Cost of properties
sold decreased by $728,142 or 11% during the year ended December 31, 2007, as compared to
the corresponding period in 2006. This was primarily attributable to the decrease in the
number of units sold as described above.
Operating and selling
expenses decreased by $1,410,531 or 77% to $414,179 for the year ended December 31, 2007
as compared to $1,824,710 for the year ended December 31, 2006. The decrease is demanded
for business development.
General and
administrative expenses increased by $2,970,921 or 77% to $6,831,838 during the year
ended December 31, 2007 compared to $3,860,917 for the year ended December 31, 2006. The
increase is due the bad debt provision accrued for other receivables from Su Zhong
Construction of $3,628,085 during the year and also a reduction in consulting fee of
$411,263.
Total depreciation
expense increased by $292,057 or 14% to $2,343,721 for the year ended December 31, 2007,
compared to $2,051,664 for the corresponding period in 2006, since the growth of fixed
assets held by the company for business expansion.
Other income increased
$9,628,531 or 759% to $10,897,060 in 2007 from $1,268,529 in 2006 due primarily to
several non-routine transactions, such as the land leveling income of $1,929,041, gain on
settlement of debt of China Great Wall Asset Management Corporation totaling $11,115,201
as well as loss on terminated project of $1,504,604.
Interest and financing
costs decreased by $227,828 to $3,047,347 for the year ended December 31, 2007, as
compared to $3,275,175 for the year ended December 31, 2006. The decrease was primarily
due to subsequent repayments of outstanding loans.
On July 30, 2007,
Great China International, through its subsidiary Shenyang Maryland, entered into an
agreement to repurchase and effectively settle overdue debt in the amount of $23,166,667
and outstanding interest payable of $439,014, which amounts had been purchased from the
original lender by an unrelated third party. We purchased the debt for total
consideration of $7,581,333, resulting in gain on settlement of debt of $11,115,201.
In addition to the
foregoing, we realized a net extraordinary gain from the disposition of our interest in
our indirect subsidiary, Loyal Best Property Development Limited, during 2007 in the
amount of $23,947,054. This gain was the primary contributor to our net income for the
year in the amount of $24,325,722, compared to a net loss of $(3,746,802) in 2006.
Comparison of
operations for the year ended December 31, 2006 with the year ended December 31, 2005
:
Great China
International incurred a net loss of $(3,746,802) for the year ended December 31, 2006
compared to a net income of $80,394 for 2005, representing a decrease of $3,827,196
year-on-year. Components of sales and expenses resulting in this increase in net loss are
discussed below.
Sales revenues
decreased by $13,626,892 or 65% year-on-year to $7,205,954 for the year ended December
31, 2006 compared to 2005 of $20,832,846. Rental and management fee income decreased by
$158,923 or 3% to $5,532,339 during the year ended December 31, 2006 from $5,691,262 for
the comparable period in 2005. These changes are mainly attributable to:
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|
|
Ÿ
|
Significant decrease in sales of Chenglong Garden by $14,244,921 or 77%;
|
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Ÿ
|
Decreases in gross floor area sold by 25,071 square meters year-on-year to 11,146 square meters for the
year ended December 31, 2006 compared to 36,217 square meters in 2005;
|
|
|
Ÿ
|
The number of units sold decreased by 131 units or 71% year-on-year to 54 units for the year ended
December 31, 2006 compared to 185 units in 2005;
|
|
|
Ÿ
|
Decreases in rental income by $93,807 or 2%;
|
|
|
Ÿ
|
Decreases in building management income by $65,117 or 4%; and
|
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|
Ÿ
|
No new development projects were introduced during 2006.
|
Cost of properties
sold decreased by $12,056,804 or 64% during the year ended December 31, 2006, as compared
to the corresponding period in 2005. This was primarily attributable to a 69% decrease in
the gross floor area sold as described above.
Operating and selling
expenses increased by $1,339,397 or 276% to $1,824,710 for the year ended December 31,
2006 as compared to $485,313 for the year ended December 31, 2005. The increase is mainly
due to an increase in land appreciation tax charged on Qiyun New Village, Peacock Garden,
and Maryland Building of $629,151, and on Chenglong Garden of $835,065.
19
General and
administrative expenses increased by $1,248,130 or 48% to $3,860,917 during the year
ended December 31, 2006 compared to $2,612,787 for the year ended December 31, 2005. The
increase is due to an increase in travel and entertainment expenses of $207,221, an
increase in legal and professional fees of $380,627 and recognition of $513,835 in
compensation expense related to stock options issued to management.
Depreciation expense
decreased by $20,768 or 1% to $2,051,664 for the year ended December 31, 2006, compared
to $2,030,896 for the corresponding period in 2005.
Other income increased
to $1,268,529 in 2006 from none in 2005 due primarily to revenues earned under a service
contract with the acquirers of Jitian of $1,148,624.
Interest and financing
costs increased by $760,711 to $3,275,175 for the year ended December 31, 2006, as
compared to $2,514,464 for the year ended December 31, 2005. The increase was primarily
due to loan closing costs of $750,447 incurred during 2006.
Liquidity and Capital Resources
Net cash flows
provided by operating activities for the years ended December 31, 2007, 2006 and 2005
were $60,030,597, $4,517,894, and $4,903,230 respectively. The substantial increase in
2007 was attributable to a significant increase in net income, due primarily to a gain on
disposition of a subsidiary and a gain upon settlement of debt, an a correspondingly
large increase in other payables and accrued expenses.
Net cash flows used in
investing activities for the year ended December 31, 2007, was $26,783,687 compared to
$7,391,802 and $7,191,560 for the years ended December 31, 2006 and 2005. This
significant change in 2007 is primarily attributable to the net effect of the following:
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Ÿ
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a decrease in construction in progress of $9,630,817 during the year, resulting from the fact that we
currently have no construction in progress;
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Ÿ
|
a net increase in property and equipment of $7,354,196, resulting primarily from a vehicle purchase,
the decoration expense for the Presidential Building and the repurchase of properties on the 16th floor
of the Presidential Building; and
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Ÿ
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an aggregate of $30,701,958 used in investing activities from discontinued operations.
|
Net cash flows used in
financing activities for the year ended December 31, 2007, was $26,222,274 compared to
net cash used by financing activities of $6,521,760 for the year ended December 31, 2006.
Net cash flows provided by financing activities for the year ended December 31, 2005 was
$12,178,034, provided primarily from borrowings. The significant difference between the
years ended December 31, 2007 and 2006 was primarily attributable to payment and
settlement of overdue debt. On July 30, 2007, Great China International, through its
subsidiary Shenyang Maryland, entered into an agreement to repurchase and effectively
settle overdue debt in the amount of $23,166,667 and outstanding interest payable of
$439,014, which amounts had been purchased from the original lender by an unrelated third
party. We purchased the debt for total consideration of $7,581,333, resulting in gain on
settlement of debt of $11,115,201.
As of December 31,
2007, current liabilities exceeded current assets by $19,710,593, as compared to
51,178,976 as of December 31, 2006. The working capital deficit as of December 31, 2007
was incurred primarily due to accounts payable and accrued expense of $14,338,903, other payables related
to disposal of subsidiary of $19,392,951 and taxes payable of $8,552,316. Cash and equivalents were $10,044,579 at
December 31, 2007, compared to $1,769,744 at December 31, 2006, an increase of
$8,274,835, or 468%.
Outlook For 2008
In 2007, the Company
amassed capital reserves related to the Chess Board Mountain project, the sale of Loyal
Best and loan restructuring. With these reserves, our management intends to continue to
seek potential opportunities in real estate development and investments. Meanwhile,
management believes that the Company will continue to achieve revenue from the sales of
properties, through land leveling fees associated with completion of the Chessboard
Mountain project, and from leasing revenues from the President Building.
20
Contractual Obligations
The following table is
a summary of Great China International’s contractual obligations as of December 31, 2007:
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|
Total
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|
Less than
one year
|
|
1-3 Years
|
|
Thereafter
|
|
Short-Term Debt
|
|
|
$
|
25,231,297
|
|
|
$
|
25,231,297
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|
|
$
|
--
|
|
|
$
|
--
|
|
|
Long-Term Debt
|
|
|
|
5,486,968
|
|
|
|
--
|
|
|
|
5,486,968
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|
|
|
--
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|
|
Amounts due to related parties
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|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
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|
|
--
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|
|
Construction commitments
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|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Total Contractual Cash Obligations
|
|
|
$
|
30,718,265
|
|
|
$
|
25,231,297
|
|
|
$
|
5,486,968
|
|
|
$
|
--
|
|
Critical Accounting Policies
The financial
statements are prepared in accordance with accounting principles generally accepted in
the United States of America and the following is a summary of significant accounting
policies:
Principles of Consolidation
– All
significant inter-company transactions and balances within the Company are eliminated
in consolidation.
Cash and equivalents
– The Company
considers all highly liquid debt instruments purchased with maturity period of three
months or less to be cash equivalents. The carrying amounts reported in the
accompanying consolidated balance sheet for cash and cash equivalents approximate
their fair value. Substantially all of the Company’s cash is held in the PRC and is
not protected by FDIC or any other form of insurance.
Accounts receivable
- Provision is
made against accounts receivable to the extent which they are considered to be
doubtful. Accounts receivable in the balance sheet is stated net of such provision.
Allowance for Doubtful Accounts
-
The Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and other receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. As of December 31, 2007 and 2006, the Company
reserved $5,174,895 and $1,443,476 respectively.
Advances from buyers
– Advances from
buyers represents prepayments from buyers on properties on which sales revenues have
not yet been recognized for financial reporting purposes.
Properties held for sale
– The
Company capitalizes as properties held for sale, the direct construction and
development costs, property taxes, interest incurred on costs related to land
under development and other related costs (i.e. engineering, surveying, landscaping,
etc.) until the property reaches its intended use. At December 31, 2007 and 2006,
properties held for sale amounted to $7,696,437 and $10,620,550 respectively.
Property and equipment
– Property
and equipment is being depreciated over the estimated useful lives of the related
assets. Depreciation is computed on the straight-line basis over useful lives.Repairs
and maintenance costs are normally charged to the statement of operations in the year
in which they are incurred. In situations where it can be clearly demonstrated that
the expenditure has resulted in an increase in the future economic benefits expected
to be obtained from the use of the asset, the expenditure is capitalized as an
additional cost of the asset.
Property and equipment are evaluated
annually for any impairment in value. Where the recoverable amount of any property
and equipment is determined to have declined below its carrying amount, the carrying
amount is reduced to reflect the decline in value. There were no property and
equipment impairments recognized during the years ended December 31, 2007, 2006 and
2005.
Construction-in-progress
– Properties
currently under development are accounted for as construction-in-progress.
Construction-in-progress is recorded at acquisition cost, including land rights cost,
development expenditure, professional fees and the interest expenses capitalized
during the course of construction for the purpose of financing the project. Upon
completion and readiness for use of the project, the cost of
construction-in-progress is to be transferred to properties held for
21
sale. Construction-In-Progress is
valued at the lower of cost or market. Management evaluates the market value of its
properties on a quarterly basis by comparing selling prices of its properties with
those of other equivalent properties in the vicinity offered by other developers
reduced by anticipated selling costs and associated taxes. In the case of
construction in progress, management takes into consideration the estimated cost to
complete the project when making the lower of cost or market calculation.
Revenue Recognition
Real estate sales
Real estate sales are reported in
accordance with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate”.
Profit from the sales of development properties, less 5% business tax, is
recognized by the full accrual method when the sale is consummated. A sale is not
considered consummated until (1) the parties are bound by the terms of a contract,
(2) all consideration has been exchanged, (3) any permanent financing of which the
seller is responsible has been arranged, (4) all conditions precedent to closing have
been performed, (5) the seller does not have substantial continuing involvement
with the property, and (6) the usual risks and rewards of ownership have been
transferred to the buyer. Sales transactions not meeting all the conditions of the
full accrual method are accounted for using the deposit method of accounting. Under the
deposit method, all costs are capitalized as incurred, and payments received from
the buyer are recorded as a deposit liability. Real estate rental income, less 5%
business tax, is recognized on the straight-line basis over the terms of the tenancy
agreements.
For land sales, the Company
recognizes the revenue when title of the land development right is transferred and
collectability is assured.
For the reimbursement on
infrastructure costs, the Company recognizes the income(loss), which is at the fair
market value agreed between the Company and the PRC government, when they enter into a
binding agreement with the government agreeing on the reimbursement.
Real Estate
Capitalization and Cost Allocation
Real estate held for development or
sale consists of residential and commercial units under construction and units
completed. Construction in progress includes costs associated in development and
construction of the Xita project
Real estate held for development or
sale is stated at cost or estimated net realizable value, whichever is lower.
Costs include land and land improvements, direct construction costs and development
costs, including predevelopment costs, interest on indebtedness, real estate taxes,
insurance, construction overhead and indirect project costs. Selling and advertising
costs are expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
If the real estate is determined to
be impaired, it will be written down to its fair market value. Real estate held for
development or sale costs include the cost of land use rights, land development and
home construction costs, engineering costs, insurance costs, wages, real estate
taxes, and interest related to development and construction. All costs are accumulated
by specific projects and allocated to residential and commercial units within the
respective projects. The Company leases the land for the residential unit sites under
land use rights with various terms from the government of the PRC. The Company evaluates
the carrying value for impairment based on the undiscounted future cash flows of the
assets. Write-downs of inventory deemed impaired would be recorded as adjustments to the
cost basis.
No depreciation is provided for
construction in progress.
Capitalization of
Interest
In accordance with SFAS 34, interest
incurred during construction is capitalized to construction in progress. All other
interest is expensed as incurred. During the year ended December 31, 2007, the
Company did not have any construction therefore no interest was capitalized.
Other income
Other income consists of land leveling
income, which was one-time service performed which was requested by our customers and
gain on settlement of debt. These revenues are recognized when the services have been
performed and the settled amount has been paid in accordance with the terms of the
agreement.
Foreign currencies
- The Company’s
principal country of operations is in The People’s Republic of China. The financial
position and results of operations of the Company are determined using the local
currency (“Renminbi”or “Yuan”) as the
22
functional
currency. The results of operations denominated in foreign currency are translated at
the average rate of exchange during the reporting period. Assets and liabilities of
the Company have been translated at year- end exchange rates, while revenues and
expenses have been translated at average exchange rates in effect during the year.
Resulting cumulative translation adjustments have been recorded as other
comprehensive income (loss) as a separate component of stockholders' equity.
Equity denominated in the functional currency is translated at the historical rate
of exchange at the time of capital contribution. All translation adjustments
resulting from the translation of the financial statements into the reporting currency
(“US Dollars”) are dealt with as an exchange fluctuation reserve in shareholders’ equity.
Earnings
Per Share
– Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average number of
common shares and dilutive potential common shares outstanding during the period.
Fair
value of financial instruments
– The carrying amounts of certain financial
instruments, including cash, accounts receivable, commercial notes receivable, other
receivables, accounts payable, commercial notes payable, accrued expenses, and other
payables approximate their fair values as at December 31, 2007 and 2006, because of the
relatively short-term maturity of these instruments.
Use
of estimates
– The preparation of financial statements in accordance with generally
accepted accounting principles require 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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Stock-based
compensation
– In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), which requires the measurement of all employee
share-based payments to employees, including grants of employee stock options, using a
fair-value-based method and the recording of such expense in the consolidated
statements of operations. In March 2005, the SEC issued Staff Accounting Bulletin No. 107
(“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of
share-based payments for public companies. The Company has adopted SFAS 123R and
related FASB Staff Positions (“FSPs”) as of January 01, 2006 and recognizes
stock-based compensation expense using the modified prospective method.
Concentrations
of business and credit risk
– Financial instruments that potentially subject the
Company to concentrations of credit risk are cash, accounts receivable and other
receivables arising from its normal business activities. The Company places its cash
in what it believes to be credit-worthy financial institutions. The Company has a
diversified customer base, most of which are in China. The Company controls
credit risk related to accounts receivable through credit approvals, credit limits
and monitoring procedures. The Company routinely assesses the financial strength of
its customers and, based upon factors surrounding the credit risk, establishes an
allowance, if required, for uncollectible accounts and, as a consequence, believes
that its accounts receivable credit risk exposure beyond such allowance is limited.
Recent
accounting pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the Board having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new fair
value measurements. However, for some entities, the application of this Statement
will change current practice. This Statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The management is currently evaluating the effect of this
pronouncement on financial statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88,
106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability in
its statement of financial position and to recognize changes in that funded status in
the year in which the changes occur through comprehensive income of a business
entity or changes in unrestricted net assets of a not-for-profit organization.
This Statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of financial
position, with limited exceptions. An employer with publicly traded equity
securities is required to initially recognize the funded status of a defined
benefit postretirement plan and to provide the required disclosures as of the end
of the fiscal year ending after December 15,
23
2006.
An employer without publicly traded equity securities is required to recognize the
funded status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after June 15, 2007. However, an
employer without publicly traded equity securities is required to disclose the
following information in the notes to financial statements for a fiscal year ending
after December 15, 2006, but before June 16, 2007, unless it has applied the
recognition provisions of this Statement in preparing those financial statements:
(a) a brief description of the provisions of this Statement; (b) the date that adoption
is required; and (c) the date the employer plans to adopt the recognition provisions
of this Statement, if earlier. The requirement to measure plan assets and benefit
obligations as of the date of the employer’s fiscal year-end statement of
financial position is effective for fiscal years ending after December 15, 2008.
The management is currently evaluating the effect of this pronouncement on
financial statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Early adoption is permitted subject to specific
requirements outlined in the new Statement. Therefore, calendar-year companies may be
able to adopt FAS 159 for their first quarter 2007 financial statements. The new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value option for
an eligible item, changes in that item's fair value in subsequent reporting periods
must be recognized in current earnings. FAS 159 also establishes presentation and
disclosure requirements designed to draw comparison between entities that elect
different measurement attributes for similar assets and liabilities. The management is
currently evaluating the effect of this pronouncement on financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial statements.
SFAS No. 160 is effective for the Company’s fiscal year beginning October 1, 2009.
Management is currently evaluating the effect of this pronouncement on financial
statements.
In
March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. The new
standard also improves transparency about the location and amounts of
derivative instruments in an entity’s financial statements; how derivative instruments
and related hedged items are accounted for under Statement 133; and how derivative
instruments and related hedged items affect its financial position, financial
performance, and cash flows. Management is currently evaluating the effect of this
pronouncement on financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains the
fundamental requirements in Statement 141 that the acquisition method of accounting
(which Statement 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. This Statement also
establishes principles and requirements for how the acquirer: a) recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business combination.
SFAS No. 141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
While the Company has not yet evaluated this statement for the impact, if any, that
SFAS No. 141(R) will have on its consolidated financial statements, the Company
will be required to expense costs related to any acquisitions after September 30,
2009. The management is currently evaluating the effect of this pronouncement on
financial statements.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
an underpinning industry in China, real estate has developed into a crucial pulling force
to the all-round growth of national economy with its long-term continuous speedy growth
and positive momentum of both production and marketing thrive which have attracted
extensive attention both in the domestic and from overseas. A lot of problems and risks
arose with the real estate prosperity due to its over speedy development:
24
The
national land is fully controlled by the government, and its price keeps rising in
accordance with the supply-demand relationship, which resulted in the over-fast increase
of the investment in real estate and the capital pressure. Meanwhile, the adjustment of
lending rate increased the risk and pressure of capital operation.
The
contradictions of real estate market structure in some regions emerged, among which the
contradiction of commodity houses supply structure is conspicuous. One hand, some
large-area residences, high rises and premium projects emerged in endlessly, but they are
unsuitable for sale; on the other hand, normal-sized commodity houses and economic and
functional houses targeting the low and medium wages earners in the urban area are in
short supply. The housing price still rises faster in some cities, the construction of
living houses safeguard system lags behind in other cities, which resulted in the in
harmony between supply and demand. So the order of real estate market is to be further
standardized.
There
still exist the phenomena of false advertisements, contract fraud and illegal actions in
agent service and logistic administration, which are to be kept within limits in effect.
It should not only rely on the self-restriction of real estate enterprises to address all
these problems. The credit standing system of real estate market is to be perfected. The
operation, supervision and control systems of real estate market are to be further
improved.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Great
China International’s financial statements appear at the end of this report beginning
with the Index to Financial Statements on page F-1, following page 36.
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|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
On
June 1, 2007, the Company’s certifying accountant, Murrell, Hall, McIntosh & Co PLLP (“MHM”)
resigned as the Company’s independent auditor. The resignation was due to business
reasons and was not due to any disagreement between the Accountant and the Company and
its management.
The
Company’s management represents as follows:
(a)
There have been no disputes between management and MHM, and the MHM’s report
contained no adverse opinion or disclaimer of opinion, and was not qualified or modified
as to audit scope, accounting principles, or uncertainties, except for the issue of “going
concern,” for the fiscal years or any later interim period through the date of
resignation. In the auditors' report for the fiscal years ended December 31, 2006 and
2005, the last two years for which the auditor issued a report, the auditor expressed
doubts about the Company's ability to “continue as a going concern.”
(b)
During the Company's two most recent fiscal years and any subsequent interim period
through the date of resignation, there were no disagreements with MHM on any matter of
accounting principles or practices, financial statement disclosure, or auditing scope or
procedure.
(c)
MHM expressed no disagreement or difference of opinion regarding any “reportable
event” as that term is defined in Item 304(a)(1)(v) of Regulation S-K, including but not
limited to:
(i) MHM has not advised the Company
that the internal controls necessary for the registrant to develop reliable
financial statements do not exist, except for as disclosed in Item 3 of the
Company’s Form 10-Q filed on November 16, 2006 for the period ended September 30, 2006;
(ii) MHM has not advised the Company
that information has come to its attention that has led it to no longer be able
to rely on management's representations, or that has made it unwilling to be
associated with the financial statements prepared by management;
(iii) MHM has not advised the Company
of the need to expand significantly the scope of its audit, or notified the
Company that information has come to MHM's attention that if further
investigated may (A) materially impact the fairness or reliability of either: a
previously issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent financial statements covered by an
audit report (including information that may prevent it from rendering an unqualified
audit report on those financial statements), or (B) cause it to be unwilling to
rely on management's representations or be associated with the Company's
financial statements, and due to MHM's resignation (due to
25
audit scope limitations or otherwise) or
dismissal, or for any other reason, MHM did not so expand the scope of its audit
or conduct such further investigation;
(iv) MHM has not advised the Company
that information has come to its attention that it has concluded materially
impacts the fairness or reliability of either (A) a previously issued audit report
or the underlying financial statements, or (B) the financial statements issued
or to be issued covering the fiscal period(s) subsequent to the date of the most
recent financial statements covered by an audit report (including information
that, unless resolved to MHM's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements), and due to the MHM's
resignation, or for any other reason, the issue has not been resolved to MHM's
satisfaction prior to its resignation.
On August 9, 2007, the
Company engaged Henny Wee & Co. (“HWC”), ass its independent accountant. On October 22,
2007, HWC resigned as the Company’s independent auditor, so HWC served as the Company’s
certifying accountant for just over two months. During that limited period of service,
there were no disputes between the Company’s management and HWC, and HWC did not issue
any audit report on the Company’s financial statements because it did not conduct any
audit of the financial statements of the Company. Furthermore, during the brief period
of service there were no disagreements with HWC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which, if not
resolved to HWC’s satisfaction, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with any report it might have issued on the
financial statements of the Company, and there were no reportable events described in
Item 304(a)(1)(v) of Regulation S-K.
On October 22, 2007,
the board of directors of the Company approved the engagement of Kabani & Company, Inc.,
as its new independent accountant. During the two most recent fiscal years and through
the October 22, 2007, neither the Company nor any one on behalf of the Company had
consulted with Kabani & Company, Inc., regarding the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit opinion
that might be rendered on the Company’s financial statements, or any other matters or
reportable events required to be disclosed under Items 304(a)(2)(i) or (ii) of Regulation
S-K.
ITEM 9A(T). CONTROLS
AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure
controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are
designed to ensure that information that would be required to be disclosed in Exchange
Act reports is recorded, processed, summarized and reported within the time period
specified in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including to the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. As required by Rule 13a-15 under the Exchange Act, under the supervision and
with the participation of our management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2007. Based on that evaluation,
our management concluded that our disclosure controls and procedures were effective as of
December 31, 2007.
Management’s Annual Report on Internal Control Over
Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal control over financial
reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the (i) effectiveness and efficiency of
operations, (ii) reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles, and (iii) compliance with applicable laws and regulations. Our internal
controls framework is based on the criteria set forth in the Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Due to inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may deteriorate.
26
During the fourth
quarter of 2007, Great China Holdings hired outside consultants to assist us in
performing a top-down risk assessment, documenting in detail the existing controls and
creating certain new controls. This action was not an indication any significant
deficiencies or material weaknesses of internal controls, but part of the Company’s
ongoing strategy regarding improvement of operational efficiency and effectiveness. As a
result of this review, management believes that our internal controls over financial
reporting are effective.
Attestation Report
This annual report
does not include an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Changes in Internal
Controls
There have been no
changes in the Company’s internal control over financial reporting during the period
ended December 31, 2007 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal controls over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and officers
Set forth in the table
below are the names, ages and positions of our current directors and executive officers.
None of our directors or executive officers has any family relationship to any other
director or executive officer.
|
Name
|
Age
|
Position
|
Since
|
|
Frank Jiang
|
53
|
Chairman of the Board of Directors and Chief Executive Officer
|
2005
|
|
Wang Li Rong
|
45
|
Director and Chief Financial Officer
|
2005
|
|
Duan Jing Shi
|
56
|
Director
|
2005
|
|
Wang Jian Guo
|
34
|
Director
|
2006
|
|
Raymond Reed Baker
|
32
|
Director
|
2008
|
Chen Jin Rong was a
director as of December 31, 2007, but resigned as a director on April 2, 2008 due to
personal reasons.
All executive officers
are elected by the board and hold office until their successors are duly elected and
qualified. Each director is elected by the stockholders and serves until resignation or
election of a successor by the stockholders.
Biographies
The following is
information on the business experience of each of the new officers.
Frank Jiang has served
for the past five years as the Chairman and a Director of Silverstrand International and
its subsidiary, Shenyang Maryland International Industry Company Limited. Mr. Jiang was
the founder of Shenyang Maryland International Industry Company Limited. Upon the
resignation of Deng Zhi Ren as Chief Executive Officer effect on March 5, 2007, Mr. Jiang
assumed the position of Chief Executive Officer of Great China Holdings.
27
Wang Li Rong has
served as a Director of Silverstrand International and its subsidiary, Shenyang Maryland
International Industry Company Limited since 1995. Ms. Wang manages finance and
accounting for Silverstrand International.
Duan Jing Shi has
served as a Director of Silverstrand International and its subsidiary, Shenyang Maryland
International Industry, since January 2002, and has responsibility for real property
development. For over two years prior to January 2002 he served as President of Shenyang
Normal University.
Wang Jian Guo is an
architect and has been employed as Technology Director of Shenyang Jinmao Building Real
Estate Co., Ltd., in Shenyang, China, since October 2005. From July 2005 to October 2005
he was self-employed as an architect, and for a year prior to July 2005 he was employed
as Design Director of Shenyang Vanke Real Estate Development Co., Ltd., in Shenyang,
China. From May 2003 to June 2004 Mr. Wang was engaged as the Planning Director of
Shanghai Jingce Duyi Space and Real Estate Research Institute Co., Ltd. Prior to May
2003, Mr. Wang was pursuing doctoral program studies in architectural design theory at
Tongji University, Architecture and City Planning College, which he began after earning
his Master’s Degree in Architecture Design and Theory at Shenyang Architecture
Engineering College in April 2002.
Raymond Reed Baker is
a Managing Director with The One World Investment Group and has lived in China since
2004. He began his career with PricewaterhouseCoopers LLP, serving in the Transition
Services practice and specializing in financial due diligence. Mr. Baker is a Certified
Public Accountant in the state of Pennsylvania, has a B.S. in Accounting from The
Pennsylvania State University and an MBA from Hong Kong University.
Audit Committee;
Financial Expert
The Board of
directors has not established an audit committee, so the entire Board of Directors
performs the functions associated with an audit committee, including, evaluating
financial reporting matters, monitoring internal controls, compliance with internal
financial polices, and engaging the registered independent accounting firm to audit the
financial statements of Great China Holdings. The Board of Directors has determined that
Chen Jin Rong is an “audit committee financial expert” within the meaning of Item
407(d)(5) of Regulation S-K. Further, the Board has determined that Ms. Chen is “independent” under
the standard set forth in Rule 4350(d) of the NASDAQ Marketplace Rules.
Director Nominations
The Board of Directors
has not made any changes to the procedures by which security holders may recommend nominee’s
to our Board of Directors.
Code of Ethics
Great China Holdings
has adopted a Code of Ethics applicable to its chief executive officer and chief
financial officer, a copy of which will be provided to any person, free of charge, upon
request. A request for a copy of the Code of Ethics should be in writing and sent to Ms.
Zou Liang, Great China International Holdings, Inc., C Site 25-26F President Building,
No. 69 Heping North Street, Heping District, Shenyang 110003, The People’s Republic of
China.
Compliance with Section
16(a) of the Exchange Act
Section 16(a) of the
Securities Exchange Act of 1934 requires executive officers and directors, and persons
who beneficially own more than 10% of Great China International’s common stock, to file
initial reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission. Executive officers, directors and greater than 10% beneficial owners
are required by Securities and Exchange Commission regulations to furnish Great China
International with copies of all Section 16(a) forms they file. Based solely on Great
China International’s review of copies of such reports and representations from Great
China International’s executive officers and directors, and greater than ten-percent
beneficial owners, Great China International believes that its executive officers and
directors complied with all Section 16(a) filing requirements during the fiscal year
ended December 31, 2007, except for the following: Frank Jiang reported on a Form 5
filed February 14, 2008, seven separate purchases of Great China International common
stock in 2006 and 2007 by his spouse that were not reported earlier on five Form 4s that
should have been filed based on the timing of the transactions; and, Wang Jian Guo
reported on a Form 5 filed February 14, 2008, the receipt in January 2007 of an option to
purchase 10,000 shares of Great China International common stock that was not reported
earlier on Form 4.
28
ITEM 11. EXECUTIVE
COMPENSATION
Compensation Discussion
and Analysis
Our Board of Directors
makes all evaluations and decisions regarding executive and board compensation. To date
Great China International has not established any policies, goals, or other processes for
setting compensation for its executive officers and directors because of pre-existing
employment and compensation arrangements that Great China International has not chosen to
revisit or modify. Historically Great China International has negotiated employment
arrangements with executive officers on an individual basis. However, the current
employment contract with the Chief Executive Officer expired at the end of 2007, so the
Board of Directors is now evaluating the terms of employment and compensation for 2008
and subsequent periods. Great China has not established any long-term benefit or stock
plans for its officers, directors or employees. In the past options to purchase common
stock of the Company have been granted to executive officers on an individually
negotiated basis. If the Board of Directors considers later in 2008 the development of a
more comprehensive approach to compensation, it may consider adopting long-term benefit
and stock plans for executive officers.
Summary Compensation
Table
|
Name and Principal Position
|
Year
|
Salary($)
|
Option
Awards($) (1)
|
All Other
Compensation($)
|
Total($)
|
|
Frank Jiang
|
2007
|
111,111
|
--
|
--
|
111,111
|
|
President and CEO
|
2006
|
12,000
|
--
|
--
|
12,000
|
|
|
2005
|
28,600
|
--
|
--
|
28,600
|
|
|
|
Wang Li Rong, CFO
|
2007
|
16,049
|
--
|
--
|
16,049
|
|
|
2006
|
--
|
--
|
--
|
--
|
|
|
2005
|
--
|
--
|
--
|
--
|
(1) The dollar
values shown reflect the compensation cost of the awards, before reflecting forfeitures,
over the requisite service period, as described in SFAS 123R. The assumptions we used in
valuing these awards are described in Note 13 to our Consolidated Financial Statements
included in this Form 10-K.
Discussion of Summary
Compensation Table
Shenyang Maryland
entered into a standard form employment agreement with Frank Jiang, the term of which
runs from January 1, 2003 to December 31, 2007, which provided for annual compensation of
$28,600, but does not contain any unusual severance or early termination provisions.
During the fiscal year ended December 31, 2007, Mr. Jiang’s annual compensation was
adjusted to $137,174.
Shenyang Maryland
entered into a standard form employment agreement with Wang Li Rong, the term of which
ran from January 1, 2007 to December 31, 2007, which provided for annual compensation of
$17,833, but did not contain any unusual severance or early termination provisions.
Subsequent to year-end, the Board of Directors authorized an increase from February 2008
in the annual salaries of Mr. Frank Jiang and Ms. Wang Li Rong, to 2,000,000 RMB and
190,000 RMB, respectively.
Grants of Plan Based
Awards
There were no grants
of plan-based awards to our named executive officers during the year ended December 31,
2007.
Outstanding Equity
Awards
There are no
outstanding equity awards held by our named executive officers at December 31, 2007.
Option Exercises and
Stock Vested
None of the named
executive officers exercised any options in 2007.
29
Pension Benefits
Great China
International does not maintain any plan providing for the payment of benefits at,
following, or in connection with retirement.
Nonqualified Defined
Contribution and Other Nonqualified Deferred Compensation
Great China
International does not maintain any nonqualified defined contribution or other
nonqualified deferred compensation plans.
Potential Payments upon
Change in Control
Great China
International does not have any severance or other payment arrangements that are
triggered by a change in control.
Director Compensation
Table
Mr. Wang Jianguo as a
non-employee director receives a monthly director fee of $833. Each non-employee
director serving on January 31 of each year beginning in 2007 receives an option to
purchase 10,000 shares of Great China International common stock exercisable over a term
of two years with an exercise price equal to 90% of the average of the closing bid prices
for Great China International common stock over the 10 trading days prior to the date the
options are issued.
The following table
summarizes the compensation paid to our directors who are not executive officers for the
year ended December 31, 2007.
|
Name
|
Fees Earned or
Paid in Cash ($)
|
Option
Awards($) (1)
|
All Other
Compensation($)
|
Total($)
|
|
Duan Jing Shi (2)
|
18,518
|
--
|
--
|
18,518
|
|
|
|
Chen Jin Rong (3)
|
9,996
|
--
|
--
|
9,996
|
|
|
|
Wang Jian Guo
|
9,996
|
20,524
|
--
|
30,520
|
|
|
|
|
(1)
|
Pursuant to the terms of her employment agreement, the Company granted 10,000 two-year options on
January 31, 2007 to Wang Jianguo at an exercise price of $4.65 per share on January 31, 2007. The
dollar value shown reflects the compensation cost of the awards, before reflecting forfeitures, over
the requisite service period, as described in SFAS 123R. The assumptions we used in valuing these
awards are described in Note 13 to our Consolidated Financial Statements included in this Form 10-K.
|
|
|
|
(2)
|
Dunag Jing Shi does not receive monthly director fees. He is employed full-time in administrative
capacities by subsidiaries of Great China International, and the amount shown in the table is the
salary paid to him during 2007.
|
|
|
|
(3)
|
Chen Jinrong resigned as a director on April 2, 2008 due to personal reasons, resulting in cancellation
of her options.
|
Raymond Reed Baker
became a director in March 2008. In the course of his service as a director, Mr. Baker
will assist Great China International with financing and budgeting issues, along with
matters that arise in the course of Great China International’s business operations.
Great China International agreed to pay to Mr. Baker a monthly fee of RMB 10,000
(approximately US $1,408).
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table
sets forth as of March 31, 2007, the number and percentage of the outstanding shares of
common stock which, according to the information supplied to Great China International,
were beneficially owned by (i) each person who is currently a director, (ii) each
executive officer, (iii) all current directors and executive officers as a group, and
(iv) each person who, to our knowledge, is the beneficial owner of more than 5% of the
outstanding common stock. The
30
address of each person
listed is C Site 25-26F President Building, No. 69 Heping North Street, Heping District,
Shenyang 110003, People’s Republic of China.
|
Name and Address
|
Number of
Shares
|
Percent of
Class
|
|
Frank Jiang
|
|
|
|
C Site 25-26F President Building
|
|
|
|
No. 69 Heping North Street, Heping District
|
|
|
|
Shenyang 110003, People’s Republic of China
|
8,245,447
(1)
|
70.1
|
|
|
|
Duan Jing Shi
|
|
|
|
C Site 25-26F President Building
|
|
|
|
No. 69 Heping North Street, Heping District
|
|
|
|
Shenyang 110003, People’s Republic of China
|
91,024
|
0.77
|
|
|
|
Wang Jian Guo
|
|
|
|
C Site 25-26F President Building
|
|
|
|
No. 69 Heping North Street, Heping District
|
|
|
|
Shenyang 110003, People’s Republic of China
|
20,000
(2)
|
0.17
|
|
|
|
Wang Li Rong
|
|
|
|
C Site 25-26F President Building
|
|
|
|
No. 69 Heping North Street, Heping District
|
|
|
|
Shenyang 110003, People’s Republic of China
|
91,024
|
0.77
|
|
|
|
Raymond Reed Baker
|
|
|
|
C Site 25-26F President Building
|
|
|
|
No. 69 Heping North Street, Heping District
|
|
|
|
Shenyang 110003, People’s Republic of China
|
-0-
|
-0-
|
|
|
|
All executive officers and directors as a group (5 persons)
|
8,447,495
|
71.83
|
(1) Includes 67,000
shares held indirectly by Mr. Jiang’s wife.
(2) Consists of options granted in January
2007 and January 2008.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Director Independence
The Board of Directors
has determined that Wang Jian Guo is “independent” under the definition set forth in Rule
4200(a)(15) of the NASDAQ Marketplace Rules.
Great China
International has not adopted any policy regarding review of transactions with related
persons beyond what is provided for in the Nevada Revised Statutes pertaining to
corporations. The statutes provide that no contract or transaction between Great China
International and one or more of its directors or officers, or between Great China
International and any other corporation, firm, association, or other organization in
which one or more of its directors or officers are directors or officers or are
financially interested, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of the Board
of Directors or committee that authorizes or approves the contract or transaction, or
because their votes are counted for such purpose, provided that:
|
|
|
|
|
|
Ÿ
|
the material facts as to his, her, or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the committee and noted in the
minutes, and the Board of Directors or committee, in good faith, authorizes the contract or
transaction in good faith by the affirmative vote of a majority of disinterested directors, even
though the disinterested directors are less than a quorum;
|
|
|
|
|
Ÿ
|
the material facts as to his, her, or their relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract
or transaction is specifically approved
|
31
|
|
|
|
|
|
|
or ratified in good faith by the majority of shares entitled
to vote, counting the votes of the common or interested directors or officers; or
|
|
|
|
|
Ÿ
|
the contract or transaction is fair as to Great China International as of the time it is authorized or
approved.
|
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Great China
International paid or accrued the following fees in each of the prior two fiscal years to
its principal accountant:
|
|
Year ended
December 31,
2007
|
|
Year ended
December 31
2006
|
|
1. Audit fees
|
|
|
US$
|
113,560
|
|
|
US$
|
88,950
|
|
|
2. Audit-related fees
|
|
|
|
19,733
|
|
|
|
20,605
|
|
|
3. Tax fees
|
|
|
|
6,560
|
|
|
|
2,489
|
|
|
4. All other fees
|
|
|
|
|
|
|
|
--
|
|
|
Totals.......................................................................................................
|
...
|
...
|
US$
|
139,853
|
|
|
US$
|
112,044
|
|
Great China
International has no formal audit committee. However, as defined in Sarbanes-Oxley Act of
2002, the entire Board of Directors is Great China International’s de facto audit
committee.
In discharging its
oversight responsibility as to the audit process, the Board obtained from the independent
auditors a formal written statement describing all relationships between the auditors and
Great China International that might bear on the auditors’ independence as required by
Independence Standards Board Standard No. 1, “Independence Discussions with Audit
Committees.” The Board discussed with the auditors any relationships that may impact
their objectivity and independence, including fees for non-audit services, and satisfied
itself as to the auditors’ independence. The Board also discussed with management, the
internal auditors, if any, and Great China International’s independent auditors the
quality and adequacy of Great China International’s internal controls. The Board reviewed
with the independent auditors their management letter on internal controls, if one was
issued by Great China International’s auditors.
The Board discussed
and reviewed with the independent auditors all matters required to be discussed by
auditing standards generally accepted in the United States of America, including those
described in Statement on Auditing Standards No. 61, as amended, “Communication with
Audit Committees”.
The Board reviewed the
audited consolidated financial statements of Great China International as of and for the
years ended December 31, 2007, 2006 and 2005, with management and the independent
auditors. Management has the sole ultimate responsibility for the preparation of Great
China International’s financial statements and the independent auditors have the
responsibility for their examination of those statements.
Based on the
above-mentioned review and discussions with the independent auditors and management, the
Board of Directors approved Great China International’s audited financial statements and
recommended that they be included in its Annual Report on Form 10-K for the year ended
December 31, 2007, for filing with the Securities and Exchange Commission.
ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
The following
documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K:
|
Exhibit No.
|
|
Title of Document
|
|
3.1
|
|
Articles of Incorporation (1)
|
|
3.2
|
|
Articles of Amendment effective September 15, 2005 (2)
|
|
3.3
|
|
Bylaws (1)
|
32
|
|
|
|
|
|
|
10.1
|
Stock Exchange Agreement dated March 8, 2005 by and among the Company, Silverstrand International Holdings
Limited, Frank Jiang, Jiang Peng, Duan Jing Shi, Li Guang Hua and Wang Li Rong (3)
|
|
|
|
10.2
|
Convertible Note dated March 5, 2005 issued to Wayne M. Rogers (3)
|
|
|
|
10.3
|
Convertible Note dated March 5, 2005 issued to Jack M. Gertino (3)
|
|
|
|
10.4
|
Stock Right Transfer Agreement dated October 18, 2004 among Silverstrand International Holdings Limited and each
of Frank Jiang, Jiang Peng, Duan Jing Shi, Li Guang Hua and Wang Li Rong (2)
|
|
|
|
10.5
|
Sales and Purchase Contract dated December 8, 2005 between Shenyang Yunfeng Real Estate Development Co. Ltd. and
Shenyang Maryland International Industry Co. Ltd. (2)
|
|
|
|
10.6
|
Amendment dated December 28, 2005 to Sales and Purchase Contract dated December 8, 2005 between Shenyang Yunfeng
Real Estate Development Co. Ltd. and Shenyang Maryland International Industry Co. Ltd. (2)
|
|
|
|
10.7
|
Sales and Purchase Contract dated December 28, 2005 between Silverstrand International Holdings Limited and
I.R.E. Corporation Limited (Ref. No. HT-2005-12003) (2)
|
|
10.8
|
Sales and Purchase Contract dated December 28, 2005 between Silverstrand International Holdings Limited and
I.R.E. Corporation Limited (Ref. No: HT-2005-12004) (2)
|
|
|
|
10.9
|
Sales and Purchase Contract dated December 28, 2005 between Shenyang Maryland International Industry Co. Ltd.
and Shenyang Yunfeng Real Estate Development Co. Ltd. (2)
|
|
|
|
10.10
|
Form of Executive Employment Agreement with Shenyang Maryland International Industrial Co. Ltd. (2)
|
|
|
|
10.11
|
Property Management Agreement dated March 18, 2004 with respect to the President Building between Shenyang
Maryland International Industry Co., Ltd. and Jones Lang Lasalle (2)
|
|
|
|
10.12
|
Development Agreement dated April 26, 2004 between The People’s Government of Heping District, Shenyang, China
and Shenyang Maryland International Industrial Co., Ltd. (2)
|
|
|
|
10.13
|
Employment Agreement with Deng Zhiren (4)
|
|
|
|
10.14
|
Form of option issued to Deng Zhi Ren and Tang Yee Kwan (4)
|
|
|
|
10.15
|
Form of Regulation S Subscription Agreement –February 2006 (2)
|
|
|
|
10.16
|
Form of Registration Rights Agreement –February 2006 (2)
|
|
|
|
10.17
|
Loan Agreement dated July 3, 2006 between Shenyang City Commercial Bank and Shenyang Jitian Property Co.,
Ltd.(5)
|
|
|
|
10.18
|
Loan Guarantee Agreement dated July 3, 2006 between Shenyang City Commercial Bank, Shenyang Maryland
International Industry Co., Ltd., and Shenyang Jitian Property Co. (5)
|
|
|
|
10.19
|
Pledge (Mortgage) Agreement dated July 3, 2006 between Shenyang City Commercial Bank and Shenyang Jitian
Property Co., Ltd. (5)
|
|
|
|
10.20
|
Creditor’s Right Transfer Agreement dated effective May 18, 2006 between Hainan Hexing Industry Co., Ltd. and
Shenyang Jitian Property Co., Ltd. (5)
|
|
|
|
10.21
|
Loan Agreement dated for reference June 28, 2006 between Shenyang City Commercial Bank and Shenyang Jitian
Property Co., Ltd. (6)
|
|
|
|
10.22
|
Loan Guarantee Agreement dated for reference June 28, 2006 among Shenyang City Commercial Bank, Shenyang
Maryland International Industry Co., Ltd., and Shenyang Jitian Property Co., Ltd. (6)
|
|
|
|
10.23
|
Pledge (Mortgage) Agreement dated for reference June 28, 2006 among Shenyang City Commercial Bank, Shenyang
Maryland International Industry Co., Ltd., and Shenyang Jitian Property Co., Ltd. (6)
|
|
|
|
10.24
|
Form of Employment Agreement between Great China International Holdings, Inc. and
Danny Sui Keung Chau (7)
|
|
|
|
10.25
|
Equity Transfer Agreement dated November 20, 2006 between Silverstrand International Holdings Company Limited
and each of Beijing Capital Land Limited and Reco Ziyang Pte Limited(8)
|
33
|
|
|
|
|
|
|
10.26
|
Land Consolidation and Development Agreement between Shenyang Jitian Property Company Limited and Shengyang
Maryland International Industry Company Limited (8)
|
|
|
|
10.27
|
Letter of Intent dated May 31, 2007 among Silverstrand International Holdings Limited, Gentle Knight Limited and
Loyal Best Property Development Limited (10)
|
|
|
|
10.28
|
Loan Agreement dated June 18, 2007 between Shenyang Maryland International Industry Co., Ltd. and Shenyang City
Commercial Bank (Holdings) Co., Ltd, Zhongshan Branch (11)
|
|
|
|
10.29
|
Loan Pledge Agreement dated June 18, 2007 between Shenyang Maryland International Industry Co., Ltd. and
Shenyang City Commercial Bank (Holdings) Co., Ltd, Zhongshan Branch (11)
|
|
|
|
10.30
|
Compensation Agreement dated June 24, 2007 between Shenyang Heping District Investment Promotion Bureau and
Shenyang Maryland International Industry Co., Ltd. (12)
|
|
|
|
10.31
|
Loan Agreement dated September 28, 2007 with Shenyang Huahai International Investment Co., Ltd. (13)
|
|
|
|
10.32
|
Letter of Intent dated October 30, 2007 between Silverstrand International Holdings Limited and Celebrities
Realestate Development Group Co., Ltd. (14)
|
|
10.33
|
Letter of Guarantee given November 3, 2007 by Shenyang Maryland International Industry Co., Ltd. to Celebrities
Realestate Development Group Co., Ltd. (14)
|
|
|
|
10.34
|
Investment Medium Contract dated 25 October 2007 between Silverstrand International Holdings Limited and Hong
Kong Top Might Investments Co., Ltd. (14)
|
|
|
|
10.35
|
Definitive Agreement dated November 20, 2007 by an among Silverstrand International Holdings Limited, Zhang Yu
and Shenyang Maryland International Industry Co., Ltd. (15)
|
|
|
|
10.36
|
Letter of Guarantee given November 20, 2007 by Celebrities Realestate Development Group Co., Ltd. to
Silverstrand International Holdings Limited (15)
|
|
|
|
10.37
|
Joint Development Agreement executed on November 20, 2007 and dated for reference November 16, 2007 between
Shenyang Xinchao Property Co., Ltd. and Beijing Century Junhui Investment Ltd. (15)
|
|
|
|
14.1
|
Code of Ethics (2)
|
|
|
|
21.1
|
List of Subsidiaries (2)
|
|
|
|
31.1
|
Certification of Chief Executive Officer
|
|
|
|
31.2
|
Certification of Chief Financial Officer
|
|
|
|
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer
|
_____________________________________________
|
|
|
|
|
|
|
(1)
|
These exhibits are incorporated herein by this reference to our registration statement on Form 10-SB,
filed with the Securities and Exchange Commission on August 21, 1997.
|
|
(2)
|
These exhibits are incorporated herein by this reference to our Annual Report on Form 10-KSB for the year
ended December 31, 2005, filed with the Securities and Exchange Commission on April 17, 2006.
|
|
(3)
|
These exhibits are incorporated herein by this reference to our Annual Report on Form 10-KSB for the year
ended December 31, 2004, filed with the Securities and Exchange Commission on March 25, 2005.
|
|
(4)
|
These exhibits are incorporated herein by this reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 6, 2006.
|
|
(5)
|
This exhibit is incorporated herein by this reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 11, 2006.
|
|
(6)
|
This exhibit is incorporated herein by this reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 26, 2006.
|
|
(7)
|
This exhibit is incorporated herein by this reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 10, 2006.
|
|
(8)
|
These exhibits are incorporated herein by this reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 11, 2006.
|
|
(9)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K/A filed
with the Securities and Exchange Commission on March 28, 2006.
|
|
(10)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 6, 2007.
|
34
|
|
|
|
|
|
|
(11)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 25, 2007.
|
|
(12)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 25, 2007.
|
|
(13)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 1, 2007.
|
|
(14)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 9, 2007.
|
|
(15)
|
This exhibit is incorporated herein by this reference to the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 27, 2007.
|
35
SIGNATURES
In
accordance with the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Frank Jiang
|
|
|
|
|
|
|
Frank Jiang, Chief Executive Officer
(Principal Executive Officer)
|
|
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Wang Li Rong
|
|
|
|
|
|
|
Wang Li Rong, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
In accordance with the
Exchange Act, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Frank Jiang
|
|
|
|
|
|
|
Frank Jiang, Director
|
|
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Wang Jian Guo
|
|
|
|
|
|
|
Wang Jian Guo, Director
|
|
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Duan Jingshi
|
|
|
|
|
|
|
Duan Jingshi, Director
|
|
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Wang Li Rong
|
|
|
|
|
|
|
Wang Li Rong, Director
|
|
|
Date: April 14, 2008
|
|
By:
|
|
/s/ Raymond Reed Baker
|
|
|
|
|
|
|
Raymond Reed Baker, Director
|
|
36
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements
Great China International Holdings, Inc.
Page
Report of Independent
Registered Public Accounting
Firm...........................................................................................................F-2
Report of Independent
Registered Public Accounting
Firm...........................................................................................................F-3
Consolidated Balance
Sheet...........................................................................................................
................................................F-4
Consolidated Statements
of
Operations..........................................................................................................................................F-6
Consolidated Statements
of Stockholders’ Equity..........................................................................................................................F-7
Consolidated Statements
of Cash
Flows.........................................................................................................................................F-8
Notes to the
Consolidated Financial
Statements.............................................................................................................................F-9
F-1
Report of Independent Registered Public
Accounting Firm
Board of Directors and
Stockholders of
Great China International Holding, Inc. and subsidiaries,
We
have audited the accompanying consolidated balance sheet of Great China
International Holdings, Inc. and subsidiaries, (a Nevada corporation) as of
December 31, 2007, and the related consolidated statements of operation, stockholders'
equity, and cash flows for the year ended December 31, 2007. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audit. The consolidated financial statements of Great China International
Holdings, Inc. and subsidiaries as of December 31, 2006 and 2005 were audited by
other auditors whose report dated April 10, 2008, expressed an unqualified opinion on
those statements.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great China
International Holdings, Inc. and subsidiaries, as of December 31, 2007, and the
consolidated results of their operations and their consolidated cash flows for the
year ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
/s/ Kabani & Company,
Inc.
Certified Public Accountants
Los Angeles, California
February 27, 2008
F-2
Report of Independent Registered Public
Accounting Firm
We
have audited the accompanying consolidated balance sheet of Great China
International Holdings, Inc. as of December 31, 2006 and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years ended
December 31, 2006 and 2005. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provides a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Great China International
Holdings, Inc. as of December 31, 2006 and the results of its consolidated
operations and its consolidated cash flows for the years ended December 31, 2006 and
2005, in conformity with accounting principles generally accepted in the United States of
America.
As
discussed in Note 2 to the financial statements the financial statements have been
restated for the correction of errors related to construction costs and the allocation of
common area costs.
The
accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. The Company had a working capital deficit of
$51,178,976 and was in default on $35,962,914 of bank loans as of December 31,
2006. These matters raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Murrell, Hall,
McIntosh & Co., PLLP
Oklahoma City, Oklahoma
April 10, 2007
F-3
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
|
|
2007
|
|
2006
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
$
|
10,044,579
|
|
|
$
|
1,769,744
|
|
|
Accounts receivable, net
|
|
|
|
325,058
|
|
|
|
1,454,164
|
|
|
Receivable on disposal of subsidiaries
|
|
|
|
30,701,957
|
|
|
|
--
|
|
|
Other receivable, net
|
|
|
|
1,070,863
|
|
|
|
2,731,463
|
|
|
|
|
|
|
|
Properties held for resale
|
|
|
|
7,696,437
|
|
|
|
10,620,550
|
|
|
Prepaid expenses
|
|
|
|
--
|
|
|
|
86,617
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
49,838,893
|
|
|
|
16,662,538
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
50,632,336
|
|
|
|
43,894,578
|
|
|
Construction in progress
|
|
|
|
--
|
|
|
|
9,372,189
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
100,471,229
|
|
|
$
|
69,929,305
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Short-term loans
|
|
|
$
|
25,231,297
|
|
|
$
|
51,308,184
|
|
|
Accounts payable and accrued expenses
|
|
|
|
8,615,415
|
|
|
|
8,113,187
|
|
|
Other payable
|
|
|
|
5,723,489
|
|
|
|
3,209,289
|
|
|
Payable to disposed subsidiaries
|
|
|
|
10,494,449
|
|
|
|
--
|
|
|
|
|
|
|
|
Commission payable
|
|
|
|
8,898,502
|
|
|
|
--
|
|
|
Advances from buyers
|
|
|
|
2,034,019
|
|
|
|
3,004,011
|
|
|
Amounts due to related companies
|
|
|
|
--
|
|
|
|
695,002
|
|
|
Taxes payable
|
|
|
|
8,552,316
|
|
|
|
1,083,765
|
|
|
Current portion of long-term debt
|
|
|
|
--
|
|
|
|
428,076
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
69,549,487
|
|
|
|
67,841,514
|
|
|
Long term debt, net of current portion shown above
|
|
|
|
5,486,968
|
|
|
|
1,999,465
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
75,036,455
|
|
|
|
69,840,979
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
Common stock, $.001 par value 50,000,000 shares authorized,
|
|
|
|
11,759,966 issued and outstanding
|
|
|
|
at December 31, 2007 and 2006, respectively
|
|
|
|
11,760
|
|
|
|
11,783
|
|
|
Additional paid in capital
|
|
|
|
4,562,855
|
|
|
|
4,542,308
|
|
|
Statutory reserve
|
|
|
|
638,128
|
|
|
|
--
|
|
|
Other comprehensive income
|
|
|
|
1,468,546
|
|
|
|
468,344
|
|
|
Retained earning /(accumulated deficit)
|
|
|
|
18,753,485
|
|
|
|
(4,934,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
|
25,434,773
|
|
|
|
88,326
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
|
$
|
100,471,229
|
|
|
$
|
69,929,305
|
|
|
|
|
|
|
The accompanying notes are integral part of these consolidated financial statements.
F-4
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
|
$
|
4,378,993
|
|
|
$
|
7,205,954
|
|
|
$
|
20,832,846
|
|
|
Rental and management fee income
|
|
|
|
5,296,635
|
|
|
|
5,532,339
|
|
|
|
5,691,262
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
9,675,627
|
|
|
|
12,738,293
|
|
|
|
26,524,108
|
|
|
|
|
Cost of revenues
|
|
|
|
5,980,853
|
|
|
|
6,708,995
|
|
|
|
18,765,799
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
3,694,774
|
|
|
|
6,029,298
|
|
|
|
7,758,309
|
|
|
|
|
Expenses
|
|
|
|
Operating and selling expenses
|
|
|
|
414,179
|
|
|
|
1,824,710
|
|
|
|
485,313
|
|
|
Administrative expenses
|
|
|
|
6,831,838
|
|
|
|
3,860,917
|
|
|
|
2,612,787
|
|
|
Depreciation and amortization
|
|
|
|
2,343,721
|
|
|
|
2,051,664
|
|
|
|
2,030,896
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
9,589,739
|
|
|
|
7,737,291
|
|
|
|
5,128,996
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
(5,894,965
|
)
|
|
|
(1,707,993
|
)
|
|
|
2,629,313
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
Land leveling income, net
|
|
|
|
1,929,041
|
|
|
|
--
|
|
|
|
--
|
|
|
Gain on settlement of debt
|
|
|
|
11,115,201
|
|
|
|
--
|
|
|
|
--
|
|
|
Loss on terminated project
|
|
|
|
(1,504,604
|
)
|
|
|
--
|
|
|
|
--
|
|
|
Other income (expense)
|
|
|
|
(642,577
|
)
|
|
|
1,268,529
|
|
|
|
--
|
|
|
Interest and finance costs
|
|
|
|
(3,047,347
|
)
|
|
|
(3,275,175
|
)
|
|
|
(2,514,464
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
7,849,714
|
|
|
|
(2,006,646
|
)
|
|
|
(2,514,464
|
)
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
1,954,749
|
|
|
|
(3,714,639
|
)
|
|
|
114,849
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
1,514,810
|
|
|
|
--
|
|
|
|
34,455
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
|
439,939
|
|
|
|
(3,714,639
|
)
|
|
|
80,394
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
Loss from operations of subsidiary
|
|
|
|
(61,271
|
)
|
|
|
(603,395
|
)
|
|
|
--
|
|
|
Gain from disposal of subsidiary
|
|
|
|
23,947,054
|
|
|
|
571,232
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
23,885,783
|
|
|
|
(32,163
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
24,325,722
|
|
|
|
(3,746,802
|
)
|
|
|
80,394
|
|
|
|
|
Other comprehensive income:
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
1,000,202
|
|
|
|
268,605
|
|
|
|
187,662
|
|
|
|
|
|
|
|
|
|
Net comprehensive income (loss)
|
|
|
$
|
25,325,923
|
|
|
$
|
(3,478,197
|
)
|
|
$
|
268,056
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
|
|
Basic & diluted
|
|
|
$
|
0.04
|
|
|
$
|
(0.32
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from discontinued operations
|
|
|
|
Basic & diluted
|
|
|
$
|
2.03
|
|
|
$
|
(0.00
|
)
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
Basic & diluted
|
|
|
$
|
2.07
|
|
|
$
|
(0.33
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
Basic & diluted
|
|
|
|
11,759,966
|
|
|
|
11,439,751
|
|
|
|
10,777,436
|
|
|
|
|
|
|
|
|
Weighted average number
of shares for dilutive securities has not been taken since the effect of dilutive
securities is anti-dilutive
The accompanying notes are integral part of these consolidated financial
statements.
F-5
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
Common Stock
|
Additional
|
Accumulated
Other Comprehensive
|
Statutory
|
Retained Earnings/
|
Total Shareholder's
|
|
|
Shares
|
Amount
|
Paid in Capital
|
Income
|
Reserve
|
(Accumulated Deficit)
|
Equity
|
|
Balance, December 31, 2005
|
|
|
|
11,097,466
|
|
|
$
|
11,098
|
|
|
$
|
1,550,878
|
|
|
$
|
199,739
|
|
|
$
|
--
|
|
|
$
|
(1,187,307
|
)
|
|
$
|
574,408
|
|
|
|
|
Employee stock options
|
|
|
|
--
|
|
|
|
--
|
|
|
|
513,835
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
513,835
|
|
|
|
|
Net loss for the year ended December 31, 2006
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(3,746,802
|
)
|
|
|
(3,746,802
|
)
|
|
|
|
Share issuance
|
|
|
|
684,570
|
|
|
|
685
|
|
|
|
2,777,595
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,778,280
|
|
|
|
|
Share issuance costs
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(300,000
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(300,000
|
)
|
|
|
|
Exchange gain
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
268,605
|
|
|
|
--
|
|
|
|
--
|
|
|
|
268,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
|
11,782,036
|
|
|
|
11,783
|
|
|
|
4,542,308
|
|
|
|
468,344
|
|
|
|
--
|
|
|
|
(4,934,109
|
)
|
|
|
88,326
|
|
|
|
|
Reconciliation of stock
|
|
|
|
(22,070
|
)
|
|
|
(23
|
)
|
|
|
23
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
Stock option to non-employee director
|
|
|
|
--
|
|
|
|
--
|
|
|
|
20,524
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
20,524
|
|
|
|
|
Transfer to Statutory reserve
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
638,128
|
|
|
|
(638,128
|
)
|
|
|
--
|
|
|
|
|
Net loss for the year ended December 31, 2007
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
24,325,722
|
|
|
|
24,325,722
|
|
|
|
|
Change in exchange rate fluctuation reserve
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,000,202
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,000,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,759,966
|
|
|
$
|
11,760
|
|
|
$
|
4,562,855
|
|
|
$
|
1,468,546
|
|
|
$
|
638,128
|
|
|
$
|
18,753,485
|
|
|
$
|
25,434,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are integral part of these
consolidated financial statements.
F-6
GREAT CHINA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
2007
|
|
2006
|
|
2005
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
24,325,722
|
|
|
$
|
(3,746,802
|
)
|
|
$
|
80,394
|
|
|
Adjustments to reconcile net income (loss) to operating activities -
|
|
|
|
Depreciation and amortization
|
|
|
|
2,343,721
|
|
|
|
2,051,664
|
|
|
|
2,030,896
|
|
|
(Reduction in) Provision for doubtful accounts
|
|
|
|
3,731,419
|
|
|
|
(335,421
|
)
|
|
|
380,917
|
|
|
Non-cash stock compensation expense
|
|
|
|
20,524
|
|
|
|
513,835
|
|
|
|
--
|
|
|
Loan closing costs
|
|
|
|
--
|
|
|
|
723,612
|
|
|
|
--
|
|
|
(Increase)/decrease in assets:
|
|
|
|
Restricted cash
|
|
|
|
--
|
|
|
|
482,548
|
|
|
|
313,790
|
|
|
Accounts receivable and other receivable
|
|
|
|
1,916,364
|
|
|
|
(600,796
|
)
|
|
|
(107,552
|
)
|
|
Other receivable
|
|
|
|
(3,135,764
|
)
|
|
|
810,702
|
|
|
|
--
|
|
|
Advances to suppliers
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,967,923
|
)
|
|
Prepaid expenses
|
|
|
|
778,975
|
|
|
|
1,236,771
|
|
|
|
--
|
|
|
Amounts due from related parties
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(2,658,985
|
)
|
|
Properties held for resale
|
|
|
|
3,540,825
|
|
|
|
3,945,587
|
|
|
|
19,970,035
|
|
|
Increase/(decrease) in liabilities:
|
|
|
|
Accounts payable and other payables and accrued expenses
|
|
|
|
24,358,712
|
|
|
|
(532,399
|
)
|
|
|
(3,204,643
|
)
|
|
Deposits held
|
|
|
|
--
|
|
|
|
(87,443
|
)
|
|
|
--
|
|
|
Advances from buyers
|
|
|
|
(91,924
|
)
|
|
|
186,455
|
|
|
|
(10,461,701
|
)
|
|
Income and other taxes payable
|
|
|
|
2,242,023
|
|
|
|
428,996
|
|
|
|
528,002
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations
|
|
|
|
60,030,598
|
|
|
|
5,077,309
|
|
|
|
4,903,230
|
|
|
Net cash provided by/(used in) operating activities from discontinued operations
|
|
|
|
--
|
|
|
|
(559,415
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
60,030,598
|
|
|
|
4,517,894
|
|
|
|
4,903,230
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Construction in progress
|
|
|
|
9,630,817
|
|
|
|
(6,466,661
|
)
|
|
|
(2,905,528
|
)
|
|
Purchases of property & equipment
|
|
|
|
(7,354,196
|
)
|
|
|
(1,042,194
|
)
|
|
|
(4,286,032
|
)
|
|
Sale of property & equipment
|
|
|
|
1,641,649
|
|
|
|
117,053
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities from continuing operations
|
|
|
|
3,918,271
|
|
|
|
(7,391,802
|
)
|
|
|
(7,191,560
|
)
|
|
Net cash used in investing activities from discontinued operations
|
|
|
|
(30,701,958
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
(26,783,687
|
)
|
|
|
(7,391,802
|
)
|
|
|
(7,191,560
|
)
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Loan proceeds
|
|
|
|
--
|
|
|
|
76,835,664
|
|
|
|
15,219,295
|
|
|
Loan repayments
|
|
|
|
(25,792,012
|
)
|
|
|
(87,664,216
|
)
|
|
|
(1,744,565
|
)
|
|
Advances from (to) directors and affiliated companies
|
|
|
|
(430,262
|
)
|
|
|
1,828,512
|
|
|
|
--
|
|
|
Dividends
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,133,510
|
)
|
|
Proceeds from stock issuance, net of offering costs
|
|
|
|
--
|
|
|
|
2,478,280
|
|
|
|
(163,186
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities from continuing operations
|
|
|
|
(26,222,274
|
)
|
|
|
(6,521,760
|
)
|
|
|
12,178,034
|
|
|
Net cash used in financing activities from discontinued operations
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
(26,222,274
|
)
|
|
|
(6,521,760
|
)
|
|
|
12,178,034
|
|
|
|
|
Effect of exchange differences
|
|
|
|
1,250,198
|
|
|
|
268,605
|
|
|
|
187,662
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
8,274,835
|
|
|
|
(9,127,063
|
)
|
|
|
10,077,366
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
$
|
1,769,744
|
|
|
$
|
10,896,807
|
|
|
$
|
819,441
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
$
|
10,044,579
|
|
|
$
|
1,769,744
|
|
|
$
|
10,896,807
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
Interest paid
|
|
|
$
|
2,382,280
|
|
|
$
|
3,275,175
|
|
|
$
|
1,880,670
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
$
|
521,211
|
|
|
$
|
--
|
|
|
$
|
607,457
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non- cash investing and financing activities:
|
|
|
|
Transfer of properties held for sale to property & equipment
|
|
|
$
|
430,691
|
|
|
$
|
249,129
|
|
|
$
|
3,671,990
|
|
|
|
|
|
|
|
|
The accompanying notes are integral part of these consolidated financial statements.
F-7
GREAT
CHINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
1.
|
Description
of business
|
Nature of organization
Great China International Holdings, Inc., (the “Company “)
was incorporated in the State of Nevada on December 4, 1987, under the name of
Quantus Capital, Inc., and in 1992, it changed its name to Red Horse Entertainment
Corporation. Effective July 5, 2005, the Company completed the acquisition of
Silverstrand International Holdings Limited (“Silverstrand”), a Hong Kong limited
liability company, by issuing 10,102,333 shares of its common voting stock to the
former stockholders of Silverstrand in exchange for all of the capital stock of
Silverstrand. For financial reporting purposes the acquisition was treated as a
recapitalization of Silverstrand. On September 15, 2005, the Company changed its
name to Great China International Holdings, Inc. Prior to its acquisition of
Silverstrand, the Company was not engaged in active business operations.
Silverstrand was incorporated on September 30, 2004 in
Hong Kong Special Administrative Region, in the People’s Republic of China (“PRC”)
with an authorized capital of $12,820,513 divided into 100 million ordinary shares of par
value $0.12 per share.
During October of 2004, Silverstrand acquired all of the
outstanding capital of Shenyang Maryland International Industry Co., Limited
(Shenyang Maryland”) for $5,000,000, payable to its former owners as follows:
|
|
|
|
|
|
Ÿ
|
Jiang Fang as to $4,350,000;
|
|
|
Ÿ
|
Jiang Peng as to $500,000; and,
|
|
|
Ÿ
|
Pay $50,000 to each of Duan Jing Shi, Li Guang Hua and Wang Li Rong
|
This transaction was treated as a recapitalization of
Shenyang Maryland for financial reporting purposes and the excess purchase was
treated as dividends to shareholders.
On November 23, 2004 the Ministry of Commerce and Business
Registration issued a business registration certificate approving the
reclassification of Shenyang Maryland as a wholly owned foreign enterprise.
Pursuant to several agreements dated December 8, 2005
and December 28, 2005, the Company, through its subsidiaries, agreed to acquire
in 2006 a 100 percent interest in the land use rights for the Xita Project. First,
pursuant to a sale and purchase agreement dated December 8, 2005, subsequently
amended on December 28, 2005, the Company acquired, through Shenyang Maryland, 70
percent of the equity interest in Shenyang Xinchao Development Co. Limited (“Xinchao”),
a Sino-Foreign joint venture corporation that owns approximately 66 percent of the
land use rights of the Xita Project, from Shenyang Yunfeng Real Estate Development Co.,
Limited (“Yunfeng”). The Company acquired the remaining 30 percent equity interest
in Xinchao through Silverstrand from Sapphire Corporation Limited on December 28,
2005.
The remaining approximately 34 percent interest in the
land use rights of the Xita Project is held by Shenyang Yindu Property Co.,
Limited (“Yindu”), also a Sino-Foreign joint venture. Pursuant to agreements dated
December 28, 2005, Shenyang Maryland acquired 70 percent interest in Yindu from
Yungfeng, and Silverstrand acquired 30 percent interest in Yindu from Sapphire.
Following the closing of these transactions, the Company holds, through its
subsidiaries, 100 percent interest in the land use rights comprising the Xita
Project.
Shenyang Xinchao Property Company Limited (“Xinchao”) was
registered on August 16, 2005 in Shenyang, Liaoning Province, in the PRC with a
registered capital of $12,330,456 (RMB 100,000,000) and a defined period of existence
of 11 years to August 15, 2016. Shenyang Yindu Property Company Limited (“Yindu”)
was registered on August 16, 2005 in Shenyang, Liaoning Province, in the PRC with
a registered capital of $6,615,228 (RMB 50,000,000) and a defined period of existence of
11 years to August 15, 2016.Xinchao and Yindu were formed to develop a certain
tract of property located in the Heping District of Shenyang, and will feature a
construction area of almost 500,000 square meters with a linear site area of
approximately 101,000 square meters. The local government of Heping District of
Shenyang received back the land use rights of
F-8
the
Xita project because of new developing plan of the district. Heping District
refunded the land usage right paid by Xinchao and reimbursed the development cost
incurred by Xinchao.
Shenyang
Jitian Property Company Limited (“Jitian“) was registered on February 22, 2006 in
Shenyang Liaoning Province, in the PRC with a registered capital of $616,523
(Rmb.5,000,000) and a defined period of existence of 15 years to February 22, 2021.
On March 7, 2006, the registered capital increased to $20,000,000 from
$616,523. Jitian was formed to develop a certain tract of property located in
Chessboard Mountain Tourism Development District of Shenyang, China.
In
December, 2006, Silverstrand completed an agreement for the sale of all of the
outstanding equity interest in Shenyang Jitian Property Company, Ltd., (“Jitian”).
Under
the agreement Beijing Capital Land Limited and Reco Ziyang Pte Limited purchased Jitian
from Silverstrand in exchange for a total cash payment of $1,399,970 and assumption
of all bank debt incurred by Jitian in connection with the acquisition of Galaxy
Bay, which will result in a release of guaranties provided by Shenyang Maryland.
On
August 7, 2007, the Company completed the acquisition of all of the issued share
capital of Loyal Best Property Development Limited (“Loyal Best”), a Hong Kong
limited company, from Gentle Knight Limited (“GKL”).
Loyal
Best is the sole owner of an entity called Shenyang Loyal Best Hunnan Property
Development Limited (“Shenyang Loyal Best”), a wholly owned foreign enterprise that
is a party to a Confirmation Letter of Auction with respect to a parcel of land located
at the center area of Hunnan New Zone in the city of Shenyang, China (the “Project”).
Immediately after acquisition, the Company decided to sell Loyal Best at a gain.
The
Company, through its wholly-owned subsidiary - Silverstrand, transferred 100% of
the issued share capital of Loyal Best Property Development Limited to Celebrities
Realestate Development Group Co., Ltd. in exchange for the payment of approximately
$48.70 million(360 million Chinese yuan). The transaction was closed on December
15, 2007. As of December 31, 2007, the Company received $18 million out of the total
$48.70 million. Subsequently in April 2008, the Company received the remaining
balance amounting to $30.70 million on disposal of subsidiary.
The
Company engages in the development and sale of high quality real estate properties and
developed residential and commercial properties includes Maryland building,
President buildings, Qiyuan new village, Peacock Garden, and Chenglong Garden. The
Company also engages in rental of commercial buildings in the City of Shenyang,
China. Shenyang Maryland, the Company’s indirect wholly-owned subsidiary, was
one of the first private property developers and retailers in China. For the year ended
December 31, 2007, the proceeds from the sales of properties constituted 45%
percent of the total revenue, with the remaining revenue consisting primarily
of rental income. For the year ended December 31, 2006, the proceeds from the
sales of properties constituted 57 percent of the total revenue, with the
remaining revenue consisting primarily of rental income. For the year ended December
31, 2005, the proceeds from the sales of properties constituted 79 percent of the
total revenue, with the remaining revenues consisting primarily of rental income.
|
2.
|
Summary
of significant accounting policies
|
The
accompanying consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. The
Company’s functional currency is the Chinese Renminbi (CNY); however the
accompanying consolidated financial statements have been translated and presented
in United States Dollars ($) on the basis set forth below.
The
following is a summary of significant accounting policies:
Principles
of Consolidation
– All significant inter-company transactions and balances within
the Company are eliminated in consolidation.
Cash
and equivalents
– The Company considers all highly liquid debt instruments purchased
with maturity period of three months or less to be cash equivalents. The carrying
amounts reported in the accompanying consolidated balance sheet for cash and cash
equivalents approximate their fair value. Substantially all of the Company’s cash
is held in the PRC and is not protected by FDIC or any other form of insurance.
F-9
Accounts
receivable
- Provision is made against accounts receivable to the extent which they
are considered to be doubtful. Accounts receivable in the balance sheet is stated
net of such provision.
Allowance
for Doubtful Accounts
– The Company maintains reserves for potential credit losses on
accounts receivable. Management reviews the composition of accounts receivable
and other receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves. As of December 31,
2007 and 2006, the Company reserved $5,174,895 and $1,443,476 respectively.
Advances
from buyers
– Advances from buyers represents prepayments from buyers on properties on
which sales revenues have not yet been recognized for financial reporting purposes.
Properties
held for sale
– The Company capitalizes as properties held for sale, the direct
construction and development costs, property taxes, interest incurred on
costs related to land under development and other related costs (i.e. engineering,
surveying, landscaping, etc.) until the property reaches its intended use. At
December 31, 2007 and 2006, properties held for sale amounted to $7,696,437 and
$10,620,550 respectively.
Property
and equipment
– Property and equipment is being depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the straight-line
basis over useful lives as follows:
|
|
|
|
|
|
Building and land use rights
|
8-26 years
|
|
|
Leasehold improvements
|
20 years
|
|
|
Equipment
|
5 years
|
|
|
Motor vehicles
|
5 years
|
|
|
Office furniture and fixtures
|
5 years
|
As
of December 31, 2007 Property, Plant & Equipment consist of the following:
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
58,605,918
|
|
|
|
Automobile
|
|
|
1,115,768
|
|
|
|
Office equipment & furnitures
|
|
|
948,066
|
|
|
|
Other
|
|
|
10,930
|
|
|
|
|
|
|
60,680,682
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(10,048,346)
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
50,632,336
|
|
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2007, 2006 and 2005 totaled $2,343,721,
$2,051,664 and $2,030,896 respectively.
Repairs
and maintenance costs are normally charged to the statement of operations in the
year in which they are incurred. In situations where it can be clearly
demonstrated that the expenditure has resulted in an increase in the future economic
benefits expected to be obtained from the use of the asset, the expenditure is
capitalized as an additional cost of the asset.
Property
and equipment are evaluated annually for any impairment in value. Where the
recoverable amount of any property and equipment is determined to have declined
below its carrying amount, the carrying amount is reduced to reflect the decline in
value. There were no property and equipment impairments recognized during the years
ended December 31, 2007, 2006 and 2005.
As
of December 31, 2007 fixed assets totaling $37,279,344 have been pledged as
securities to various banks in respect of borrowings totaling $30,233,196 and
mortgage loans of $485,069.
Construction-in-progress
– Properties currently under development are accounted for as
construction-in-progress. Construction-in-progress is recorded at acquisition
cost, including land rights cost, development expenditure, professional fees and
the interest expenses capitalized during the course of construction for the purpose of
financing the project. Upon completion and readiness for use of the project, the
cost of construction-in-progress is to be transferred to properties held for sale.
F-10
Construction-In-Progress
is valued at the lower of cost or market. Management evaluates the market value of its
properties on a quarterly basis by comparing selling prices of its properties with
those of other equivalent properties in the vicinity offered by other developers
reduced by anticipated selling costs and associated taxes. In the case of
construction in progress, management takes into consideration the estimated
cost to complete the project when making the lower of cost or market
calculation.
As
of December 31, 2007 and 2006, the Company had construction-in-progress amounting $0 and
$9,372,189 respectively.
Revenue
Recognition
Real
estate sales
Real
estate sales are reported in accordance with the provisions of SFAS No. 66, “Accounting
for Sales of Real Estate”. Profit from the sales of development properties,
less 5% business tax, is recognized by the full accrual method when the sale is
consummated. A sale is not considered consummated until (1) the parties are
bound by the terms of a contract, (2) all consideration has been exchanged,
(3) any permanent financing of which the seller is responsible has been arranged,
(4) all conditions precedent to closing have been performed, (5) the seller does
not have substantial continuing involvement with the property, and (6) the usual
risks and rewards of ownership have been transferred to the buyer. Sales transactions not
meeting all the conditions of the full accrual method are accounted for using the
deposit method of accounting. Under the deposit method, all costs are capitalized
as incurred, and payments received from the buyer are recorded as a deposit liability.
Real estate rental income, less 5% business tax, is recognized on the straight-line
basis over the terms of the tenancy agreements.
For
land sales, the Company recognizes the revenue when title of the land development right
is transferred and collectability is assured.
For
the reimbursement on infrastructure costs, the Company recognizes the income(loss),
which is at the fair market value agreed between the Company and the PRC
government, when they enter into a binding agreement with the government agreeing
on the reimbursement.
Real
Estate Capitalization and Cost Allocation
Real
estate held for development or sale consists of residential and commercial units under
construction and units completed. Construction in progress includes costs
associated in development and construction of the Xita project
Real
estate held for development or sale is stated at cost or estimated net realizable value,
whichever is lower. Costs include land and land improvements, direct
construction costs and development costs, including predevelopment costs,
interest on indebtedness, real estate taxes, insurance, construction overhead
and indirect project costs. Selling and advertising costs are expensed as incurred.
Total estimated costs of multi-unit developments are allocated to individual units
based upon specific identification methods.
If
the real estate is determined to be impaired, it will be written down to its fair
market value. Real estate held for development or sale costs include the cost
of land use rights, land development and home construction costs, engineering costs,
insurance costs, wages, real estate taxes, and interest related to development
and construction. All costs are accumulated by specific projects and allocated to
residential and commercial units within the respective projects. The Company leases the
land for the residential unit sites under land use rights with various terms from
the government of the PRC. The Company evaluates the carrying value for impairment
based on the undiscounted future cash flows of the assets. Write-downs of inventory
deemed impaired would be recorded as adjustments to the cost basis.
No
depreciation is provided for construction in progress.
Capitalization
of Interest
In
accordance with SFAS 34, interest incurred during construction is capitalized to
construction in progress. All other interest is expensed as incurred. During the
year ended December 31, 2007, the Company did not have any construction therefore no
interest was capitalized.
F-11
Other
income
Other
income consists of land leveling income, which was one-time service performed which was
requested by our customers and gain on settlement of debt. These revenues are
recognized when the services have been performed and the settled amount has been paid
in accordance with the terms of the agreement.
Foreign
currencies
- The Company’s principal country of operations is in The People’s
Republic of China. The financial position and results of operations of the
Company are determined using the local currency (“Renminbi” or “Yuan”)
as the functional currency. The results of operations denominated in foreign
currency are translated at the average rate of exchange during the reporting
period.
Assets
and liabilities of the Company have been translated at year- end exchange rates,
while revenues and expenses have been translated at average exchange rates in
effect during the year. Resulting cumulative translation adjustments have been
recorded as other comprehensive income (loss) as a separate component of
stockholders' equity.
Equity
denominated in the functional currency is translated at the historical rate of
exchange at the time of capital contribution. All translation adjustments
resulting from the translation of the financial statements into the reporting currency
(“US Dollars”) are dealt with as an exchange fluctuation reserve in
shareholders’ equity.
Earnings
Per Share
– Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average number of
common shares and dilutive potential common shares outstanding during the period.
As
of December 31, 2007 and 2006, there were no outstanding securities or other contracts
to issue common stock, such as options, warrants or conversion rights, which would
have a dilutive effect on earnings per share as the effect of options outstanding at
that time was anti- dilutive.
Fair
value of financial instruments
– The carrying amounts of certain financial
instruments, including cash, accounts receivable, commercial notes receivable,
other receivables, accounts payable, commercial notes payable, accrued expenses, and
other payables approximate their fair values as at December 31, 2007 and 2006,
because of the relatively short-term maturity of these instruments.
Use
of estimates
– The preparation of financial statements in accordance with generally
accepted accounting principles require 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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Stock-based
compensation
– In December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which requires the
measurement of all employee share-based payments to employees, including grants of
employee stock options, using a fair-value-based method and the recording of such
expense in the consolidated statements of operations. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s
interpretation of SFAS 123R and the valuation of share-based payments for
public companies. The Company has adopted SFAS 123R and related FASB Staff Positions
(“FSPs”) as of January 01, 2006 and recognizes stock-based compensation
expense using the modified prospective method.
Concentrations
of business and credit risk
– Financial instruments that potentially subject the
Company to concentrations of credit risk are cash, accounts receivable and other
receivables arising from its normal business activities. The Company places its
cash in what it believes to be credit-worthy financial institutions. The Company has
a diversified customer base, most of which are in China.
The
Company controls credit risk related to accounts receivable through credit
approvals, credit limits and monitoring procedures. The Company routinely
assesses the financial strength of its customers and, based upon factors surrounding the
credit risk, establishes an allowance, if required, for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit risk
exposure beyond such allowance is limited.
Recent
accounting pronouncements
– In September 2006, FASB issued SFAS 157 ‘Fair Value
Measurements’. This Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
F-12
the
Board having previously concluded in those accounting pronouncements that fair value is
the relevant measurement attribute. Accordingly, this Statement does not require
any new fair value measurements. However, for some entities, the application of
this Statement will change current practice. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on financial statements.
In
September 2006, FASB issued SFAS 158 Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of
a business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. An employer with
publicly traded equity securities is required to initially recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006. An
employer without publicly traded equity securities is required to recognize the
funded status of a defined benefit postretirement plan and to provide the
required disclosures as of the end of the fiscal year ending after June 15, 2007.
However, an employer without publicly traded equity securities is required to
disclose the following information in the notes to financial statements for a
fiscal year ending after December 15, 2006, but before June 16, 2007, unless it
has applied the recognition provisions of this Statement in preparing those
financial statements:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. The date the employer plans to adopt the recognition provisions of this Statement,
if earlier.
The
requirement to measure plan assets and benefit obligations as of the date of the
employer’s fiscal year-end statement of financial position is effective
for fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on financial statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets and
liabilities. The management is currently evaluating the effect of this
pronouncement on financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for the Company’s fiscal
year beginning October 1, 2009. Management is currently evaluating the effect of
this pronouncement on financial statements.
In
March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. The new
standard also improves transparency about the location and amounts of derivative
instruments in an entity’s financial statements; how derivative instruments and
related hedged items are accounted for under Statement 133; and how derivative
instruments and related hedged items affect its financial
F-13
position,
financial performance, and cash flows. Management is currently evaluating the effect of
this pronouncement on financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”.
This Statement replaces SFAS No. 141, Business Combinations. This Statement
retains the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how the
acquirer: a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; b) recognizes and measures the goodwill acquired in the business combination
or a gain from a bargain purchase and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS No. 141(R) will apply
prospectively to business combinations for which the acquisition date is on
or after Company’s fiscal year beginning October 1, 2009. While the Company has
not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will
have on its consolidated financial statements, the Company will be required to
expense costs related to any acquisitions after September 30, 2009. The management
is currently evaluating the effect of this pronouncement on financial statements.
Corrections
of Errors – Two significant errors were identified during the quarter ended
June 30, 2006, both of which will be recorded as adjustments to the appropriate
prior accounting periods as required by SFAS 154.
The
first error involved the inaccurate estimation of construction costs on
previously completed construction projects. Construction costs were
underestimated by $9,653,828 as detailed below:
|
|
|
|
|
|
|
|
|
|
Peacock Garden
|
$
|
170,121
|
|
|
|
|
Chenglong Garden
|
|
1,564,231
|
|
|
|
|
President Building
|
|
7,919,476
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
9,653,828
|
|
Of
this balance $2,565,718 represented additional cost on units which had previously been
sold, $2,446,610 of which were on units sold in prior fiscal years. In addition,
the remaining balance of $7,088,110 should have been capitalized, resulting in the
understatement of depreciation expense in the amount of $745,157 of which
$594,041 was related to periods prior to January 1, 2006.
The
second error was the recording of common area costs on the President Building in the
amount of $2,640,066 in properties held for resale rather than allocating the
costs to the usable space. Correction of this error resulted in a charge against
prior year’s earnings in the amount of $432,492 and increased depreciation
expense in the current year of $104,420.
The
cumulative effect of the correction of the above two errors was a reduction in
earnings of $661,469 and $582,525, for the years ended December 31, 2005 and
2004, respectively. Basic and diluted earnings per share was decreased by $0.06 for
both of the years ended December 31, 2005 and 2004.
Retained
earnings as of December 31, 2004 was reduced by $2,229,149 related to the corrections of
these prior errors.
These
changes had no effect on income taxes as the Company had losses during the years ended
December 31, 2006 and 2005 and due to net operating loss carry forwards. As of
December 31, 2006 the Company had a net deferred asset of approximately $1,000,000
related to net operating loss carry forwards of Enterprise Income Taxes in the
PRC as of December 31, 2006. This deferred tax asset was subject to a 100%
valuation allowance at December 31, 2006.
The
Company has amended the December 31, 2005 Form 10-KSB to reflect the correction of these
errors retrospectively. The Company is in the process of amending the
September 30, 2005 Form 10-QSB, the March 31, 2006 Form 10-QSB and the Form 8-K/A
dated September 30, 2005 to reflect the correction of these errors retrospectively.
Reclassifications
– Certain amounts in the 2006 financial statements have been reclassified to
conform to the 2007 presentation. These reclassifications had on effect on
previously reported results of operations or retained earnings.
F-14
|
3.
|
Receivable
on disposal of subsidiaries
|
The
amount of receivable on disposal of subsidiaries as of December 31, 2007 and 2006 are
$30,701,957 and $0 for the year ended December 31, 2007 and 2006 respectively.
The receivable balance was non interest bearing, unsecured and due on demand. The
Company subsequently received the entire balance on disposal of subsidiary amounting to
$30,701,957 as of March 31, 2008.
|
4.
|
Properties
held for resale
|
Properties
held for resale at December 31, 2007 and 2006 by project is as follows:
|
|
2007
|
|
2006
|
|
|
Qiyun New Village
|
|
|
$
|
1,595,366
|
|
|
$
|
1,795,644
|
|
|
|
Peacock Garden
|
|
|
|
231,244
|
|
|
|
312,584
|
|
|
|
Chenglong Garden
|
|
|
|
5,250,960
|
|
|
|
7,712,615
|
|
|
|
President Building
|
|
|
|
204,801
|
|
|
|
412,167
|
|
|
|
Maryland Building
|
|
|
|
251,358
|
|
|
|
234,322
|
|
|
|
Others
|
|
|
|
162,708
|
|
|
|
153,218
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
7,696,437
|
|
|
$
|
10,620,550
|
|
|
|
|
|
|
|
|
As
of December 31, 2007 and 2006, the carrying values of stock of properties of $484,764 and
$10,605,909 have been pledged as security for the Company’s bank loans and
mortgage loans.
The
Company introduced a “Five-year Trial Accommodation Scheme” (the “Scheme”)
to attract potential buyers when initial sales at the project did not meet
expectations. Under the Scheme, property buyers were required to pay a 10% refundable
deposit based on the sale price of the property or $6,039 (RMB50,000) and
another 20%, based on the sale price of the property which is non-refundable,
over 5 years by monthly installments, totaling 30% throughout the trial period.
The remaining 70% of the consideration shall be due and payable immediately
after the trial period when the property buyers exercise their option whether or not
to complete the purchase. If the buyer chooses not to buy the property, the 10%
refundable deposit or $6,039 (RMB 50,000) will be refunded to the buyers (less any
unpaid rental due) and monthly installments received over the 5-year trial period will
have been recognized as rental income in the year in which they arose. As of
December 31, 2007, $733,774 worth of properties held for sale in Qiyun New Village
were occupied by individuals who agreed to buy the properties without fully
having paid the purchase consideration. $196,103 was advance from buyers for the
Scheme as of December 31, 2007.
|
5.
|
Amounts
due to related parties
|
The
amounts due to directors and related parties at December 31, 2007 and 2006 are as follows:
|
|
2007
|
|
2006
|
|
|
Amounts due to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Jiang Fang
|
|
|
$
|
--
|
|
|
$
|
(418,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to other related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gong Wang Fu
|
|
|
|
--
|
|
|
|
(276,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to affiliates, net
|
|
|
$
|
--
|
|
|
$
|
(695,002
|
)
|
|
|
|
|
|
|
|
Amounts
due to Frank Jiang Fang were unsecured, had no interest, and due on demand. The amount
due to Frank Jiang Fang was paid in 2007.
Amounts
due to Gong Wang Fu was adjusted against rent payment in the year 2007.
F-15
|
6.
|
Accounts
payable and accrued expenses
|
Accounts
payable and accrued expenses comprised of following as of December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Accounts payable
|
|
|
$
|
6,090,281
|
|
|
$
|
6,544,877
|
|
|
Payroll and welfare payable
|
|
|
|
71,090
|
|
|
|
38,424
|
|
|
Interest and other accrued expenses
|
|
|
|
2,454,043
|
|
|
|
1,529,886
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
8,615,414
|
|
|
$
|
8,113,187
|
|
|
|
|
|
|
Tax
payables consist of the following as of December 31, 2007 and 2006:
|
|
2007
|
2006
|
|
Income tax payable
|
|
|
$
|
5,944,954
|
|
|
$
|
--
|
|
|
Business tax
|
|
|
|
519,634
|
|
|
|
517,796
|
|
|
Land VAT payable
|
|
|
|
2,069,781
|
|
|
|
773,462
|
|
|
Other levies
|
|
|
|
17,947
|
|
|
|
(207,493
|
)
|
|
|
|
|
|
|
Total
|
|
|
$
|
8,552,316
|
|
|
$
|
1,083,765
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from Banks – In default
|
|
|
$
|
9,931,413
|
|
|
$
|
13,744,244
|
|
|
|
|
|
|
|
|
|
Loans from bank – due within 12 months
|
|
|
|
14,814,815
|
|
|
|
15,345,270
|
|
|
|
|
Mortgage loans
|
|
|
|
485,069
|
|
|
|
--
|
|
|
|
|
|
|
|
Bank loans purchased by asset management company
|
|
|
|
--
|
|
|
|
22,218,670
|
|
|
|
|
|
|
|
Total current loans payable
|
|
|
$
|
25,231,297
|
|
|
$
|
51,308,184
|
|
|
|
|
|
|
The
Company acted as an agent and borrowed mortgage loans amounting $485,069 as of
December 31, 2007 under its employees’ name using properties held by the
Company. All mortgage loans were cleared till March 31, 2008 and the pledged assets
were released too.
On
June 22, 2006 the Company entered into a settlement agreement with a bank with
respect to $8,230,453 ($7,544,582 as of December 31, 2007) of past due notes.
In accordance with the terms of this settlement agreement, $1,228,163 loan
interest accrued as of December 31, 2007 may be waived if the Company repays the
loan principle per the installments schedule. The Company is required to pay back
the loan principal in a three step installments started with the first payment amounting
$685,871 due on December 20, 2007 according to the agreement. The Company paid the
first installment on time as of December 31, 2007. Assets of the Company are
pledged against these bank loans.
Subsequently
in February 4th, 2008, the Company paid off $2,386,831 bank loan which was in default as
of December 31, 2007.
As
of December 31, 2007, 2006 and 2005, the Company incurred interest expense amounting
$3,103,715, $2,397,927 and $2,502,092 respectively.
F-16
The
Company had a default loan amounting to $23,166,667 with due dates in 2003 and 2004.
The defaulted loans borrowed from Industrial and Commercial Bank of China
were assigned to a third party. The Company entered into an agreement with the third
party on July 30, 2007 to buy back the loans for $7,581,333 . As of September 30,
2007, the total consideration of $7,581,333 was fully paid. According to the
agreement, the outstanding interest payable associated with the non-performing loan
amounting to $439,014 was also forgiven as of December 31, 2007. The assets pledged
with the loan were released before the year ended 2007. As of December 31, 2007,
the Company realized gain on settlement of debt amounted to $11,115,201.
|
9.
|
Long-term
debts – secured
|
|
|
2007
|
|
2006
|
|
Long term debts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
$
|
5,486,968
|
|
|
$
|
--
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
--
|
|
|
|
2,427,541
|
|
|
Less: Current portion of
|
|
|
|
long-term debts
|
|
|
|
--
|
|
|
|
(428,076
|
)
|
|
|
|
|
|
|
|
|
|
|
Long-term debts
|
|
|
$
|
5,486,968
|
|
|
$
|
1,999,465
|
|
|
|
|
|
|
On
June 18, 2007 the Company obtained a loan from a bank for $5,486,968 at an interest rate
of 8.775% before September 15, 2007 and 9.711% after September 15, 2007, and is
due on June 12, 2009. The loan is secured by fixed assets and land use rights the
Company owned.
Maturities
of long-term debt including mortgage loans for each of the next five years and thereafter
are as follows:
|
|
Amount
|
|
|
|
|
|
|
2008
|
$
|
--
|
|
|
2009
|
|
5,486,968
|
|
|
|
|
Total
|
$
|
5,486,968
|
|
In
accordance with the Chinese Company Law, the Company has established a policy to
reserve 10% of its annual net income as statutory reserve. The Company reserved
$638,128 and $0 for the years ended December 31, 2007 and 2006 respectively.
|
11.
|
Gain
on disposal of subsidiary
|
On
August 7, 2007, the Company completed the acquisition of all of the issued share
capital of Loyal Best Property Development Limited (“Loyal Best”), a
Hong Kong limited company, from Gentle Knight Limited (“GKL”). Loyal Best
was the sole owner of an entity called Shenyang Loyal Best Hunnan Property
Development Limited (“Shenyang Loyal Best”), a wholly owned foreign
enterprise that was a party to a Confirmation Letter of Auction with respect to
a parcel of land located at the center area of Hunnan New Zone in the city of
Shenyang, China (the “Project”). Shenyang Loyal Best paid a land transfer
fee of US$20,000,000 for the Project. The acquisition was closed on August 7, 2007.
The
consideration of acquisition comprised as follow:
|
|
Amount
|
|
|
|
|
|
|
Consideration of acquisition
|
$
|
4,010,000
|
|
|
Net assets of Loyal Best at acquisition
|
|
451,556
|
)
|
|
|
|
Goodwill on acquisition
|
|
4,461,556
|
|
F-17
Immediately
after acquisition, the Company decided to sell Loyal Best at a gain. The Company,
through its wholly-owned subsidiary - Silverstrand, transferred 100% of the issued
share capital of Loyal Best Property Development Limited to Celebrities Realestate
Development Group Co., Ltd. in exchange for the payment of approximately $48.70
million. The transaction was closed on November 30, 2007. As of December 31, 2007,
the Company received $18 million out of the total $48.34 million. Subsequently, the
Company received $30.70 million from sale of Loyal Best.
As
of December 31, 2007, the Company had a payable to disposed subsidiaries amounting to
$10,494,449 and commission payable amounting to $8,898,502 which was related to
disposal of subsidiaries.
Following
is the detail information for gain on disposal of Loyal Best:
|
|
Amount
|
|
Disposal consideration
|
|
|
$
|
48,701,957
|
|
|
|
|
Goodwill on acquisition
|
|
|
|
(4,461,556
|
)
|
|
Net assets of Loyal Best at disposal
|
|
|
|
(5,694,446
|
)
|
|
Commission fee and others
|
|
|
|
(9,549,580
|
)
|
|
Total cost of investment at disposal
|
|
|
|
(19,705,582
|
)
|
|
|
|
Gain on disposal of Loyal Best
|
|
|
$
|
28,996,375
|
|
|
|
|
|
Income tax
|
|
|
|
(5,049,321
|
)
|
|
Gain on disposal of Loyal Best, net
|
|
|
$
|
23,947,054
|
|
|
|
|
Loss of discontinued operations
|
|
|
$
|
(61,271
|
)
|
In
December, 2006, Silverstrand completed an agreement for the sale of all of the
outstanding interest in Shenyang Jitian Property Company, Ltd., (“Jitian”).
Under
the agreement Beijing Capital Land Limited and Reco Ziyang Pte Limited purchased Jitian
from Silverstrand in exchange for a total cash payment of $1,399,970 and assumption
of all bank debt incurred by Jitian in connection with the acquisition of Galaxy
Bay, which will result in a release of guaranties provided by Shenyang Maryland
International.
The
components of the loss from discontinued operations are presented below:
|
|
Period Ended
November 16, 2006
|
|
Administrative expenses
|
|
|
$
|
69,805
|
|
|
Operating and selling expenses
|
|
|
|
538,667
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
(608,472
|
)
|
|
Other expense
|
|
|
|
Interest and finance costs
|
|
|
|
(5,076
|
)
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
$
|
(603,395 )
|
|
|
|
|
|
Construction in progress
|
|
|
$
|
75,612,783
|
|
|
|
|
|
Other current assets
|
|
|
|
3,159,170
|
|
|
Long term debt
|
|
|
|
(76,726,343
|
)
|
|
Other current liabilities
|
|
|
|
(1,216,872
|
)
|
|
|
|
|
|
Net assets sold
|
|
|
|
828,738
|
|
|
|
|
|
Sales proceeds
|
|
|
|
1,399,970
|
|
|
|
|
|
|
Gain from disposal of subsidiary
|
|
|
$
|
571,232
|
|
|
|
|
|
F-18
|
12.
|
Loss
on Termination Project
|
On
July 20, 2007, Xinchao and Yindu ceased development on Xi Ta project and disposed off
the associated assets. Shenyang Heping District Investment Promotion Bureau of
local government, the agency overseeing development of the Xi Ta area, is expanding the
project and, as a consequence of the expansion, reached an agreement with the
Company to re-acquire the land use rights for the Xita Project in exchange for
refunding the land transfer fee of $4,437,397 and reimbursing the Company for amounts
expended on the development in the amount of $1,646,024. On July 20, 2007, the
local government approvals and procedures were completed for transferring the
land use rights back to the local government and the Company received reimbursement of
the land transfer fee and the amount expended on the development in August 2007.
As of December 31, 2007, the Company had loss on termination project amounted to
$1,504,604.
On
January 31, 2007, the Company issued a non-incentive stock option for 10,000 shares
to a non-employee director with an exercise price of $4.65 that will expire on
January 31, 2009. The options vested and became exercisable over a term of two
years. Compensation expense as of December 31, 2007 related to the outstanding
stock options was $20,524.
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
2.00%
|
|
|
Expected life of the options
|
2 year
|
|
|
Expected volatility
|
83.76%
|
|
|
Expected dividend yield
|
0 %
|
Options
outstanding at December 31, 2007 and related weighted average price and intrinsic value
is as follows:
Exercise
Prices
|
|
Total
Options
Outstanding
|
|
Weighted
Average
Remaining
Life
(Years)
|
|
Total
Weighted
Average
Exercise Price
|
|
Options
Exercisable
|
|
Weighted
Average
Exercise Price
|
|
Aggegrate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.65
|
|
|
|
10,000
|
|
|
|
0.54
|
|
|
$
|
4.65
|
|
|
|
4,583
|
|
|
$
|
4.65
|
|
|
|
--
|
|
On
March 3, 2006 the Company issued to its Chief Executive Officer options to purchase
572,491 shares of its common stock at a purchase price of $6 per share. The options
vest in five equal installments beginning with the date of issuance in March 2006 and
the following four anniversary dates. The options are exercisable over a term of
five years from the date of vesting. In March 2007 the Chief Executive Officer left
the Company and agreed to surrender all the vested option shares.
On
March 15, 2006 the Company issued to an employee options to purchase 245,350 shares of
its common stock at a purchase price of $6.00 per share. The options vest in five
equal increments beginning with the date of issuance in March 2006 and the following
four anniversary dates. The options are exercisable over a term of five years
from the date of vesting. In November 2006 the employee left the Company and during
2007 agreed to surrender all the vested options shares.
On
May 18, 2006 the Company issued to its Chief Financial Officer options to purchase
10,000 shares of its common stock at a purchase price of $11.00 per share. The
options vest immediately upon issuance and are exercisable over the one year period from
the date of issuance. The Chief Financial Officer subsequently left the Company and
has surrendered all options that were issued.
F-19
On
October 1, 2006 the Company issued to an employee options to purchase 10,000 shares of
its common stock at a purchase price of $7.00 per share. The options vest in one
year from the date of issuance and are exercisable over the one year period from the
date of issuance. These options were subsequently surrendered in February 2007.
|
|
|
|
Expected volatility
|
25%
|
|
|
|
|
Weighted-average volatility
|
25%
|
|
|
|
|
Expected dividends
|
0%
|
|
|
|
|
Expected term (in years)
|
1 to 5 years
|
|
|
|
|
Risk-free rate
|
4.5%
|
A
summary of option activity as of December 31, 2007, and changes during the years then
ended is presented below:
Options
|
Shares
|
|
|
|
|
|
|
Outstanding at January 1, 2007
|
173,568
|
|
|
|
|
|
|
Granted
|
10,000
|
|
|
|
|
|
|
Exercised
|
--
|
|
|
|
|
|
|
Forfeited or expired
|
173,568
|
|
|
Outstanding at December 31, 2007
|
10,000
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
4,583
|
|
The
Company is registered in the State of Nevada and has operations in primarily three tax
jurisdictions – the People’s Republic of China, Hong Kong and the United
States. For operation in the US, the Company has incurred net accumulated operating
losses for income tax purposes The Company believes that it is more likely than not
that these net accumulated operating losses will not be utilized in the future.
Therefore, the Company has provided full valuation allowance for the deferred tax assets
arising from the losses at these locations as of December 31, 2007. Accordingly, the
Company has no net deferred tax assets.
The
provision for income taxes from continuing operations on income consists of the
following for the years ended December 31, 2007 and 2006:
|
|
2007
|
2006
|
|
|
|
|
|
US current income tax expense (benefit)
|
--
|
--
|
|
Federal
|
$
--
|
$
--
|
|
State
|
--
|
--
|
|
|
|
|
|
HK current income tax expense
|
--
|
--
|
|
PRC current income tax expense
|
1,514,810
|
--
|
|
|
|
|
|
Total provision for income tax
|
$ 1,514,810
|
$
--
|
|
|
|
|
F-20
There
was also income tax expense amounting $5,049,321 calculated at 17.5% of gain on disposal
of subsidiaries as of December 31, 2007, which has been net of gain on disposal of
subsidiaries.
The
following is a reconciliation of the provision for income taxes at the U.S. federal
income tax rate to the income taxes reflected in the Statement of Operations:
|
|
|
|
|
|
|
|
|
2007
|
2006
|
|
|
|
Tax expense (credit) at statutory rate - federal
|
34%
|
34%
|
|
|
|
State tax expense net of federal tax
|
6%
|
6%
|
|
|
|
Changes in valuation allowance
|
(40%)
|
(40%)
|
|
|
|
Foreign income tax - HK
|
0%
|
0%
|
|
|
|
Foreign income tax - PRC
|
30%
|
30%
|
|
|
|
Tax expense at actual rate
|
30%
|
30%
|
|
United
States of America
As
of December 31, 2007, the Company in the United States had approximately $159,995
in net operating loss carry forwards available to offset future taxable income.
Federal net operating losses can generally be carried forward 20 years. The deferred
tax assets for the United States entities at December 31, 2007 consists mainly of
net operating loss carry forwards and were fully reserved as the management
believes it is more likely than not that these assets will not be realized in the future.
The
following table sets forth the significant components of the net deferred tax assets
for operation in the US as of December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
2007
|
2006
|
|
|
|
Net operation loss (gain) carry forward
|
$ (278,840)
|
$ 605,302
|
|
|
|
Total deferred tax assets
|
121,111
|
31,099
|
|
|
|
Less: valuation allowance
|
(121,111)
|
(31,099)
|
|
|
|
Net deferred tax assets
|
$
--
|
$
--
|
|
|
15.
|
Other
comprehensive income
|
Balances
of related after-tax components comprising accumulated other comprehensive income (loss),
included in stockholders’ equity, at December 31, 2007 are as follows:
|
|
|
Foreign Currency
Translation
Adjustment
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
$
|
468,344
|
|
|
|
|
|
|
|
|
|
|
Change for 2006
|
|
|
|
1,000,202
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
$
|
1,468,546
|
|
|
|
|
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments
of an Enterprise and Related Information" requires use of the "management
approach" model for segment reporting. The management approach model is based on the
way a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any other
manner in which management disaggregates a company.
During
the years ended December 31, 2007 and 2006, the Company is organized into two main
business segments: (1) Property for sale, (2) Rental income and (3) Income of
management fee of commercial buildings.
F-21
The
following table presents a summary of operating information and certain year-end
balance sheet information for the years ended December 31, 2007 and 2006:
|
|
Years ended December 31
|
|
|
2007
|
|
2006
|
|
Revenues from unafiliated customers:
|
|
|
|
|
|
|
|
|
|
|
Selling of properties
|
|
|
$
|
4,378,993
|
|
|
$
|
7,205,954
|
|
|
|
|
|
|
|
Rental income
|
|
|
|
3,733,241
|
|
|
|
3,835,538
|
|
|
|
|
|
|
|
Management fee
|
|
|
|
1,563,394
|
|
|
|
1,696,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
9,675,627
|
|
|
$
|
12,738,293
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
Selling of properties
|
|
|
$
|
708,291
|
|
|
$
|
(964,434
|
)
|
|
|
|
|
|
|
Rental income
|
|
|
|
518,957
|
|
|
|
1,867,492
|
|
|
|
|
|
|
|
Management fee
|
|
|
|
(23,969
|
)
|
|
|
64,836
|
|
|
|
|
|
|
|
Corporation (1)
|
|
|
|
(7,098,244
|
)
|
|
|
(2,675,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
(5,894,965
|
)
|
|
$
|
(1,707,993
|
)
|
|
|
|
|
|
|
Net income (loss) before taxes:
|
|
|
|
|
|
|
|
|
Selling of properties
|
|
|
$
|
2,637,332
|
|
|
$
|
(964,434
|
)
|
|
|
|
|
|
|
Rental income
|
|
|
|
518,957
|
|
|
|
1,867,492
|
|
|
|
|
|
|
|
Management fee
|
|
|
|
(23,969
|
)
|
|
|
163,823
|
|
|
|
|
|
|
|
Corporation (1)
|
|
|
|
(1,177,571
|
)
|
|
|
(4,781,520
|
)
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
1,954,749
|
|
|
$
|
(3,714,639
|
)
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Selling of properties
|
|
|
$
|
5,350,282
|
|
|
$
|
8,283,595
|
|
|
|
|
|
|
|
Rental & management fee
|
|
|
|
49,953,769
|
|
|
|
39,026,429
|
|
|
|
|
|
|
|
Corporation (1)
|
|
|
|
45,167,178
|
|
|
|
22,619,281
|
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
100,471,229
|
|
|
$
|
69,929,305
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
Selling of properties
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
Rental & management fee
|
|
|
|
2,325,938
|
|
|
|
1,836,374
|
|
|
|
|
|
|
|
Corporation (1)
|
|
|
|
17,703
|
|
|
|
215,290
|
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
2,343,721
|
|
|
$
|
2,051,664
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
Selling of properties
|
|
|
$
|
79,187
|
|
|
$
|
--
|
|
|
|
|
|
|
|
Rental & management fee
|
|
|
|
5,765,432
|
|
|
|
69,275
|
|
|
|
|
|
|
|
Corporation (1)
|
|
|
|
4,878,509
|
|
|
|
972,919
|
|
|
|
|
|
|
|
Consolidated
|
|
|
$
|
10,723,128
|
|
|
$
|
1,042,194
|
|
|
|
|
|
|
(1).
Unallocated loss from Operating income (loss) and Net income (loss) before taxes are
primarily related to general corporate expenses.
F-22
HH Biotechnology (CE) (USOTC:HHBT)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
HH Biotechnology (CE) (USOTC:HHBT)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024
