See accompanying notes to unaudited condensed
consolidated financial statements.
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 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. In January of 2012, SHXJY invested 24% and established a
company in Linyi, named Linyi Shang Yang Real Estate Development Company Limited and acquired approximately 103,385 square meters
for the purpose of developing into villa-style residential housings. In an agreement with Zhang Shu Qing, a majority shareholder
of 51%, we have her 51% voting power and thus effectively have 75% of voting power.
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. In 2011 we established Wuhan Yuan Yu Long Real Estate Development Company Limited ("WHYYL")
and have a 49% ownership, the purpose of this project company was for a residence development project in Wuhan.
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
1. Beijing Xin Jin Yang Real Estate Consultation Company Limited is currently in the process of being dissolved in 2012.
|
2. Kunshan Shang Yang Real Estate Brokerage Company Limited is currently in the process of being dissolved in 2012.
|
SRRE and its subsidiaries, namely, CY-SRRE,
LRY, Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”), Shanghai Shang Yang Real Estate Consultation
Company, Ltd. (“SHSY”), Suzhou Gao Feng Hui Property Management Company, Ltd, (“SZGFH”), Suzhou Shang Yang
Real Estate Consultation Company (“SZSY”), Suzhou Xin Ji Yang Real Estate Consultation Company, Ltd. (“SZXJY”),
Linyi Shang Yang Real Estate Development Company Ltd (“LYSH”), Shangqiu Shang Yang Real Estate Consultation Company,
Ltd., (“SQSY”), Wuhan Gao Feng Hui Consultation Company Ltd. (“WHGFH”), Sanya Shang Yang Real Estate Consultation
Company, Ltd. (“SYSH”), Shanghai Rui Jian Design Company, Ltd., (“SHRJ”), and Wuhan Yuan Yu Long Real Estate
Development Company, Ltd. (“WHYYL”) are sometimes here inafter collectively referred to as “the Company,”
“our,” or “us”.
The principal activities of the Company
are property development, 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 that include the financial
statements of SRRE and its subsidiaries. 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 accumulated
losses of $11,396,762 as of March 31, 2012. The Company’s net working capital deficiency and significant accumulated losses
raise substantial doubt about its ability to continue as a going concern.
However, management believes that the Company
is able to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain successful operations
in respect of the agency sales and property management operations. Accordingly, the accompanying financial statements do not include
any adjustments that may be necessary if the Company is unable to continue as a going concern.
Use of Estimates
The preparation of financial statements
in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash
in hand and all highly liquid investments with an original maturity of three months or less.
Foreign Currency Translation and Transactions
The functional currency of SRRE, CY-SRRE
and LRY is United States Dollars (“US$”) and the financial records are maintained and the financial statements prepared
in US $. The functional currency of all the companies located in China is Renminbi (“RMB”) and the financial records
and statements are maintained and prepared in RMB.
Foreign currency transactions during the
period are translated into each company’s denominated currency at the exchange rates ruling at the transaction dates. Gain
and loss resulting from foreign currency transactions are included in the consolidated statement of operations. Assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into each company’s denominated currency at period
end exchange rates. All exchange differences are dealt with in the consolidated statements of operations.
The financial statements of the Company’s
operations based outside of the United States have been translated into US$ in accordance with ASC 830. 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 rates as of March 31, 2012
and December 31, 2011 are US$1: RMB6.2943 and US$1: RMB6.3009, 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.
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, fees associated to services are fixed or determinable, and collection of the
fees is assured.
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 ASC 976-605 “Accounting for Sales of Real Estate” (SFAS 66). The commission revenue 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 income 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 ASC 260, “Earnings per Share.” Under the provisions of ASC 260, 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 ASC 740 “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 segments are generally determined based
on the management of the businesses and on the basis of separate groups of operating activities, each with general operating autonomy
over diversified products and services. 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.
Recent Accounting Pronouncements
In 2011, new guidance was introduced to
eliminate the current option to report other comprehensive income and its components in the statement of stockholders’ equity,
and require an entity to present items of net income and other comprehensive income in one continuous statement, referred to as
the statement of comprehensive income, or in two separate, but consecutive, statements. This guidance would be effective in the
first quarter of 2012, with early adoption permitted. This pronouncement only changes the way we present other comprehensive income
and its components, and does not impact our results of operations, financial position or cash flows.
In May 2011, the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU
clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts,
the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareowners’
equity. The ASU includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial
assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The provisions of this
ASU are effective prospectively for interim and annual periods beginning on or after December 15, 2011. Early application
is prohibited. This ASU is not expected to have an impact currently on our financial statements or disclosures as there are presently
no recurring Level 3 fair value measurements.
On August 17, 2010, the FASB and IASB issued
an ED on lease accounting. The ED, released by the FASB as a proposed ASU, creates a new accounting model for both lessees and
lessors and eliminates the concept of operating leases. The proposed ASU, if finalized, would converge the FASB’s and IASB’s
accounting for lease contracts in most significant areas.
The Company does not anticipate that the
adoption of the above statements will have a material effect on the Company's financial condition and results of operations.
NOTE 3 – RESTRICTED CASH
This restricted cash is the covenant from
the bank loan described in Note 10.
NOTE 4- PROMISSORY DEPOSITS
The amount of $1,228,095 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.
The balance of $2,319,559 represents the
deposit for participating in a land auction in Sandong, the PRC.
NOTE 5 – INVENTORY
The amount of $1,082,917 belongs to Linyi
Shang Yang Real Estate Development Company. This amount consists mainly of development, construction and property costs and expenses.
NOTE 6 - OTHER RECEIVABLES AND DEPOSITS
|
|
March 31
|
|
|
December 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Advances to staff
|
|
$
|
71,335
|
|
|
$
|
65,632
|
|
Rental deposits
|
|
|
108,525
|
|
|
|
99,927
|
|
Prepaid rental
|
|
|
201,136
|
|
|
|
-
|
|
Prepayment for Linyi project
|
|
|
8,499,754
|
|
|
|
482,219
|
|
Other receivables
|
|
|
280,297
|
|
|
|
216,035
|
|
|
|
$
|
9,161,046
|
|
|
$
|
863,813
|
|
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
–
NET
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
83,017
|
|
|
$
|
77,292
|
|
Computer and office equipment
|
|
|
235,016
|
|
|
|
242,346
|
|
Motor vehicles
|
|
|
794,740
|
|
|
|
789,943
|
|
Properties
|
|
|
2,465,276
|
|
|
|
2,399,866
|
|
|
|
|
3,578,049
|
|
|
|
3,509,447
|
|
Less: Accumulated depreciation
|
|
|
(1,181,280
|
)
|
|
|
(1,103,618
|
)
|
|
|
$
|
2,396,770
|
|
|
$
|
2,405,829
|
|
All above properties as of March 31, 2012
and as of December 31, 2011 were pledged to secure a bank loan in note 10.
NOTE 8 – INVESTMENT PROPERTIES
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Investment property
|
|
$
|
9,837,602
|
|
|
$
|
9,827,298
|
|
Less: Accumulated depreciation
|
|
|
(3,074,025
|
)
|
|
|
(2,906,766
|
)
|
|
|
$
|
6,763,577
|
|
|
$
|
6,920,532
|
|
The investment properties included one floor and four units
of a commercial building in Suzhou, the PRC. The investment properties were acquired by the Company for long-term investment purposes.
All above properties as of March 31, 2012
and as of December 31, 2011 were pledged to secure a bank loan in note 10.
As of March 31, 2012, the four units of
the investment properties were leased to a related party of the Company of 19% ownership, 82% of the total area of the one remaining
floor was leased out.
NOTE 9 – LONG-TERM INVESTMENT
In mid 2011, we invested in a project company
in Wuhan where the initial investment amount was $4,151,375 for a 49% equity stake. The purpose of this project company was for
a residence development project in Wuhan. This investment is for our expansion into the real estate development business. We use
the equity method of accounting for this long-term investment. The land is approximately 27,950 square meters with an estimated
development period of three years, and we began the initial construction of the residence development project in the first quarter
of 2012 The company’s total assets was $11,670,027 which consists primarily of inventory in the amount of $10,703,050 and
cash and cash equivalent of $845,995, the total liability was $4,462,947 which consists primarily of promissory notes in the amount
of $4,448,469 and a loss of $1,169,252 at the first quarter of 2012. As we used the equity accounting method, we decreased this
investment by $572,933. The balance of this investment is $3,578,442 as of March 31 2012.
We invested $60,000 for a 40% equity stake
to a new real estate agency company in February 2012. We use the equity method of accounting for this long-term investment. The
company will not commence its operations until the second quarter of 2012 and therefore there was no profit or loss recorded for
the period ended March 31, 2012.
The remaining amount of $106,290 was invested
in various real estate agency sales related projects. All of the equity stakes we have in these projects are less than 20%. We
used the cost method for accounting purposes for these investments.
NOTE 10 – BANK LOANS
Bank loans included two bank loans, as listed below:
The balance includes a bank loan of $8,738,064,
which bears interest at 130% of the three-year prime rate as announced by the People’s Bank of China (the rate for 2012 was
6.65%) and is secured by the properties mentioned in Note 8 above. This loan is due on April 30, 2013 and can be extended automatically
for another 3 years; however, the bank does an annual routine loan renewal request with the Company.
The remaining bank loan of $2,383,109 bears
interest at 130% of three-year prime rate as announced by the People’s Bank of China (the rate for 2012 was 6.65%) and is
secured by the properties mentioned in Note 7 above. This loan is due on April 30, 2013 and can be extended automatically for another
3 years; however, the bank does an annual routine loan renewal request with the Company.
NOTE 11 – PROMISSORY NOTES PAYABLE
The promissory notes payable consist of
the following five unsecured notes to independent individual third parties
.
The first note of $341,250,bears an interest
at a rate of 15% per annum, consists of principal of $300,000 and interest of $41,250. This loan’s terms of repayment are
not specifically defined.
The second note of $365,410 bears an interest
rate of 15% per annum consists of principal of $317,748 and interest of $47,662. This loan’s terms of repayment are not specifically
defined.
The third note of $915,709 bears an interest
rate of 15% per annum consists of principal of $842,032 and interest of $73,678. This loan’s terms of repayment are not specifically
defined.
The fourth note of $824,158 bears an interest
rate of 15% per annum consists of principal of $794,370 and interest of $29,789. This loan’s terms of repayment are not specifically
defined.
The fifth note of $235,134 bears no interest
and the terms of repayment are not specifically defined.
NOTE 12 – 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 to directors
The total amount due to directors for March
31, 2012 was $5,493,406. The amounts due are as follows:
Amount due to Lin Chi-Jung
As of March 31, 2012, the balance includes
one amount to and six loans obtained from Lin Chin-Jung.
The amount of $56,498 represented the salary
payable and rental reimbursement to Lin Chin-Jung outstanding as of March 31, 2012.
A loan includes a principal of $106,898
is unsecured, consists of a principal of $103,778 and an interest of $3,120. This loan’s term is not specifically defined.
A loan includes a principal of $252,609.
This loan’s interest rate is 18%, per annum consists of a principal of $238,311 and an interest of $14,298. This loan’s
terms of repayment are not specifically defined.
A loan includes a principal of $4,420,880
bears an interest rate of 15%, per annum consists of a principal of $3,965,874 and an interest of $455,006. This loan’s the
terms of repayment are not specifically defined. This loan is for the investment of Wuhan development project stated in note 8
in addition to any expenses related to the investment.
An unsecured loan of $592,536 bears an
interest rate of 18% per annum consists of a principal of $476,622 and an interest of $115,914. This loan’s terms of repayment
are not specifically defined
An unsecured loan includes a principal
of $47,662, which is without interest and the terms of repayment are not specifically defined.
Amount due to Lin Chao-Chin
A balance of $9,264 represented the salary
payable and rental reimbursement to Lin Chao-Chin outstanding as of March 31, 2012.
Amount due to Lin Hsin Hung
The amount of $7,059 represents the salary
payable to Lin Hsin Hung.
Amout due from related company
This amount of $7,812 is due from WHYYL,
our Wuhan project development company.
Amount due to related party
A balance of $87,381 is due to a related
party of the Company of 19% ownership.
NOTE 13 - OTHER PAYABLES AND ACCRUED
EXPENSES
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Accrued staff commission & bonus
|
|
$
|
585,055
|
|
|
$
|
772,669
|
|
Rental deposits received
|
|
|
527,038
|
|
|
|
529,308
|
|
Accrual for onerous contracts
|
|
|
16,563
|
|
|
|
-
|
|
Other payables
|
|
|
239,393
|
|
|
|
226,227
|
|
Accrued legal fee
|
|
|
87,149
|
|
|
|
87,149
|
|
Customer deposits
|
|
|
873,806
|
|
|
|
1,190,306
|
|
Dividend payable for non-controlling interest
|
|
|
255,093
|
|
|
|
254,826
|
|
Rental deposits
|
|
|
427,595
|
|
|
|
427,147
|
|
|
|
$
|
3,011,692
|
|
|
$
|
3,487,632
|
|
NOTE 14– OTHER TAX PAYABLE
Other tax payable mainly represents the
outstanding payables of business tax, urban real estate tax and land appreciation tax in the PRC.
NOTE 15 –DEPOSITS RECEIVED FROM
UNDERWRTING SALES
The Company accounts for its underwriting
sales revenue with underwriting rent guarantees in accordance with ASC 976-605 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from the sales of floor space with underwriting rent
guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers.
NOTE 16- COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
During the years ended March 31, 2012 and
2011, the Company incurred lease expenses amounting to $12,932 and $233,050, respectively. As of March 31, 2012, the Company had
commitments under operating leases, requiring annual minimum rentals as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Within one year
|
|
$
|
10,541
|
|
|
$
|
24,770
|
|
Two to five years
|
|
|
-
|
|
|
|
-
|
|
Operating lease commitments
|
|
$
|
10,541
|
|
|
$
|
24,770
|
|
During the year of 2005 and 2006, SZGFH
entered into leasing agreements with certain buyers of the Sovereign Building underwriting project 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 have a rental return of 8.5% and 8.8% per annum for a period of 5
years and 8 years, respectively. In regards to the leasing agreements, we have negotiated with the buyers and have lowered the
annual rental return rate for the remaining leasing period from 8.5% for 5 years to 5.8%, and from 8.8% for 8 years
to 6%. As of March 31, 2012, 55% of the buyers agreed upon the lowered rate, 3% of the buyers did not agreed to a lowered rate
and 42% of the buyers agreed to cancel the leasing agreements. 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 March 31,
2012, 82 sub-leasing agreements have been signed, the area of these sub-leasing agreements represented 88% of total area with these
lease commitments.
As of March 31, 2012, the lease commitments
are as follows:
|
|
March 31,,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Within one year
|
|
$
|
1,168,333
|
|
|
$
|
1,451,207
|
|
Two to five years
|
|
|
1,189,042
|
|
|
|
1,922,302
|
|
Over five years
|
|
|
-
|
|
|
|
-
|
|
Operating lease commitments arising from the promotional package
|
|
$
|
2,357,375
|
|
|
$
|
3,373,509
|
|
An accrual for onerous contracts was recognized
which is equal to the difference between the present value of the sublease income and the present value of the associated lease
expense at the appropriate discount rate. The accrual for onerous contracts was $16,563 as of March 31, 2012 and $0 as of December
31, 2011.
According to the leasing agreements, the
Company has an option to terminate any agreement by paying a predetermined compensation. As of March 31, 2012, the compensation
to terminate all leasing agreements is $1,245,074. According to the sub-leasing agreements that have been signed through March
31, 2012, the rental income from these sub-leasing agreements will be $1,113,476 within one year and $534,884 within two to five
years. However, no assurance can be given that we can collect all of the rental income.
NOTE 17 – 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 18 – ACCUMULATED OTHER COMPREHENSIVE
INCOME
As of March 31, 2012 and 2011, the only
component of accumulated other comprehensive income was translation reserve.
NOTE 19 – OTHER INCOME, NET
The amount $1,866,770 was a subsidy from
the government for Linyi’s land purchase and to develop a real estate residential project. This subsidy’s purpose is
to promote developers and companies to expand their business in the city of Linyi.
NOTE 20 – CONCENTRATION OF CUSTOMERS
During the years ended March 31, 2012 and
2011, the following customer accounted for more than 10% of total net revenue:
|
Percentage of Net Revenue for
the years ended March 31,
|
|
Percentage of Accounts Receivable
as at March 31,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Customer A
|
*
|
|
13%
|
|
*
|
|
*
|
Customer B
|
11%
|
|
*
|
|
*
|
|
*
|
Customer C
|
25%
|
|
*
|
|
*
|
|
*
|
* less than 10%
NOTE 21
–
RESTATEMENT
The Company discovered errors to previously
issued financial statements for the fiscal year ended December 31, 2011. The error was a miscalculation in our underwriting sales
revenue and cost of sales under the Statement of Financial Accounting Standards No. 66 (“SFAS 66”).
The adjustment relates to the overstated
of our net revenue by $305,495 and the cost of revenue by $107,028. As a result, our net revenue, cost of revenue and net losses
was restated to $8,972,536, $6,231,262 and $1,416,822 respectively.
The adjustment also affected our balance
sheet and cash flow of operation as summarized below.
The following summarizes the above restatements.
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Balance Sheets
|
|
Deposits received from underwriting sales
|
|
|
2,888,194
|
|
|
|
203,422
|
|
|
|
3,091,616
|
|
|
|
Total liabilities
|
|
|
25,258,982
|
|
|
|
203,422
|
|
|
|
25,462,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated losses
|
|
|
(10,208,331
|
)
|
|
|
(198,467
|
)
|
|
|
(10,406,798
|
)
|
|
|
Accumulated other comprehensive income
|
|
|
494,414
|
|
|
|
(4,955
|
)
|
|
|
489,459
|
|
|
|
Total shareholders’ deficit
|
|
|
(3,088,299
|
)
|
|
|
(203,422
|
)
|
|
|
(3,291,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations
|
|
Net Revenues
|
|
|
9,278,031
|
|
|
|
(305,495
|
)
|
|
|
8,972,536
|
|
|
|
Cost of Revenues
|
|
|
(6,338,290
|
)
|
|
|
107,028
|
|
|
|
(6,231,262
|
)
|
|
|
Gross Profit
|
|
|
2,939,741
|
|
|
|
(198,467
|
)
|
|
|
2,741,274
|
|
|
|
Net Loss
|
|
|
(1,218,355
|
)
|
|
|
(198,467
|
)
|
|
|
(1,416,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
|
|
Net Loss
|
|
|
(1,218,355
|
)
|
|
|
(198,467
|
)
|
|
|
(1,416,822
|
)
|
|
|
Deposit from underwriting sales
|
|
|
(725,033
|
)
|
|
|
198,468
|
|
|
|
(526,565
|
)
|
|
|
Net cash used in operating activities
|
|
|
(4,875,741
|
)
|
|
|
1
|
|
|
|
(4,875,740
|
)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
61,380
|
|
|
|
1
|
|
|
|
61,381
|
|
NOTE 22 – SUBSEQUENT EVENT
None