NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed
in US Dollars)
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Sunrise
Real Estate Development Group, Inc. (“CY-SRRE”) was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly
owned by Ace Develop Properties Limited, a corporation, (“Ace Develop”), of
which Lin Chi-Jung, an individual, is the principal and controlling shareholder.
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”) was
established in the People’s Republic of China (the “PRC”) on August 14, 2001 as
a limited liability company. SHXJY was originally owned by a Taiwanese company,
of which the principal and controlling shareholder was Lin Chi-Jung. On June
8,
2004, all the fully paid up capital of SHXJY was transferred to CY-SRRE. On
June
25, 2004 SHXJY and two individuals established a subsidiary, namely, Suzhou
Xin
Ji Yang Real Estate Consultation Company Limited (“SZXJY”) in the PRC, at which
point in time, SHXJY held a 90% equity interest in SZXJY. On December 24, 2004,
SHXJY acquired 85% of equity interest in Beijing Xin Ji Yang Real Estate
Consultation Company Limited (“BJXJY”), a PRC company incorporated on April 16,
2003 with limited liability. On August 9, 2005, SHXJY sold a 10% equity interest
in SZXJY to a company owned by a director of SZXJY, and transferred a 5% equity
interest in SZXJY to CY-SRRE. Following the disposal and the transfer, CY-SRRE
effectively held an 80% equity interest in SZXJY. On November 24, 2006, CY-SRRE,
SHXJY, a director of SZXJY and a third party established a subsidiary, namely,
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”) in the PRC,
with CY-SRRE holding a 12.5% equity interest, SHXJY holding a 26% equity
interest, the director of SZXJY holding a 12.5% equity interest in SZSY.
Following that, CY-SRRE effectively holds 38.5% equity interest in SZSY. On
September 24, 2007, CY-SRRE sold a 5% equity interest in SZXJY to a company
owned by a director of SZXJY. Following the disposal, CY-SRRE effectively holds
75% equity interest in SZXJY.
LIN
RAY
YANG Enterprise Ltd. (“LRY”) was established in the British Virgin Islands on
November 13, 2003 as a limited liability company. LRY was owned by Ace Develop,
Planet Technology Corporation (“Planet Tech”) and Systems & Technology
Corporation (“Systems Tech”). On February 5, 2004, LRY established a wholly
owned subsidiary, Shanghai Shang Yang Real Estate Consultation Company Limited
(“SHSY”) in the PRC as a limited liability company. On January 10, 2005, LRY and
a PRC third party established a subsidiary, Suzhou Gao Feng Hui Property
Management Company Limited (“SZGFH”), in the PRC, with LRY holding 80% of the
equity interest in SZGFH. On May 8, 2006, LRY acquired 20% of the equity
interest in SZGFH from the third party. Following the acquisition, LRY
effectively holds 100% of the equity interest in SZGFH. On September 11, 2007
SHSY and other third parties established a subsidiary, namely, Suzhou Bin Fen
Nian Dai Administration Consultancy Company Limited (“SZBFND”) in the PRC, with
SHSY holding a 19% equity interest in SZBFND.
SHXJY,
SZXJY, BJXJY, SHSY, SZGFH and SZSY commenced operations in November 2001, June
2004, January 2004, February 2004, January 2005 and November 2006 respectively.
Each of SHXJY, SZXJY, BJXJY, SHSY, SZGFH and SZSY has been granted a twenty-year
operation period from the PRC, which can be extended with approvals from
relevant PRC authorities.
On
August
31, 2004, Sunrise Real Estate Group, Inc. (“SRRE”), CY-SRRE and Lin Chi-Jung, an
individual and agent for the beneficial shareholder of CY-SRRE, i.e., Ace
Develop, entered into an exchange agreement under which SRRE issued 5,000,000
shares of common stock to the beneficial shareholder or its designees, in
exchange for all outstanding capital stock of CY-SRRE. The transaction closed
on
October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE,
the
President of CY-SRRE and the principal and controlling shareholder of Ace
Develop.
Also
on
August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual and agent for
beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems
Tech,
entered into an exchange agreement under which SRRE issued 10,000,000 shares
of
common stock to the beneficial shareholders, or their designees, in exchange
for
all outstanding capital stock of LRY. The transaction was closed on October
5,
2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the President
of LRY and the principal and controlling shareholder of Ace Develop. Regarding
the 10,000,000 shares of common stock of SRRE issued in this transaction, SRRE
issued 8,500,000 shares to Ace Develop, 750,000 shares to Planet Tech and
750,000 shares to Systems Tech.
As
a
result of the acquisition, the former owners of CY-SRRE and LRY hold a majority
interest in the combined entity. Generally accepted accounting principles
require in certain circumstances that a company whose shareholders retain the
majority voting interest in the combined business be treated as the acquirer
for
financial reporting purposes. Accordingly, the acquisition has been accounted
for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to
have purchased SRRE. However, SRRE remains the legal entity and the Registrant
for Securities and Exchange Commission reporting purposes. All shares and per
share data prior to the acquisition have been restated to reflect the stock
issuance as a recapitalization of CY-SRRE and LRY.
SRRE
was
initially incorporated in Texas on October 10, 1996, under the name of Parallax
Entertainment, Inc. (“Parallax”). On December 12, 2003, Parallax changed its
name to Sunrise Real Estate Development Group, Inc.
On
April
25, 2006, Sunrise Estate Development Group, Inc. filed Articles of Amendment
with the Texas Secretary of State, changing the name of Sunrise Real Estate
Development Group, Inc. to Sunrise Real Estate Group, Inc., effective from
May
23, 2006.
Figure
1:
Company Organization Chart
SRRE
and
its subsidiaries, namely, CY-SRRE, LRY, SHXJY, SZXJY, SZSY, BJXJY, SHSY and
SZGFH are sometimes hereinafter collectively referred to as “the
Company.”
The
principal activities of the Company are property brokerage services, real estate
marketing services, property leasing services and property management services
in the PRC
.
NOTE
2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited financial data as of and for the three
and nine
months ended September 30, 2007 and 2006 have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to
such
rules and regulations. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and the Footnotes thereto included in the Company's annual Report on Form 10-KSB
for the fiscal year ended December 31, 2006.
In
the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows as of and for the three and nine months ended
September 30, 2007 have been made. The results of operations for the three
and
nine months ended September 30, 2007 are not necessarily indicative of the
operating results for the full year.
Basis
of Accounting and Principles of Consolidation
The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America and present
the
financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
SZSY, BJXJY, SHSY and SZGFH. All inter-company transactions and balances have
been eliminated.
Foreign
Currency Translation and Transactions
The
functional currency of SRRE, CY-SRRE and LRY is United States Dollars (“US$”)
and the financial records are maintained and the financial statements prepared
in US $. The functional currency of SHXJY, SZXJY, SZSY, BJXJY, SHSY and SZGFH
is
Renminbi (“RMB”) and the financial records are maintained and the financial
statements prepared in RMB.
Foreign
currency transactions during the period are translated into each company’s
denominated currency at the exchange rates ruling at the transaction dates.
Gain
and loss resulting from foreign currency transactions are included in the
consolidated statement of operations. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company’s
denominated currency at period end exchange rates. All exchange differences
are
dealt with in the consolidated statements of operations.
The
financial statements of the Company’s operations based outside of the United
States have been translated into US$ in accordance with SFAS 52. Management
has
determined that the functional currency for each of the Company’s foreign
operations is its applicable local currency. When translating functional
currency financial statements into US$, period-end exchange rates are applied
to
the consolidated balance sheets, while average period rates are applied to
consolidated statements of operations. Translation gains and losses are recorded
in translation reserve as a component of shareholders’ equity.
The
exchange rate between US$ and RMB had little fluctuation during the periods
presented. The rates ruling as of September 30, 2007 and December 31, 2006
are
US$1: RMB7.5108 and US$1: RMB7.8087, respectively.
Property,
Plant, Equipment and Depreciation
Property,
plant and equipment are stated at cost. Depreciation is computed using the
straight-line method to allocate the cost of depreciable assets over the
estimated useful lives of the assets as follows:
|
Estimated
Useful Life (in years)
|
|
|
Furniture
and fixtures
|
5-10
|
Computer
and office equipment
|
5
|
Motor
vehicles
|
5
|
Properties
|
20
|
Maintenance,
repairs and minor renewals are charged directly to the statement of operations
as incurred. Additions and improvements are capitalized. When assets are
disposed of, the related cost and accumulated depreciation thereon are removed
from the accounts and any resulting gain or loss is included in the statement
of
operations.
Investment
property
Investment
properties are stated at cost. Depreciation is computed using the straight-line
method to allocate the cost of depreciable assets over the estimated useful
lives of 20 years.
Significant
additions that extend property lives are capitalized and are depreciated over
their respective estimated useful lives. Routine maintenance and repair costs
are expensed as incurred. The Company reviews its investment property for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an investment property may not be recoverable.
Use
of Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires the Company’s management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Advertising
Costs
All
advertising costs incurred in the promotion of the Company’s real estate
projects are expensed as incurred.
Revenue
Recognition
Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, which is normally
at the time when the property developer receives from the buyer a portion of
the
sales proceeds in accordance with the terms of the relevant property sales
agreement, or when it can be confirmed that the balance of the bank loan to
the
buyer has been approved.
Revenue
from marketing consultancy services is recognized when services are provided
to
clients.
Commission
revenue from underwriting service is recognized when the property developer
and
the buyer complete a property sales transaction, which is normally at the time
when the property developer has confirmed that the predetermined level of sales
proceeds have been received from buyers.
Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.
All
revenues represent gross revenues less sales and business tax.
Net
Earnings per Common Share
The
Company computes net earnings per share in accordance with SFAS No. 128,
“Earnings per Share.” Under the provisions of SFAS No. 128, basic net earnings
per share is computed by dividing the net earnings available to common
shareholders for the period by the weighted average number of shares of common
stock outstanding during the period. The calculation of diluted net earnings
per
share gives recognizes common stock equivalents, however; potential common
stock
in the diluted EPS computation is excluded in net loss periods, as their effect
is anti-dilutive.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109 “Accounting
for Income Taxes.” Under SFAS No. 109, deferred tax liabilities or assets at the
end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
We
continue to account for income tax
contingencies
using a benefit recognition model.
Beginning
January 1, 2007, if we consider that a tax position is 'more likely than not'
of
being sustained upon audit, based solely on the technical merits of the
position, we recognize the benefit. We measure the benefit by determining the
amount that is greater than 50% likely of being realized upon settlement,
presuming that the tax position is examined by the appropriate taxing authority
that has full knowledge of all relevant information. These assessments can
be
complex and we often obtain assistance from external advisors.
Under
the
benefit recognition model
,
if
our
initial assessment fails to result in the recognition of a tax benefit, we
regularly monitor our position and subsequently recognize the tax benefit if
there are changes in tax law or analogous case law that sufficiently raise
the
likelihood of prevailing on the technical merits of the position to more likely
than not; if the statute of limitations expires; or if there is a completion
of
an audit resulting in a settlement of that tax year with the appropriate agency.
Uncertain
tax positions, represented by liabilities on our balance sheet, are now
classified as current only when we expect to pay cash within the next 12 months.
Interest and penalties, if any, continue to be recorded in
Provision
for taxes on income
and are
classified on the balance sheet with the related tax liability.
Historically,
our policy had been to account for income tax contingencies based on whether
we
determined our tax position to be 'probable' under current tax law of being
sustained, as well as an analysis of potential outcomes under a given set of
facts and circumstances.
In
addition, we previously considered all tax liabilities as current once the
associated tax year was under audit.
Guarantees
The
Company accounts for its liability for its obligations under a guarantee in
accordance with FASB Interpretation No. 45, (FIN45) Guarantor's Accounting
and
Disclosure Requirements for Guarantees, Including Direct Guarantees of
Indebtedness of Others. FIN 45 requires that guarantors recognize a liability
for certain guarantees at the fair value of the guaranteed obligation at the
inception of the guarantee, even if the likelihood of performance under the
guarantee is remote.
Non-employee
stock based compensation
The
cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task Force
Issue ("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18").
NOTE
3 - PROMISSORY DEPOSITS
The
balance includes the deposits of $865,420 placed with several property
developers in respect of a number of real estate projects where the Company
is
appointed as sales agent.
NOTE
4 - OTHER RECEIVABLES AND DEPOSITS
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
Advances
to staff
|
|
$
|
167,314
|
|
$
|
25,912
|
|
Rental
deposits
|
|
|
83,834
|
|
|
51,333
|
|
Prepaid
rental
|
|
|
467,040
|
|
|
365,138
|
|
Prepayment
|
|
|
81,316
|
|
|
-
|
|
Other
receivables
|
|
|
304,177
|
|
|
67,362
|
|
|
|
$
|
1,103,681
|
|
$
|
509,745
|
|
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT
-
NET
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
Furniture
and fixtures
|
|
$
|
118,495
|
|
$
|
105,288
|
|
Computer
and office equipment
|
|
|
258,916
|
|
|
234,460
|
|
Motor
vehicles
|
|
|
630,359
|
|
|
607,431
|
|
Properties
|
|
|
2,014,362
|
|
|
1,909,671
|
|
|
|
|
3,022,132
|
|
|
2,856,850
|
|
Less:
Accumulated depreciation
|
|
|
(548,240
|
)
|
|
(365,217
|
)
|
|
|
$
|
2,473,892
|
|
$
|
2,491,633
|
|
NOTE
6 - INVESTMENT PROPERTY
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
Investment
property
|
|
$
|
13,257,446
|
|
$
|
-
|
|
Less:
Accumulated depreciation
|
|
|
(317,892
|
)
|
|
-
|
|
|
|
$
|
12,939,554
|
|
$
|
-
|
|
Investment
property included one floor and six units of a commercial building in Suzhou,
the PRC acquired by the Company for commercial rental purposes.
NOTE
7 - BANK LOANS
There
are
two bank loans, as listed below:
First,
the balance includes a bank loan of $8,654,205. The period of this bank loan
is
3 years and bears interest at 8.415% per annum. This bank loan is secured by
the
properties as mentioned in Note 6 above. The repayment schedule of this bank
loan is as follows:
August
4, 2008
|
$
656,556
|
February
2, 2009
|
$
656,556
|
August
3, 2009
|
$
656,556
|
February
1, 2010
|
$
2,626,222
|
August
2, 2010
|
$
3,939,334
|
Second,
the remaining bank loans bear interest at 6.48% per annum, and are repayable
within four years in monthly installments. The bank loans are secured by the
properties as mentioned in Note 5 above.
NOTE
8 - PROMISSORY NOTES PAYABLE
There
are
four promissory notes, as listed below:
First,
the balance includes a promissory note of $277,778. This promissory note of
$277,778 bears interest at a rate of 5% per annum. The promissory note is
unsecured and will be repayable before October 31, 2009
.
Second,
the balance includes a promissory note of $150,000 and accrued interest of
$5,000 thereon. This promissory note of $150,000 bears interest at a rate of
5%
per annum. This promissory note is unsecured and the term of repayment is not
specifically defined
.
Third,
the balance includes a promissory note of $300,000. This promissory note of
$300,000 bears interest at a rate of 15% per annum. This promissory note is
unsecured and the term of repayment is not specifically defined
.
Fourth,
the balance includes a promissory note of $2,565,903 and accrued interest of
$304,411 thereon. This promissory note of $2,565,903 bears interest at a rate
of
18% per annum. This promissory note is unsecured and will be repayable before
February 1, 2008.
NOTE
9 - AMOUNTS DUE TO VENTURERS
The
Company has entered into co-operation agreements with two venturers (one of
them
is an independent third party; the other is the Company’s ex-director, Chang
Shu-Ching) to jointly carry out a property underwriting project for a commercial
building in Suzhou, the PRC. According to the agreements, the Company, Chang
Shu-Ching and the other venturer are entitled to share 65%, 10% and 25% of
the
net results of the project, respectively. On February 14, 2007, the venturers
entered into an agreement. According to the agreement, Chang Shu-Ching obtained
25% of the net results of the project from the other venturer. As a result,
the
Company and Chang Shu-Ching are entitled to share 65% and 35% of the net results
of the project, respectively.
NOTE
10 - RELATED PARTY
A
related
party is an entity that can control or significantly influence the management
or
operating policies of another entity to the extent one of the entities may
be
prevented from pursuing its own interests. A related party may also be any
party
the entity deals with that can exercise that control.
Amount
due to director
Prior
to
April 25, 2005, the amount due to one of the directors was interest-free.
Thereafter, the amount due to this director has borne interest at a rate of
9.6%
per annum. As of September 30, 2007, the balance includes principal of $300,000.
The principal is unsecured and
the
term
of repayment is not specifically defined
.
NOTE
11 - OTHER PAYABLES AND ACCRUED EXPENSES
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
Accrued
staff commission & bonus
|
|
$
|
550,234
|
|
$
|
997,794
|
|
Rental
deposits received
|
|
|
419,735
|
|
|
240,329
|
|
Receipt
in advance from disposal of properties
|
|
|
6,328,830
|
|
|
|
|
Other
payables
|
|
|
562,059
|
|
|
300,581
|
|
|
|
$
|
7,860,858
|
|
$
|
1,538,704
|
|
NOTE
12 - OTHER TAX PAYABLE
Other
tax
payable represents PRC business tax which is charged at a rate of 5% on the
revenue from services rendered. The amount of PRC business tax charged for
the
six months ended September 30, 2007 was $292,409.
NOTE
13 - INCOME TAX PAYABLE
A.
|
Adoption
of New Accounting Standard
|
FIN
48
We
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in
income taxes recognized in an enterprise’s financial statements in accordance
with Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” The Interpretation prescribes a threshold for the financial statement
recognition and measurement of a tax position taken or expected to be taken
within an income tax return. For each tax position, the enterprise must
determine whether it is more likely than not that the position will be sustained
upon examination based on the technical merits of the position, including
resolution of any related appeals or litigation. A tax position that meets
the
more likely than not recognition threshold is then measured to determine the
amount of benefit to recognize within the financial statements. No benefits
may
be recognized for tax positions that do not meet the more likely than not
threshold. With respect to United States federal and Chinese income taxes,
no
reclassification was required.
United
States and State of Texas Taxes:
The
Company incurred a US federal net operating loss in the amount of $360,000
for
the nine months ended September 30, 2007. It has US federal net operating loss
carryforwards in the amount of $60,000 and $564,000 which expire in 2027 and
2025 respectively.
The
net
operating loss generated in 2007 was different from the Sunrise US holding
company’s book loss because $495,000 of foreign assets was considered
repatriated to and, thus, taxable by the United States through loans made by
CY-SRRE and indirectly by Shanghai Shang Yang to SRRE.
The
net
operating loss generated in 2006 was different from the Sunrise US holding
company’s book loss because $583,000 of foreign assets was considered
repatriated to and, thus, taxable by the United States through loans made
directly by CY-SRRE and indirectly by Shanghai Shang Yang to SRRE. Another
difference between book and tax income in 2006 was the exclusion from income
of
$165,000 of dividends which were previously taxed as subpart F
income.
The
realization of deferred tax assets depends upon the existence of sufficient
taxable income in the carryforward period. We have considered the following
possible sources of taxable income when assessing the realization of the
deferred tax assets:
l
|
Future
taxable income exclusive of reversing temporary differences and
carryforwards,
|
l
|
Future
reversals of existing taxable temporary
differences,
|
l
|
Taxable
income in prior carry-back years,
|
l
|
Tax
planning strategies.
|
We
have
not relied upon future taxable income exclusive of temporary differences and
carryforwards for the realization of U.S. deferred tax assets. Reliance on
this
source is difficult when there is negative evidence such as current and
cumulative losses in recent years.
We
have
not provided for U.S. deferred income taxes or foreign withholding taxes on
undistributed earnings of $8.2 and $9.0 million, at September 30, 2007, and
December
31,
2006
,
respectively, of our non-U.S.
subsidiaries
because
it is not practicable to estimate the amount of additional taxes that might
be
payable on such undistributed earnings. Distributions are limited under China
corporate law to the entity’s earnings in the preceding calendar year and, then,
must be approved by China regulators. It is believed that the maximum amount
of
distributions which would be approved in 2007 based on 2006 earnings would
not
exceed $750,000. Of this amount, it is expected that $600,000 would be retained
at the Cayman Islands subsidiary and that only approximately $150,000 would
be
distributed to Sunrise US. As indicated above, the US tax net operating loss
carryovers would completely shelter this amount.
The
Tax
Increase Prevention and Reconciliation Act (“TIPRA”) which was signed
March
17,
2006
,
modified what income is taxed to
the
Company
as an
owner of a controlled foreign corporation (“CFC”). This modification is
effective for Sunrise’s 2006 through 2008 tax years. For Sunrise, the TIPRA
modification means that certain dividend or interest income received by SRRE-CY
or LRY-BVI will not trigger income recognition by SRRE US if the funds remain
at
the SRRE-CY or LRY-BVI level. Such dividends and interest must be properly
allocable to non-subpart-F income, e.g., active income, of the Chinese level
subs of SRRE-CY and LRY-BVI.
The
SRRE
is incorporated in the State of Texas, which does not have a corporate income
tax.
NOTE
14- COMMITMENTS AND CONTINGENCIES
Operating
Lease Commitments
During
the nine months ended September 30, 2007 and 2006, the Company incurred lease
expenses amounting to $178,693 and $233,481, respectively. As of September
30,
2007, the Company had commitments under operating leases, requiring annual
minimum rentals as follows:
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
Within
one year
|
|
$
|
33,006
|
|
$
|
124,429
|
|
Two
to five years
|
|
|
-
|
|
|
2,349
|
|
Operating
lease commitments
|
|
$
|
33,006
|
|
$
|
126,778
|
|
In
order
to distribute the properties of the Sovereign Building underwriting project,
during the year of 2005, the Company launched a promotional package by entering
into leasing agreements with certain buyers to lease the properties for them.
These leasing agreements
on
these
properties
are for
62% of the floor space that was sold to third party buyers.
In
accordance with the leasing agreements, the owners of the properties can enjoy
an annual rental return of 8.5% and 8.8% per annum for a period of 5 years
and 8
years, respectively. The leasing period started in the second quarter, 2006,
and
the Company has the right to sublease the leased properties to cover these
lease
commitments in the leasing period. As of
September
30
,
2007,
78 sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 66% of total area with these lease
commitments.
As
of
September 30, 2007, the lease commitments under the above promotional package
are as follows:
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
Within
one year
|
|
$
|
2,963,559
|
|
$
|
2,807,847
|
|
Two
to five years
|
|
|
8,922,101
|
|
|
10,319,497
|
|
Over
five years
|
|
|
2,121,557
|
|
|
2,774,208
|
|
Operating
lease commitments arising from the promotional package
|
|
$
|
14,007,217
|
|
$
|
15,901,552
|
|
According
to the leasing agreements, the Company has an option to terminate any agreement
by paying a predetermined compensation. As of September 30, 2007, the
compensation to terminate all leasing agreements is $2,997,562. As of September
30, 2007, the management of the Company considers that no provision should
be
made for the Company’s obligations under the foregoing guarantees.
Contingent
liability
In
September 2007, the Company filed a claim for approximately US$108,093 in
respect of the unsettled trade receivable balance. The directors are of the
opinion that it is too early to predict its outcome at this stage but they
believe that the final settlement of the case is not expected to have a material
adverse effect on the financial position of the Company, accordingly no
allowance for trade receivables for this claim has been made in the accounts.
NOTE
15 - STATUTORY RESERVE
According
to the relevant corporation laws in the PRC, a PRC company is required to
transfer at least 10% of its profit after taxes, as determined under accounting
principles generally accepted in the PRC, to the statutory reserve until the
balance reaches 50% of its registered capital. The statutory reserve can be
used
to make good on losses or to increase the capital of the relevant
company.
NOTE
16- ACCUMULATED OTHER COMPREHENSIVE INCOME
As
of
September 30, 2007, the only component of accumulated other comprehensive income
was translation reserve.
NOTE
17 - CONCENTRATION OF CUSTOMERS
During
the three months and nine months ended September 30, 2007 and 2006, the
following customer accounted for more than 10% of total net
revenue:
|
Percentage
of
Net
Sales
Three
Months
Ended
September 30,
|
|
Percentage
of
Net
Sales
Nine
Months
Ended
September 30,
|
|
Percentage
of
Accounts
Receivable
as
of September 30,
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
*
|
|
31%
|
|
*
|
|
68%
|
|
*
|
|
82%
|
Customer
B
|
*
|
|
18%
|
|
*
|
|
*
|
|
*
|
|
*
|
Customer
C
|
10%
|
|
*
|
|
10%
|
|
*
|
|
*
|
|
*
|
Customer
D
|
10%
|
|
*
|
|
*
|
|
*
|
|
39%
|
|
*
|
Customer
E
|
13%
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
*
less
than 10%
NOTE
18 - SUBSEQUENT EVENTS
On
November 1, 2007, SZXJY established a wholly owned subsidiary, Suzhou Xin Ji
Yang Real Estate Brokerage Company Limited (“SZXJYB”) in the PRC as a limited
liability company.