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.
On January 21, 2011, we entered
into a Share Purchase Agreement with Good Speed Services Limited (“Good Speed”) to issue 2.5 million shares for US
$500,000. This agreement, subject to standard closing terms and conditions, was scheduled to close on or before March 20, 2011.
On March 18
,
an extension was signed between SRRE and Good Speed to extend the closing date to on or before July 5,
2011. On June 24, 2011, we issued 2.5 million shares of common stock to Good Speed and received US $500,000.
On January 22, 2011 we entered into
a Share Purchase Agreement with Better Time International Limited (“Better Time”) to issue 2.5 million shares for
US $500,000. This agreement, subject to standard closing terms and conditions, was scheduled to close on or before March 20, 2011.
On March 16 an extension was signed between SRRE and Better Time to extend the closing date to on or before July 1, 2011. On July
1, 2011, Sunrise and Better Time extended the closing date to on or before September 30, 2011. On September 30, 2011, we issued
2.5 million shares of common stock to Better Time and received US $500,000.
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 $13,277,821 as of September 30, 2012. The Company’s net working capital deficiency
and significant accumulated losses raise substantial doubt about its ability to continue as a going concern.
However, management believes that
the Company is able to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain successful
operations in respect of the agency sales and property management operations. Accordingly, the accompanying financial statements
do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
Use of Estimates
The preparation
of financial statements in accordance with generally accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash
Equivalents
Cash and cash
equivalents include cash in hand and all highly liquid investments with an original maturity of three months or less.
Foreign
Currency Translation and Transactions
The functional currency of SRRE,
CY-SRRE and LRY is United States Dollars (“US$”) 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 September
30, 2012 and December 31, 2011 are US$1: RMB6.3410 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 $1,029,806 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.
NOTE 5 –
INVENTORY
The amount of
$12,544,116 belongs to Linyi Shang Yang Real Estate Development Company Limited.
NOTE 6 - OTHER
RECEIVABLES AND DEPOSITS
|
|
September 30
|
|
|
December 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Advances to staff
|
|
$
|
84,233
|
|
|
$
|
65,632
|
|
Rental deposits
|
|
|
91,555
|
|
|
|
99,927
|
|
Prepayment for Linyi project
|
|
|
344,842
|
|
|
|
482,219
|
|
Other receivables
|
|
|
484,312
|
|
|
|
216,035
|
|
|
|
$
|
1,004,942
|
|
|
$
|
863,813
|
|
NOTE 7 –
PROPERTY, PLANT AND EQUIPMENT
–
NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
72,973
|
|
|
$
|
77,292
|
|
Computer and office equipment
|
|
|
284,444
|
|
|
|
242,346
|
|
Motor vehicles
|
|
|
818,556
|
|
|
|
789,943
|
|
Properties
|
|
|
9,564,716
|
|
|
|
2,399,866
|
|
|
|
|
10,740,689
|
|
|
|
3,509,447
|
|
Less: Accumulated depreciation
|
|
|
(1,273,338
|
)
|
|
|
(1,103,618
|
)
|
|
|
$
|
9,467,351
|
|
|
$
|
2,405,829
|
|
All above properties
as of September 30, 2012 and as of December 31, 2011 were pledged to secure a bank loan in note 10. The main increase in properties
is due to the addition of our office space in Shanghai.
NOTE 8 –
INVESTMENT PROPERTIES
|
|
September 30
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Investment property
|
|
$
|
9,765,151
|
|
|
$
|
9,827,298
|
|
Less: Accumulated depreciation
|
|
|
(3,377,390
|
)
|
|
|
(2,906,766
|
)
|
|
|
$
|
6,387,761
|
|
|
$
|
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 September 30, 2012 and as of December 31, 2011 were pledged to secure a bank loan in note 10.
As of September
30, 2012, the four units of the investment properties were leased to a related party of the Company of 12% ownership, 88% 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 is $4,151,375 for 49% equity stake, the purpose of this project company was
for a residence development project in Wuhan. This investment is for our expansion to the real estate development business. We
use 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 its initial construction in the first quarter of 2012 The project company total
assets amount was $16,658,500, libility amount was $8,786,818 and has loss $309,134 from 2012, as the equity method accounting
police we should decrease this investment by $621,728. The balance of this investment is $3,434,217 at September 30 2012.
We invested $60,000 for 40% equity
stake to a new real estate agency company at February 2012. We use equity method of accounting for this long-term investment.
The company did not commence its operations until the third quarter of 2012 and therefore there were no profit or loss recorded
for the period ended September 30, 2012.
The remaining amount of $105,776
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
and one long-term bank loan, as listed below:
The balance
includes a bank loan of $8,673,710, which 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 as 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 $2,365,558, which 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 as 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.
The long-term
bank loan consists of one loan of $6,434,316 which 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 as mentioned in Note 7 above. This loan is due on
August, 2015.
NOTE
11
– PROMISSORY NOTES PAYABLE
The promissory
notes payable consist of the following four unsecured notes to independent individual third parties
.
The first note of $315,000 bears
an interest at a rate of 15% per annum, consists of a principal of $300,000 and an interest of $15,000. This loan’s terms
of repayment are not specifically defined.
The second note of $971,453 bears
an interest rate of 15% per annum consists of a principal of $835,830 and an interest of $135,822. This loan’s terms of
repayment are not specifically defined.
The third note of $877,028 bears
an interest rate of 15% per annum consists of a principal of $788,519 and an interest of $88,708. This loan’s terms of repayment
are not specifically defined.
The fourth note of $233,801 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 Sep 30, 2012 was $5,639,048. The amounts due are as follows:
Amount due to Lin Chi-Jung
As of Sep 30,
2012, the balance includes one amount to and six loans obtained from Lin Chin-Jung.
The amount of
$63,344 represented the salary payable and rental reimbursement to Lin Chin-Jung outstanding as of Sep 30, 2012.
A loan includes
a principal of $113,138 is unsecured, consists of a principal of $103,778 and an interest of $9,360. This loan’s the terms
of repayment is not specifically defined.
A loan includes a principal of $275,589.
This loan’s interest rate is 18%, per annum consists of a principal of $236,556 and an interest of $39,032. This loan’s
terms of repayment are not specifically defined.
A loan includes a principal of $4,557,852
bears an interest rate of 15%, per annum consists of a principal of $4,094,370 and an interest of $463,481. 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 $566,882 bears an interest rate of 18% per annum consists of a principal of $473,111 and an interest of $93,771. This loan’s
terms of repayment are not specifically defined
An unsecured loan
includes a principal of $47,311, which is without interest and the terms of repayment are not specifically defined.
Amount due
to Lin Chao-Chin
A balance of $1,427
represented the salary payable and rental reimbursement to Lin Chao-Chin outstanding as of Sep 30, 2012.
Amount due
to Lin Hsin Hung
The amount of
$13,505 represents the salary payable to Lin Hsin Hung.
Amount due
to related party
A balance of $86,737
is due to a related party of the Company of 19% ownership.
NOTE 13 - OTHER
PAYABLES AND ACCRUED EXPENSES
|
|
September 30
|
|
|
December 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Accrued staff commission & bonus
|
|
$
|
663,647
|
|
|
$
|
772,669
|
|
Rental deposits received
|
|
|
984,232
|
|
|
|
956,455
|
|
Accrual for onerous contracts
|
|
|
9,142
|
|
|
|
-
|
|
Other payables
|
|
|
-
|
|
|
|
226,227
|
|
Accrued legal fee
|
|
|
-
|
|
|
|
87,149
|
|
Customer deposits
|
|
|
506,077
|
|
|
|
1,190,306
|
|
Shanghai Danlin Real Estate Company
|
|
|
3,643,267
|
|
|
|
-
|
|
Dividend payable for Non-controlling interest
|
|
|
233,497
|
|
|
|
254,826
|
|
|
|
$
|
6,039,862
|
|
|
$
|
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 September 30, 2012 and 2011, the Company incurred lease expenses amounting to $23,320 and $233,050, respectively. As of
September 30, 2012, the Company had commitments under operating leases, requiring annual minimum rentals as follows:
|
|
September 30
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Within one year
|
|
$
|
525
|
|
|
$
|
24,770
|
|
Two to five years
|
|
|
-
|
|
|
|
-
|
|
Operating lease commitments
|
|
$
|
525
|
|
|
$
|
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 September 30, 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 September 30, 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 September
30, 2012, the lease commitments are as follows:
|
|
September 30,,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Within one year
|
|
$
|
1,102,805
|
|
|
$
|
1,451,207
|
|
Two to five years
|
|
|
352,350
|
|
|
|
1,922,302
|
|
Over five years
|
|
|
-
|
|
|
|
-
|
|
Operating lease commitments arising from the promotional package
|
|
$
|
1,455,155
|
|
|
$
|
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 $ 9,142 as of September
30, 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 September
30, 2012, the compensation to terminate all leasing agreements is $1,455,155. According to the sub-leasing agreements that have
been signed through September 30, 2012, the rental income from these sub-leasing agreements will be 1,102,805 within one year
and $352,350 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 September
30, 2012 and 2011, the only component of accumulated other comprehensive income was translation reserve.
NOTE 19 –
CONCENTRATION OF CUSTOMERS
During the years
ended September 30, 2012 and 2011, 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,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
*
|
|
|
|
48
|
%
|
|
|
*
|
|
|
|
34
|
%
|
|
|
*
|
|
|
|
60
|
%
|
Customer B
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
23
|
%
|
Customer C
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
* less than 10%
NOTE 20 –
SUBSEQUENT EVENT
None