 6.1 relates to more than 10% of the Firm Shares, the Representative may in its discretion arrange for itself or for another party or parties to purchase such Firm Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the Firm Shares, the Representative does not arrange for the purchase of such Firm Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties reasonably satisfactory to the Representative to purchase said Firm Shares on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares.
7. Additional Covenants.
7.1 Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, the Exchange Act and the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Shares listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. For a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the fortieth (40th) day after the Closing Date, the Company shall not issue press releases or engage in any other than publicity without the Representative’s prior written consent, which consent shall not be unreasonably withheld or delayed; provided that the Representative’s consent shall not be required with regard to any press release or other public disclosure that is required by law or any other than normal and customary press release or any other publicity issued in the ordinary course of the Company’s business.
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7.3 Right of First Refusal. Provided that the Firm Shares are sold in accordance with the terms of this Agreement, the Representative shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period of nine (9) months after the date the Effective Date of the Registration Statement, to act as lead managing underwriter, placement agent, or in any other similar capacity, at the Representative’s sole discretion, for each and every future public offering for capital raising purposes registered with the Commission, or private financing including all equity linked financings (each, a “Subject Transaction”), during such nine (9) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions that are the same or more favorable to the Company comparing to terms and conditions offered to the Company by other underwriters/placement agents. For the avoidance of any doubt, neither the Company nor any subsidiary shall retain, engage or solicit any additional investment banker, book-runner, underwriter and/or placement agent in a Subject Transaction during the nine (9) month period referred to above without the express written consent of the Representative. The Company shall notify the Representative of its or its subsidiary’s intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by electronic mail or overnight courier service addressed to the Representative. If the Representative declines the terms of such Subject Transaction or fails to notify the Company of its intent to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then the Representative shall have no further claim or right with respect to the Subject Transaction. If the Representative declines to exercise the Right of First Refusal or is unable to provide same or more favorable terms to the Company under reasonable standard, the Company shall have the right to retain any other person or persons to provide such services on terms and conditions which are not more favorable to such other person or persons than the terms presented to and declined by the Representative. The Representative may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election, rejection, waiver or failure to respond or act, by the Representative shall not adversely affect the Representative’s Right of First Refusal with respect to any other Subject Transaction during the nine (9) month period agreed to above.
The terms and conditions of any such engagements shall be set forth in separate agreements and may be subject to, among other things, satisfactory completion of due diligence by the Representative, market conditions, the absence of a material adverse change to the Company’s business, financial condition and prospects, approval of the Representative’s internal committee and any other conditions that the Representative may deem appropriate for transactions of such nature.
8. Effective Date of this Agreement and Termination Thereof.
8.1 Effective Date of this Agreement. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative’s reasonable opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative’s reasonably opinion, make it inadvisable to proceed with the delivery of the Firm Shares; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of such a Material Adverse Change, or such adverse material change in general market conditions as in the Representative’s reasonable judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Shares or to enforce contracts made by the Underwriters for the sale of the Shares.
8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters pursuant to Section 6.1 and Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the reasonable fees and disbursements of Representative Counsel of up to $170,000) plus up to $30,000, and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
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8.4 Survival of Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Shares.
9. Miscellaneous.
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered, or sent by electronic mail transmission, return receipt requested and shall be deemed given (i) if mailed, two (2) days after such mailing, (ii), if personally delivered, when so delivered, or (iii) if sent by electronic mail transmission, upon the sending party’s receipt of a confirmation email (including read receipt or other automatic delivery confirmation) from the receiving party.
If to the Representative:
Dominari Securities LLC
725 Fifth Avenue, 23rd Floor New York, NY 10022
Attn: [●]
Email: [●]
Phone: [●]
with a copy (which shall not constitute notice) to:
Benjamin Tan, Esq.
Sichenzia Ross Ference Carmel LLP
1185 Avenue of the Americas, 31st Floor,
New York, NY 10036
Phone: (212) 930-9700
Email: btan@srfc.law
If to the Company and/or the Selling Stockholders:
Aureus Greenway Holdings Inc.
2995 Remington Boulevard
Kissimmee, Florida 34744
Tel: (407) 344 4004
Attn:
Email:
Or to its agent for service pursuant to Section 9.6 below,
with a copy (which shall not constitute notice) to:
William S. Rosenstadt, Esq.
Mengyi “Jason” Ye, Esq.
Ortoli Rosenstadt LLP
366 Madison Avenue, 3rd Floor
New York, NY 10017
+1-212-588-0022 – telephone
Email:
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9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company and the Selling Stockholders hereby agree that any action, proceeding or claim against them arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction which shall be exclusive. The Company and the Selling Stockholders hereby waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company and the Selling Stockholders in any action, proceeding or claim. The Company and the Selling Stockholders agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company, the Underwriters and Selling Stockholders agree that any final judgment after exhaustion of all appeals or the expiration of time to appeal in any such action or proceeding arising out of the sale of the Shares or this Agreement rendered by any such Federal court or state court shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing contained in this Agreement shall affect or limit the right of the Company, the Underwriters, the Selling Stockholders or any person controlling an Underwriter to serve any process or notice of motion or other application in any other manner permitted by law or limit or affect the right of the Company, the Underwriters, the Selling Stockholders or any person controlling an Underwriter to bring any action or proceeding against the other party or any of its properties in the courts of any other jurisdiction. The Company and Selling Stockholders further agree to take any and all action, including the execution and filing of all such instruments and documents, as may be necessary to continue such designations and appointments or such substitute designations and appointments in full force and effect. The Company, the Selling Stockholders and the Underwriters agree to the exclusive jurisdiction of the New York Supreme Court, County of New York or the United States District Court for the Southern District of New York in connection with any action or proceeding arising from the sale of the Shares or this Agreement brought by the Company, the Underwriters, the Selling Stockholder s or any person controlling an Underwriter. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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9.6.3. The Company, the Selling Stockholders and the Underwriters agree that in any suit (whether in a court in the United States or elsewhere) seeking enforcement of this Agreement or provisions of this Agreement, if the plaintiffs therein seek a judgment in either United States dollars, they will not interpose any defense or objection to or otherwise oppose judgment, if any, being awarded in such currencies. The Company, the Selling Stockholders and the Underwriters agree that they will not initiate or seek to initiate any action, suit or proceeding, in any other jurisdiction other than in the United States, seeking damages in respect of or for the purpose of obtaining any injunction or declaratory judgment against the enforcement of, or a declaratory judgment concerning any alleged breach by the Company (or the Selling Stockholders or Underwriters) or other claim by the Underwriters (or by the Company or the Selling Stockholders), or any person controlling an Underwriter in respect of this Agreement or any of the Underwriters’ rights under this Agreement, including without limitation any action, suit or proceeding challenging the enforceability of or seeking to invalidate in any respect the submission by the Company (or the Selling Stockholders or the Underwriters) hereunder to the jurisdiction of the courts or the designation of the laws as the law applicable to this Agreement, in each case as set forth herein.
9.6.4. The Company, the Selling Stockholders and the Underwriters agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.
9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters, the Selling Stockholders, and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | ||
| Aureus Greenway Holdings Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
SELLING STOCKHOLDERS:
ACE CHAMPION INVESTMENTS LIMITED
| Name: | ||
| Title: | ||
TRENDY VIEW ASSETS MANAGEMENT
| Name: | ||
| Title: | ||
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
| DOMINARI SECURITIES LLC | ||
| By: | ||
| Name: | [●], | |
| Title: | [●], | |
[Signature Page to Underwriting Agreement]
SCHEDULE 1
| Underwriter | Total Number of Firm Shares to be Purchased | |||
| Dominari Securities LLC | ||||
| TOTAL | ||||
SCHEDULE 2-A
Pricing Information
| Number of Firm Shares: | ||
| Public Offering Price per Firm Share: | $ | |
| Underwriting Discount per Firm Share(7%): | $ | |
| Accountable Expense Allowance (Total): | $300,000 | |
| Non-accountable Expense Allowance per Firm Share (1%): | $ | |
| Proceeds to Company per Firm Share: $ (before expenses): | $ |
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
N/A
SCHEDULE 3
List of Lock-Up Parties
| Lock-up Parties | ||||
EXHIBIT A
Form of Lock-Up Agreement
Lock-Up Agreement
[●], 2024
Dominari Securities LLC
725 Fifth Avenue, 23rd Floor New York, NY 10022
As the Representative named on Schedule 1 to the Underwriting Agreement
| Re: | Aureus Greenway Holdings Inc. |
Ladies and Gentlemen:
The undersigned understands that Dominari Securities LLC (the “Representative”) proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Aureus Greenway Holdings Inc., a corporation formed under the laws of the Nevada (the “Company”) and certain stockholders of the Company (the “Selling Stockholders”), providing for the public offering shares of common stock, par value $0.001 per share (the “Shares”), of the Company (the “Public Offering”) in an amount and at a price to be finalized prior to consummation of the Public Offering.
To induce the Representative to enter into the Underwriting Agreement, and in light of the benefits that the Public Offering will confer upon the undersigned in its capacity as a securityholder and/or an officer, director or employee of the Company, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending one hundred and eighty (180) days after the date the Public Offering is completed (the “Lock-Up Period”), (1) offer, pledge, sell contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities.
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; or (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Lock-Up Securities to any shareholder, partner or member of, or owner of similar equity interests in, the undersigned, as the case may be; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) or (d), it shall be a condition to any such transfer that (i) the transferee/donee agrees to be bound by the terms of this lock-up agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee/donee were a party hereto; and (ii) the undersigned notifies the Representative at least two (2) business days prior to the proposed transfer or disposition. With the prior written consent of the Representative, the undersigned may enter into arrangements within the Lock-Up Period regarding the transfer of the Lock-Up Securities after the end of the Lock-Up Period.
In addition, the foregoing restrictions shall not apply to (i) the exercise of stock options granted pursuant to the Company’s equity incentive plans existing on the date hereof or to any of the undersigned’s shares of common stock issued upon such exercise, (ii) exercise of warrants; provided that it shall apply to any of the undersigned’s shares of common stock issued upon such exercise, or (iii) pursuant to an existing contract, instruction or plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act, (iv) the establishment of any new Plan; provided that no sales of the undersigned’s shares of common stock shall be made pursuant to such new Plan prior to the expiration of the Lock-Up Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period.
The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s securities subject to this lock-up agreement except in compliance with this lock-up agreement.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any Shares that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver.
Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
This lock-up agreement shall automatically terminate upon the earliest to occur, if any, of (1) either the Representative, or the Company, advising the other in writing, they have determined not to proceed with the Public Offering, (2) termination of the Underwriting Agreement before the sale of Shares, or (3) the withdrawal of the registration statement used to register the Company’s Shares in the Public Offering .
This lock-up agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
| Very truly yours, | ||
| (Name - Please Print) | ||
| (Signature) | ||
| (Name of Signatory, in the case of entities - Please Print) | ||
| (Title of Signatory, in the case of entities - Please Print) | ||
| Address: | ||
EXHIBIT B
Form of Press Release
AUREUS GREENWAY HOLDINGS INC.
__, [2024]
AUREUS GREENWAY HOLDINGS INC. (the “Company”) announced today that Dominari Securities LLC, acting as representative for the underwriters in the Company’s recent public offering of _______ shares of common stock of the Company, is [waiving] [releasing] a lock-up restriction with respect to _________ shares of common stock of the Company held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _________, [2024], and the securities may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the inclusion of our report dated April 19, 2024, except for Notes 1, 11 and 14 which are dated June 20, 2024 in Amendment No. 4 to the Registration Statement on Form S-1, under the Securities Act of 1933 (File No. 333-280340) with respect to the consolidated balance sheets of Aureus Greenway Holdings Inc. and its subsidiaries (collectively the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes included herein.
We also consent to the reference to our firm under the heading “Experts” in the Registration Statement.
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| San Mateo, California | WWC, P.C. |
| October 16, 2024 | Certified Public Accountants |
| PCAOB ID No. 1171 |
