Results of Operations
Comparison of operations for 2009 with 2008:
The Company recognized a net loss of $2,091,999 for 2009, compared to a net income $1,074,531for 2008, representing a decrease of $3,166,530 or 294.69%. Factors that contributed to this decrease are discussed below.
Sales revenues decreased by $1,015,536 or 10.48% to $8,674,684 for 2009 compared to $9,690,220 for 2008, mostly as a result of a decrease in real estate sales revenue by $1,237,285 or 33.63%. The decrease in real estate sales revenue was expected because the inventory of building units available for sale in the Companys projects has steadily declined as units were sold in prior periods. Revenue from rental and management activity increased by $221,749 or 3.69% for 2009 compared to 2008 as a result of the Companys focus on this rental and management activity during the economic downturn in 2009.
Cost of revenues is comprised primarily of depreciation expense of rental properties and cost of properties sold. Depreciation expense of rental properties increased by $127,055 or 4.64% to $2,867,781 for 2009 compared to $2,740,726 for 2008. This was primarily attributable to addition of renal properties towards the end of 2008. Cost of properties sold decreased by $ 949,631 or 22.81% to $3,404,835 for 2009 compared to $4,354,467 for 2008. This was primarily attributable to the decrease of real estate sales discussed above.
Selling expenses increased by $169,330 or 183.16% to $261,778 for 2009 compared to $92,448 for 2008. The main reason for this increase is that the Company increased advertising expense to improve building rentals and sales.
General and administrative expenses increased by $503,495 or 13.40% to $4,261,847 for 2009 compared to $3,758,351 for 2008. The main reason for this increase is that the Company reserves for potential credit losses on other accounts receivable that were not guaranteed or secured.
Depreciation expense decreased by
$63,989 or 26.24% to $179,900 for 2009 compared to $243,889 for 2008, because certain fixed assets reached the end of their useful life.
Land leveling income decreased by $901,374 or 29.1% for 2009 compared to $3,097,374 for 2008.
Gain on settlement of debts decreased by $1,036,076 or 100% compared to 2008, because there was no debt settlement transaction in 2009.
Gain on interest expense waived decreased by $1,006,722 or 100% compared to same period of 2008, because there was no interest waiver settlement transaction in 2009.
The other income decreased by $706,861 or 88.33% compared to $800,273 for 2008, this change mainly because there was a demolition compensation in 2008 and there is no such compensation in 2009.
Cash Flow Discussion
Net cash flows provided by operating activities for 2009 and 2008 were $2,066,478 and $11,155,995, respectively, a decrease of 81.48%. Less cash was generated from operations in 2009 primarily as a result of the much lower revenue from sales and dispositions of real estate and real estate investments as compared to 2008.
Net cash flows used in investing activities for 2009 was $330,110 compared to $51,742 of net cash provided by investing activities for 2008. The investing activity change was primarily due to the purchases of property and equipment related to our leasing and management services in the amount of $365,246 for 2009.
Net cash flows used in financing activities for 2009 was $0 compared to $(13,261,157) for 2008. The Company used cash in 2008 to make loan repayments in 2008. No loan repayments were made in 2009.
Liquidity and Capital Resources
Current liabilities exceeded
current assets by $26,189,297 as of December 31, 2009. The working capital deficit is a result of
short term loans in the total amount of $19,308,700, which represents bank borrowings secured by
certain of the Companys real estate assets that have a due dated in June and October 2010.
It has become common practice in the PRC for banks and companies to renegotiate loan extensions on
an annual basis. Lending banks customarily work out with borrowers loan extensions or
restructurings annually within the administrative guidelines of the government. The Company has no
reason to believe this practice will not continue so long as the banking customs in the PRC remain
unchanged, there are no significant changes in governmental regulation of the practice, the
security for the Companys loans retains adequate value, and the Company acts responsibly in