SRRE Sunrise Real Estate Group Inc (PK)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2008
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission File Number 000-32585

SUNRISE REAL ESTATE GROUP, INC.

 

(Exact name of registrant as specified in its charter)

Texas		75-2713701
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Suite 701, No. 333, Zhaojiabang Road

Shanghai, PRC 200032

(Address of principal executive offices Zip Code)

Registrant’s telephone number: + 86-21-6422-0505

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: November 10, 2008 - 23,691,925 shares of Common Stock

FORM 10-Q

 

For the Quarter Ended September 30, 2008

 

INDEX  

	Page
PART I. FINANCIAL INFORMATION	3
Item 1.   Financial Statements	3
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Cash Flows	5
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.   Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.   Controls and Procedures	21
PART II. OTHER INFORMATION	21
Item 1.   Legal Proceedings	21
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.   Defaults Upon Senior Securities	22
Item 4.   Submission of Matters to a Vote of Security Holders	22
Item 5.   Other Information	22
Item 6.   Exhibits	22
SIGNATURES	22

PART I - FINANCIAL INFORMATION

ITEM 1. F INANCIAL STATEMENTS

Sunrise Real Estate Group, Inc.

Unaudited Condensed Consolidated Balance Sheets

(Expressed in US Dollars)

		September 30,			December 31,
		2008			2007
						(Restated)
ASSETS
Current assets
Cash and cash equivalents		$	733,600		$	2,281,516
Restricted cash (Note 9)			107,636			2,441,579
Accounts receivable			870,868			842,868
Promissory deposits (Note 3)			1,129,314			273,800
Amounts due from venturers			-			79,662
Amount due from related party (Note 11)			327,108			312,132
Other receivables and deposits (Note 4)			398,479			602,373
Total current assets			3,567,005			6,833,930
Property, plant and equipment - net (Note 5)			2,733,376			2,519,585
Equity investment (Note 6)			83,599			78,033
Investment properties (Note 7)			8,366,063			7,800,228
Deferred tax asset (Note 8)			1,376,148			1,284,532
Goodwill			13,307			13,307
Total assets		$	16,139,498		$	18,529,615
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Bank loans (Note 9)		$	205,330		$	191,660
Promissory notes payable (Note 10)			959,784			976,435
Accounts payable			335,929			230,654
Amount due to director (Note 11)			72,987			171,458
Amount due to related party (Note 11)			134,043			159,561
Other payables and accrued expenses (Note 12)			2,121,097			2,452,833
Other tax payable (Note 13)			608,058			546,873
Income tax payable			1,060,565			1,238,912
Total current liabilities			5,497,793			5,968,386
Commitments and contingencies (Note 14)
Long-term bank loans (Note 9)			6,110,676			5,847,606
Long-term promissory notes payable (Note 10)			22,222			111,112
Deposits received from underwriting sales (Note 15)			8,295,509			7,743,240
Minority interest			439,907			431,674
Shareholders’ equity
Common stock, par value $0.01 per share; 200,000,000 shares authorized; 23,691,925 and 23,691,925 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively			236,919			236,919
Additional paid-in capital			3,620,008			3,620,008
Statutory reserve (Note 16)			729,744			729,744
Accumulated losses			(9,496,992	)		(6,884,072	)
Accumulated other comprehensive income (Note 17)			683,712			724,998
Total shareholders’ equity			(4,226,609	)		(1,572,403	)
Total liabilities and shareholders’ equity		$	16,139,498		$	18,529,615

See accompanying notes to unaudited condensed consolidated financial statements.

Sunrise Real Estate Group, Inc.

Unaudited Condensed Consolidated Statements of Operations

(Expressed in US Dollars)

		Three Months Ended  September 30,						Nine Months Ended  September 30,
		2008			2007			2008			2007
					(Restated)						(Restated)
Net Revenues		$	2,475,921		$	1,817,590		$	6,437,147		$	4,472,792
Cost of Revenues			(1,697,306	)		(1,506,577	)		(4,797,779	)		(4,286,991	)
Gross Profit			778,651			311,013			1,639,368			185,801
Operating Expenses			(361,464	)		(311,956	)		(1,000,579	)		(806,877	)
General and Administrative Expenses			(802,226	)		(1,155,748	)		(2,793,690	)		(2,987,037	)
Operating Loss			(385,075	)		(1,156,691	)		(2,154,901	)		(3,608,113	)
Interest Income			2,191			5,505			11,521			13,076
Other Income/(Expenses), Net			11,183			(224,452	)		16,321			(203,662	)
Interest Expenses			(161,652	)		(267,551	)		(460,128	)		(692,898	)
Loss Before Income Tax and Minority Interest			(533,353	)		(1,643,189	)		(2,587,187	)		(4,491,597	)
Income Tax			(18,845	)		(23,835	)		(47,729	)		(52,808	)
Loss Before Minority Interest			(552,198	)		(1,667,024	)		(2,634,916	)		(4,544,405	)
Minority Interest			19,649			3,613			21,996			(31,840	)
Net Loss		$	(532,549	)	$	(1,663,411	)	$	(2,612,920	)	$	(4,576,245	)
Loss Per Share – Basic and Fully Diluted		$	(0.02	)	$	(0.07	)	$	(0.11	)	$	(0.19	)
Weighted average common shares outstanding – Basic and Fully Diluted 1			23,691,925			23,691,925			23,691,925			23,691,925

See accompanying notes to unaudited condensed consolidated financial statements.

 

Sunrise Real Estate Group, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Decrease) /Increase in Cash and Cash Equivalents

(Expressed in US Dollars)

		Nine Months Ended September 30,
		2008			2007
					(Restated)
Cash flows from operating activities
Net Loss		$	(2,612,920	)	$	(4,576,245	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation of property, plant and equipment			586,666			498,547
(Gain)/loss on disposal of property, plant and equipment			(2,360	)		6,749
Loss on disposal of equity interest in subsidiary			-			14,750
Bad debts			-			349,195
Minority interest			21,996			31,840
Change in:
Accounts receivable			31,321			4,421,404
Promissory deposits			(815,299	)		(652,078	)
Other receivables and deposits			240,748			(840,816	)
Accounts payable			86,626			(332,909	)
Amount with related party			(28,879	)		-
Amounts with venturers			83,232			582,544
Other payables and accrued expenses			(458,069	)		111,452
Interest payable on promissory notes			(381,642	)		301,911
Interest payable on amount due to director			5,909			(21,604	)
Other tax payable			21,632			(216,226	)
Income tax payable			(260,110	)		(1,158,493	)
Net cash used in by operating activities			(3,481,149	)		(1,479,979	)
Cash flows from investing activities
Acquisition of plant and equipment			(370,063	)		(79,733	)
Deposits paid for acquisition of properties			-			(1,981,956	)
Investment properties renovation			(401,882	)		-
Proceeds from disposal of property, plant and equipment			136,009			6,199,246
Restricted cash			2,446,021			-
Net cash provided by investing activities			1,810,085			4,137,557
Cash flows from financing activities
Bank loan obtained			-			8,477,008
Bank loans repayment			(150,186	)		(4,685,624	)
Repayment of promissory note			(163,891	)		(250,000	)
Proceeds from promissory note			429,105			2,565,903
Repayment to director			(104,380	)		(109,026	)
Advances from director			-			250,000
Net cash provided by financing activities			10,648			6,248,261
Effect of exchange rate changes on cash and cash equivalents			112,500			296,678
Net (decrease)/increase in cash and cash equivalents			(1,547,916	)		9,202,517
Cash and cash equivalents at beginning of period			2,281,516			945,727
Cash and cash equivalents at end of period		$	733,600		$	10,148,244
Supplemental disclosure of cash flow information
Cash paid during the period:
Income tax paid			307,838			1,181,313
Interest paid			835,861			412,591

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED 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 and the director of SZXJY holding a 12.5% equity interest in SZSY. At the date of incorporation, SRRE and the director of SZXJY entered into a voting agreement that SRRE is entitled to exercise the voting right in respect of his 12.5% equity interest in SZSY. Following that, SRRE effectively holds 51% 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. 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. On May 8, 2008, SHXJY established a wholly owned subsidiary, Kunshan Shang Yang Real Estate Brokerage Company Limited (“KSSY”) in the PRC as a limited liability company.

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. On September 18, 2008, SHSY established a wholly owned subsidiary, San Ya Shang Yang Real Estate Consultation Company Limited (“SYSY”) in the PRC as a limited liability company.

SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB, KSSY and SYSY commenced operations in November 2001, June 2004, January 2004, February 2004, January 2005, November 2006, November 2007, May 2008 and September 2008 respectively. Each of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB and KSSY has been granted a twenty-year operation period and SYSY has been granted a thirty-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, SZXJYB, SZSY, KSSY, BJXJY, SHSY, SZGFH and SYSY 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 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, SZXJYB, SZSY, KSSY, BJXJY, SHSY, SZGFH and SYSY. All inter-company transactions and balances have been eliminated.

Going Concern

The Company’s financial statements are prepared according to the accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses of $2,612,920 for the first three quarters of 2008 and had a net working capital deficiency of $1,930,788 as of September 30, 2008. The Company’s net working capital deficiency, recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern.

However, management believes that the Company is able to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain successful operations in respect of the agency sales and building management operations. Accordingly, the accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

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, SZXJYB, SZSY, KSSY, BJXJY, SHSY, SZGFH and SYSY 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 as of September 30, 2008 and December 31, 2007 are US$1: RMB6.8183 and US$1: RMB7.3046, 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.

Goodwill

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill be tested for impairment on an annual basis (December 31 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of a company. Application of the goodwill impairment test requires judgment, including the determination of the fair value of a company. The fair value of a company is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, and the determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for a company.

Revenue Recognition

Agency commission revenue from property brokerage is recognized when the property developer and the buyer complete a property sales transaction, and the property developer grants confirmation to us to be able to invoice them accordingly. The time when we receive the commission 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 the balance of the bank loan to the buyer has been funded, or recognized under the sales schedule or other specific items of agency sales agreement with developer. At no point does the Company handle any monetary transactions nor act as an escrow intermediary between the developer and the buyer.

Revenue from marketing consultancy services is recognized when services are provided to clients.

Rental revenue from property management and rental business is recognized on a straight-line basis according to the time pattern of the leasing agreements.

The Company accounts for underwriting sales in accordance with SFAS No. 66 “Accounting for Sales of Real Estate” (SFAS 66). The gain on underwriting sales is recognized when the criteria in SFAS No. 66 have been met, generally when title is transferred and the Company no longer has substantial continuing involvement with the real estate asset sold. If the Company provides certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, it defers the related commission income and expenses by applying the deposit method. In future periods, the commission income and related expenses are recognized when the remaining maximum exposure to loss is reduced below the amount of gain deferred.

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 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 considered 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.

Segment information

The Company believes that it operates in one business segment. Management views the business as consisting of several revenue streams; however it is not possible to attribute assets or indirect costs to the individual streams other than direct expenses.

NOTE 3 - PROMISSORY DEPOSITS

The balance of $1,129,314 represents the deposits placed with several property developers in respect of a number of real estate projects where the Company is appointed as sales agent.

As of September 30, 2008, $733,321 out of the total promissory deposits were pledged to secure a promissory note payable in note 10.

NOTE 4 - OTHER RECEIVABLES AND DEPOSITS

		September 30			December 31,
		2008			2007
Advances to staff		$	23,201		$	20,486
Rental deposits			87,247			101,370
Prepaid rental			263,822			406,833
Other receivables			24,209			73,684
		$	398,479		$	602,373

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT - NET

		September,			December 31,
		2008			2007
Furniture and fixtures		$	147,224		$	133,970
Computer and office equipment			325,896			275,988
Motor vehicles			667,541			618,024
Properties			2,218,950			2,071,225
			3,359,611			3,099,207
Less: Accumulated depreciation			(626,235	)		(579,622	)
		$	2,733,376		$	2,519,585

All above properties as of September 30, 2008 and as of December 31, 2007 were pledged to secure a loan in note 9.

NOTE 6 – EQUITY INVESTMENT

On September 11, 2007, SHSY invested a 19% equity interest in a PRC company named Suzhou Bin Fen Nian Dai Administration Consultancy Company Limited (“SZBFND”).

NOTE 7 – INVESTMENT PROPERTIES

		September 30,			December 31,
		2008			2007
Investment property		$	9,081,565		$	8,092,319
Less: Accumulated depreciation			(715,502	)		(292,091	)
		$	8,366,063		$	7,800,228

The investment properties included one floor and four units of a commercial building in Suzhou, the PRC, from which the Company derives its underwriting sales income. The investment properties were acquired by the Company for long-term investment purposes and were pledged to secure a loan in note 9 . The carrying amount of $6,121,114 was pledged to a promissory note payable in note 10 .

As of November 10, 2008, the four units of the investment properties were leased to SZBFND, a related party of the Company, and 64% of the total area of the one remaining floor was leased out.

NOTE 8 – DEFERRED TAX ASSET

The net deferred tax assets from continuing operations are determined under the liability method based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted statutory tax rates. The deferred tax provision (benefit) is the result of changes in these temporary differences. As of December 31, 2007 and September 30, 2008, the tax effect of the temporary differences mainly represent the deferred tax assets arising from the deferred gain of the underwriting sale using the deposit method.

NOTE 9 – BANK LOANS

Bank loans at September 30, 2008 included two bank loans, as listed below:

First, the balance includes a bank loan of $5,854,014. This bank loan is repayable before August 2, 2010 and bears interest at a rate of 8.217% per annum. This bank loan is secured by the properties as mentioned in Note 7 above. The repayment schedule of this bank loan is as follows:

February 1, 2010		$	1,466,641
August 2, 2010		$	4,387,373

Pursuant to the relevant loan agreement, the using of the bank loan is restricted to pay for deposits and expenditures incurred in performing any real estate marketing projects of the Company, and approval from the lending bank is required for any transactions in excess of RMB1 million from the remaining balance. This balance is recorded as restricted cash on the balance sheet.

Second, the remaining bank loan of $461,992 bears interest at 6.48% per annum, and is repayable before December 15, 2010 in monthly installments. The bank loan is secured by the properties as mentioned in Note 5 above.

NOTE 10 – PROMISSORY NOTES PAYABLE

There are four promissory notes, as listed below:

First, the balance includes a promissory note of $155,554 and accrued interest of $1,668 thereon. This promissory note of $155,554 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 $75,000 and accrued interest of $9,792 thereon. This promissory note of $75,000 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 $439,992. This promissory note of $439,992 bears interest at a rate of 18% per annum. This promissory note is secured by the promissory deposit of $733,321 as mentioned in Note 3 above and one floor of the investment properties as mentioned in Note 7 above and will be repayable before February 11, 2009.

NOTE 11 – AMOUNTS WITH RELATED PARTIES AND DIRECTORS

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 from related party

The amount represents an advance to SZBFND which is unsecured, interest free and has no fixed term of repayment.

Amount due to director

The amount due to one of the directors bears interest at a rate of 9.6% per annum. As of September 30, 2008, the balance includes principal of $62,742 and accrued interest of $10,245 thereon . The principal is unsecured and the term of repayment is not specifically defined .

Amount due to related party

The amount includes a rental deposit received from SZBFND. Rental income of $458,456 is generated from leasing the investment properties to SZBFND during the period. This amount is unsecured, interest free and repayable on demand.

NOTE 12 – OTHER PAYABLES AND ACCRUED EXPENSES

		September 30,			December 31,
		2008			2007
Accrued staff commission & bonus		$	484,902		$	1,013,650
Rental deposits received			665,930			519,352
Accrual for onerous contracts			487,380			535,811
Other payables			482,885			384,020
		$	2,121,097		$	2,452,833