UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
x
ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended: December 31, 2007
o
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
Commission
file number: 000-32585
SUNRISE
REAL ESTATE GROUP, INC.
(Name
of
Small Business Issuer in its Charter)
Texas
|
|
6351
|
|
75-2713701
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer Identification No.)
|
Suite
701, No. 333, Zhaojiabang Road
Shanghai,
PRC 200032
(Address
of Principal Executive Offices) (Zip Code)
Issuer's
telephone number: + 86-21-6422-0505
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.
o
Check
whether the issuer(1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been subject
to
such filing requirements for the past 90 days. Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
x
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act): Yes
o
No
x
The
issuer's net revenues for its most recent fiscal year ended December 31, 2007
were US$8,101,324.
As
of May
9, 2008 the aggregate market value of the Common Stock held by non-affiliates,
14,334,375 shares of Common Stock, was $8,421,445 based on an average of the
bid
and ask prices of $0.5875 per share of Common Stock on such date.
The
number of shares outstanding of the issuer's Common Stock, $0.01 par value,
as
of May 9, 2008 was 23,691,925 shares.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
SUNRISE
REAL ESTATE GROUP, INC.
FORM
10-KSB
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
|
Description
of Business
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2
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Item
2.
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Description
of Property
|
8
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|
Item
3.
|
Legal
Proceedings
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8
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|
Item
4.
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Submission
of Matters to a Vote of Security Holders
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8
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PART
II
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|
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Item
5.
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Market
for Common Equity and Related Stockholder Matters
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9
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Item
6.
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Management's
Discussion and Analysis or Plan of Operation
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9
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Item
7.
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Financial
Statements
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23
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Item
8.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
39
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Item
8A.
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Controls
and Procedures
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39
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Item
8B.
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Other
Information
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40
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PART
III
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Item
9.
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Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance With Section 16(A) of the Exchange Act
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41
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Item
10.
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Executive
Compensation
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44
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|
Item
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
45
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|
Item
12.
|
Certain
Relationships and Related Transactions and Director
Independence
|
45
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Item
13.
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Exhibits
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46
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Item
14.
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Principal
Accountant Fees and Services
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46
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|
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
Corporate
History
Sunrise
Real Estate Group, Inc. ("SRRE") was incorporated in the State of Texas on
October 10, 1996, under the name of Parallax Entertainment, Inc (“Parallax”). On
October 28, 2003, Olympus Investment Corporation, a Brunei corporation, based
in
Taipei, Taiwan, purchased all of the 78,400 shares of common stock owned by
Yarek Bartosz, and then became the majority, 51% shareholder of SRRE. Effective
December 12, 2003, the name of SRRE, Parallax Entertainment, Inc., was changed
to Sunrise Real Estate Development Group, Inc. Also effective in December 2003,
the outstanding shares of common stock, 153,262 shares, underwent a reverse
split of one for five, resulting in 30,614 shares being issued and outstanding,
post reverse split. Thereafter, on December 27, 2003, SRRE sold in a private
placement to non-US persons 6,600,000 shares of common stock for $0.025 per
share, for an aggregate amount of $165,000. SRRE relied on the Regulation S
exemption from the registration requirements of the Securities Act of 1933
in
connection with this private placement.
On
April
25, 2006, Sunrise Estate Development Group, Inc. filed Articles of Amendment
with the Texas Secretary of State, changing the name of Sunrise Real Estate
Development Group, Inc. to Sunrise Real Estate Group, Inc., effective from
May
23, 2006.
Sunrise
Real Estate Development Group, Inc. (“CY-SRRE”) was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly
owned by Ace Develop Properties Limited (“Ace Develop”), of which Lin Chi-Jung,
an individual, is the principal and controlling shareholder. Shanghai Xin Ji
Yang Real Estate Consultation Company Limited (“SHXJY”) was established in the
People’s Republic of China (the “PRC”) on August 14, 2001 as a limited liability
company. SHXJY was originally owned by a Taiwanese company, of which the
principal and controlling shareholder was Lin Chi-Jung. On June 8, 2004, all
the
fully paid up capital of SHXJY was transferred to CY-SRRE. On June 25, 2004
SHXJY and two individuals established a subsidiary, namely, Suzhou Xin Ji Yang
Real Estate Consultation Company Limited (“SZXJY”) in the PRC, at which point in
time, SHXJY held a 90% equity interest in SZXJY. On December 24, 2004, SHXJY
acquired 85% of equity interest in Beijing Xin Ji Yang Real Estate Consultation
Company Limited (“BJXJY”), a PRC company incorporated on April 16, 2003 with
limited liability. On August 9, 2005, SHXJY sold a 10% equity interest in SZXJY
to a company owned by a director of SZXJY, and transferred a 5% equity interest
in SZXJY to CY-SRRE. Following the disposal and the transfer, CY-SRRE
effectively holds 80% equity interest in SZXJY.
On
November 24, 2006, CY-SRRE, SHXJY, a director of SZXJY and a third party
established a subsidiary, namely, Suzhou Shang Yang Real Estate Consultation
Company Limited (“SZSY”) in the PRC, with CY-SRRE holding a 12.5% equity
interest, SHXJY holding a 26% equity interest and the director of SZXJY holding
a 12.5% equity interest in SZSY. At the date of incorporation, SRRE and the
director of SZXJY entered into a voting agreement that SRRE is entitled to
exercise the voting right in respect of his 12.5% equity interest in SZSY.
Following that, SRRE effectively holds 51% equity interest in SZSY. On September
24, 2007, CY-SRRE sold a 5% equity interest in SZXJY to a company owned by
a
director of SZXJY. Following the disposal, CY-SRRE effectively holds 75% equity
interest in SZXJY. On November 1, 2007, SZXJY established a wholly owned
subsidiary, Suzhou Xin Ji Yang Real Estate Brokerage Company Limited (“SZXJYB”)
in the PRC as a limited liability company.
LIN
RAY
YANG Enterprise Ltd. (“LRY”) was established in the British Virgin Islands on
November 13, 2003 as a limited liability company. LRY was owned by Ace Develop,
Planet Technology Corporation (“Planet Tech”) and Systems & Technology
Corporation (“Systems Tech”). On February 5, 2004, LRY established a wholly
owned subsidiary, Shanghai Shang Yang Real Estate Consultation Company Limited
(“SHSY”) in the PRC as a limited liability company. On January 10, 2005, LRY and
a PRC third party established a subsidiary, Suzhou Gao Feng Hui Property
Management Company Limited (“SZGFH”), in the PRC, with LRY holding 80% of the
equity interest in SZGFH. On May 8, 2006, LRY acquired 20% of the equity
interest in SZGFH from the third party. Following the acquisition, LRY
effectively holds 100% of the equity interest in SZGFH. On September 11, 2007,
SHSY and other third parties established a subsidiary, namely, Suzhou Bin Fen
Nian Dai Administration Consultancy Company Limited (“SZBFND”) in the PRC, with
SHSY holding a 19% equity interest in SZBFND.
SHXJY,
SZXJY, BJXJY, SHSY, SZGFH, SZSY and SZXJYB commenced operations in November
2001, June 2004, January 2004, February 2004, January 2005, November 2006 and
November 2007 respectively. Each of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY
and
SZXJYB has been granted a twenty-year operation period from the PRC, which
can
be extended with approvals from relevant PRC authorities.
On
August
31, 2004, Sunrise Real Estate Group, Inc. (“SRRE”), CY-SRRE and Lin Chi-Jung, an
individual and agent for the beneficial shareholder of CY-SRRE, i.e., Ace
Develop, entered into an exchange agreement under which SRRE issued 5,000,000
shares of common stock to the beneficial shareholder or its designees, in
exchange for all outstanding capital stock of CY-SRRE. The transaction closed
on
October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE,
the
President of CY-SRRE and the principal and controlling shareholder of Ace
Develop.
Also
on
August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual and agent for
beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems
Tech,
entered into an exchange agreement under which SRRE issued 10,000,000 shares
of
common stock to the beneficial shareholders, or their designees, in exchange
for
all outstanding capital stock of LRY. The transaction was closed on October
5,
2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the President
of LRY and the principal and controlling shareholder of Ace Develop. Regarding
the 10,000,000 shares of common stock of SRRE issued in this transaction, SRRE
issued 8,500,000 shares to Ace Develop, 750,000 shares to Planet Tech and
750,000 shares to Systems Tech.
As
a
result of the acquisition, the former owners of CY-SRRE and LRY hold a majority
interest in the combined entity. Generally accepted accounting principles
require in certain circumstances that a company whose shareholders retain the
majority voting interest in the combined business be treated as the acquirer
for
financial reporting purposes. Accordingly, the acquisition has been accounted
for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to
have purchased SRRE. However, SRRE remains the legal entity and the Registrant
for Securities and Exchange Commission reporting purposes. All shares and per
share data prior to the acquisition have been restated to reflect the stock
issuance as a recapitalization of CY-SRRE and LRY.
SRRE
and
its subsidiaries, namely, CY-SRRE, LRY, SHXJY, SZXJY, SZXJYB, SZSY, BJXJY,
SHSY
and SZGFH are sometimes hereinafter collectively referred to as “the
Company.”
The
principal activities of the Company are property brokerage services, real estate
marketing services, property leasing services and property management services
in the PRC
.
General
Business Description
SRRE
was
incorporated on October 10, 1996 as a Texas corporation and was formerly known
as Parallax Entertainment, Inc. SRRE has gone through a series of transactions
leading to the completion of a reverse merger on October 5, 2004. Prior to
the
closing of the exchange agreements described in “Corporate History” above, SRRE
was an inactive "shell" company. Following the closing, SRRE, through its two
wholly owned subsidiaries, CY-SRRE and LRY, has engaged in the
property
brokerage services, real estate marketing services, property leasing services
and property management services in the PRC
.
SHXJY,
SZXJY, BJXJY, SHSY, SZGFH, SZSY and SZXJYB commenced operations in November
2001, June 2004, January 2004, February 2004, January 2005, November 2006 and
November 2007 respectively. Each of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY
and
SZXJYB each has been granted a twenty-year operation period from the PRC, which
can be extended with approvals from relevant PRC authorities.
The
Company recognizes that in order to differentiate itself from the market, it
should avoid direct competition with large-scale property developers who have
their own marketing departments. Our objective is to develop a niche position
with marketing alliances with medium size and smaller developers, and become
their outsourcing marketing and sales agents.
SRRE
operates through a tier of wholly owned subsidiaries of Sunrise Real Estate
Development Group, Inc., a Cayman Islands corporation ("CY-SRRE") and LIN RAY
YANG Enterprise, Ltd., a British Virgin Islands company ("LRY"). Neither CY-SRRE
nor LRY have operations but conduct operations in Mainland China through their
respective subsidiaries that are based in the PRC. CY-SRRE operates through
its
wholly owned subsidiary, SHXJY. LRY operates through its two wholly owned
subsidiaries, SHSY and SZGFH. SHXJY is a property agency business earning
commission revenue from marketing and sales services to developers. SHSY is
a
property investment company, through this subsidiary we ventured into a higher
risk business model whereby our commission is equivalent to the price difference
between the final selling price and underwriting price (the “Underwriting
Model”). The main business of SZGFH is to render property rental service,
buildings management and maintenance service for office buildings and service
apartments. Our company organization chart is as follows:
Figure
1:
Company Organization Chart
Celebrity-turned-entrepreneur,
Lin Chi Jung, and the founder of Taiwan's top property sales agency, Lin Chao
Chin, established SHXJY in August 2001 in Shanghai jointly. SHXJY combined
professional strengths from Taiwan and Mainland China to venture into Mainland
China's property marketing and sales brokerage sector, whereby SHXJY was
contracted by property developers to market and sell their newly developed
property units, in return we earned a commission fee calculated as a percentage
of the sales price.
SHXJY
has
focused its sales in the whole China market, especially in the secondary cities.
To expand our agency business, SHXJY has established branches in NanChang,
YangZhou, NanJing and ChongQing; subsidiaries in Suzhou and Beijing. Each agency
sales company is comprised of three major divisions: research and development,
planning, and sales divisions. Because of our diverse market locations, the
current macro economic policies had little impact on our business operations
in
SHXJY in 2007, and we plan to establish additional subsidiaries and branches
to
achieve stable growth trend in future years.
SHSY
was
established in February 2004 as a property development advisory company, which
identifies, evaluates and negotiates development projects. SHSY is comprised
of
professional project planning, property investment evaluation and project
marketing teams.
In
2004,
through SHSY, we
entered
into a property underwriting agreement with an independent property developer
to
underwrite a commercial building located in Suzhou, PRC, at a fixed underwriting
price
.
Pursuant to the agreement, our commission was not calculated as a percentage
of
the sales price, instead, our commission revenue is equal to the price
difference between the final sales price and the underwriting price. In this
model, we negotiate with the developer for an underwriting price that is as
low
as possible, with the guarantee that all units will be sold by a specific date.
In return, we have the flexibility to establish the final sales price, and
earn
the price difference between the final sales price and the underwriting price.
The risk in this kind of agreement is that, if there are any unsold units on
the
expiry date, we may have to absorb the unsold units from the developers at
the
underwriting price, and hold these units in our inventory or as
investments.
During
2005 SZGFH launched a promotional package by entering into leasing agreements
with certain buyers to lease the properties for them.
These
leasing commitments on the Sovereign Building are for 62% of the floor space
that was sold to third party buyers. We are expecting that the rental revenue
from this subsidiary will help our group to have a more diversified revenue
base. Our historical revenue stream has mainly been in the form of
commission-based revenues, which may expose us to developer-related risks,
such
as fluctuation in property price, cyclical collections of receivables and
project management issues. We expect that the continuing and cumulative rental
revenue stream will provide us a cushion against the cyclical nature of the
real
estate sales industry.
With
a
relatively short history and smaller capital base, we recognize that in order
to
differentiate ourselves from the market, we need to avoid direct competition
with large-scale property developers, who have their own marketing departments.
We plan to utilize our professional experience to carve a niche and position
by
developing marketing alliances with medium size and smaller developers. This
strategic plan is designed to expand our activities beyond our existing revenue
base, enabling us to assume higher investment risk and giving us flexibility
in
collaborating with partnering developers. The plan is aimed at improving our
capital structure, diversifying our revenue base, creating higher values and
equity returns.
In
the
past six years, we have established a reputation as a sales and marketing agency
for new projects. With our accumulated expertise and experience, we intend
to
take a more aggressive role by participating in property investments. We plan
to
select property developers with outstanding qualifications as our strategic
partners, and continue to build strength in design, planning, positioning and
marketing services.
Business
Activities
Since
2001, our main operating subsidiary, SHXJY, has engaged in sales and marketing
agency work for newly built property units. We also have developed a good
network of landowners and earned the trust of developers, allowing us to explore
opportunities in property investments.
As
part
of this investment goal, we established a new operating subsidiary, SHSY, with
an experienced management team to focus on developing a new strategic plan
for
property investment activities. This plan is designed to expand Company
activities beyond our existing revenue base, to assume a higher risk with
investments and to give us flexibility in structuring collaborative models
with
partnering developers.
In
order
to build a cushion against the cyclical nature of the real estate industry
and
have a more diversified revenue base, we established another new operating
subsidiary, SZGFH, to deal with property management and rental
operations.
Commission
Based Services
Commission
based services refer to marketing and sales agency operations, that provide
the
following services:
a.
Integrated Marketing Planning
b.
Advertising Planning & Execution
c.
Sales
Planning and Execution
In
this
type of business, we sign a marketing and sales agency agreement with property
developers to undertake the marketing and sales activities of a specific
project. The scope of service varies according to clients' needs; it could
be a
full package of all the above services, a combination of any two of the above
services or any single service.
A
major
part of our existing revenue comes from commission-based services. We secure
these projects via bidding or direct appointments. As a result of our
relationships with existing clients and our sales track record, we have secured
a number of cases from prior clients on subsequent phases of
projects.
Normally,
before a developer retains us, we will evaluate and determine the Average Sales
Value of a project. This value will be proposed to the developer, and the
parties will determine and agree on an Average Sales Value as the basis of
our
agency agreement. The actual sales price of the project is generally priced
higher than the Average Sales Value depending on market conditions. On average,
we have been to sell the property at a small premium over Average Sales Value.
Our
normal commission structure is a combination of the following:
a)
Base
Commission of 1.0% - 1.5% based on the Average sales value.
b)
Surplus Commission of 10% - 30% based on the difference between Average Sales
Value and actual sales price.
Our
wholly owned subsidiary, SHXJY, engages in this sales and marketing phase of
our
business.
Mainland
China's Property Sector
The
industry's macro environment is opening up, and the property sector is gradually
developing to be a more regulated market. Stable economic growth provides a
solid and secure base for investment returns in the property sector.
GDP
Growth of PRC for the period of 2003 through 2007
|
|
GDP
GROWTH
|
|
2003
|
|
|
10.0
|
%
|
2004
|
|
|
10.1
|
%
|
2005
|
|
|
10.4
|
%
|
2006
|
|
|
10.7
|
%
|
2007
|
|
|
11.4
|
%
|
Government
regulation
The
Law
on the Protection Investments from Taiwan Compatriots ensures that the PRC
Government shall under no circumstances interfere in the economic cooperation
between the Mainland China and Taiwan because of political differences. Under
this law, the PRC Government may not discriminate and must protect the legal
rights of Taiwan compatriots' investments in Mainland China. This policy allows
Taiwan businesses to safely operate in Mainland China without government
discrimination.
On
August
31, 2003, the State Council of the PRC issued Guo Fa (2003) No.18, State
Council's notice regarding the accelerating real estate market in the direction
of continuous and healthy development. The items that benefit real estate
developers under such notice are the following:
-
Increase the supply of middle and low-income housing.
-
Control
construction of upscale commodity apartments.
-
Stimulate the secondary housing market.
-
Increase the collection of housing accumulation funds, and exert more efforts
in
granting loans.
-
Strengthen the supervision and management of mortgages, and provide more credit
support to qualifying real estate development projects.
In
March
and May 2005, the State Council of the PRC issued two proposals for stabilizing
the housing prices. The purpose of these proposals was to stabilize housing
prices, to adjust and improve the structure of the real estate market, to adjust
supply and demand in the market, to decrease financing risk, and to enhance
the
supervision of the real estate market.
On
May
17, 2006, the State Council issued six principles of China’s real estate policy
to regulate China’s real estate market. On May 29, 2006, nine ministerial
departments of State Council jointly came up with 15-point regulation to
strengthen State Council's new policy. The six principles issued by the State
Council are the following:
-Practically
restructure the housing supply.
-Further
exert controls through tax, bank credit and the agrarian policy.
-Reasonably
control the speed of urban housing relocation.
-Further
normalize the real estate market.
-Speed
up
the construction of urban housing at low prices and low rentals, and have
planned development of affordable housing.
-Improve
the statistics system and information distribution system on real
estate.
On
January 16, 2007, State Administration of Taxation of China issued Provisional
Regulations of The People’s Republic of China on Land Appreciation Tax. These
Regulations are formulated in order to regulate the order of land and real
estate market transactions, to reasonably adjust the benefit from land
appreciation and to safeguard the rights and interests of the State.
On
September 27, 2007, the People’s Bank of China and China Banking Regulatory
Commission issued Notice on Strengthening the Administration of Commercial
Real
Estate Credit Loans. Measures included strict administration of loans for real
estate development, strict and standard administration of land reserve loans,
strict administration of loans for housing consumption.
On
December 11, 2007, the People’s Bank of China and China Banking Regulatory
Commission issued Supplementary Notice on Strengthening the Administration
of
Commercial Real Estate Loans. The Notice confirmed the number of loans to a
borrower should be determined on the basis of loans to the borrower’s
family.
Environmental
matters
None
Employees
As
of
December 31, 2007, we had the following number of employees:
SRRE
|
Employees
|
Administration
Dept.
|
4
|
Accounting
Dept.
|
4
|
Investor
Relations Dept.
|
2
|
|
|
SHXJY
|
|
Administration
Dept.
|
16
|
Accounting
Dept.
|
4
|
Research
& Development Dept.
|
9
|
Advertising
& Communication Planning Dept.
|
8
|
Marketing
Dept.
|
52
|
|
|
Nanchang
Branch of SHXJY
|
|
Administration
Dept.
|
11
|
Accounting
Dept.
|
1
|
Marketing
Dept.
|
25
|
|
|
Yangzhou
Branch of SHXJY
|
|
Administration
Dept.
|
3
|
Accounting
Dept.
|
1
|
Marketing
Dept.
|
17
|
|
|
Chongqing
Branch of SHXJY
|
|
Marketing
Dept.
|
10
|
|
|
SZXJY
and Nanjing Branch
|
|
Administration
Dept.
|
14
|
Accounting
Dept.
|
3
|
Research
& Development Dept.
|
11
|
Advertising
& Communication Planning Dept.
|
6
|
Marketing
Dept.
|
60
|
|
|
SZSY
|
|
Marketing
Dept.
|
19
|
|
|
SZXJYB
|
|
Administration
Dept.
|
4
|
Marketing
Dept.
|
10
|
|
|
BJXJY
|
|
Administration
Dept.
|
1
|
|
|
SHSY
|
|
Administration
Dept.
|
6
|
Accounting
Dept.
|
2
|
Marketing
Dept.
|
3
|
|
|
SZGFH
|
|
Administration
Dept.
|
8
|
Accounting
Dept.
|
2
|
Marketing
Dept.
|
5
|
|
|
Total
|
321
|
ITEM
2. DESCRIPTION OF PROPERTY
We
currently rent our facilities at 7
th
Floor,
No.333, Zhaojiabang Road, Shanghai, PRC. We also have regional field support
offices in various cities in Mainland China, namely Suzhou, Beijing, Nanchang,
Yangzhou, Chongqing and Nanjing. We lease the facilities that house our regional
field support offices.
During
the past three years, the Company has also acquired two floors and six units
of
the Sovereign Building in Suzhou, PRC. The properties under development were
completed on March 31, 2006, and we have paid the full purchase price to the
property developer. In 2007, the title for these properties were transferred
to
the Company. The Company decided that one floor will be held for the Company’s
own use, and the remaining properties will be held for long-term investment
purposes. On September 19, 2007, Bank of Jiangsu, Suzhou Branch and SHSY entered
into an agreement for the sale of two units of the Suzhou Sovereign Building.
As
of December 31, 2007, the title of these two units has been transferred to
the
purchaser. Following the disposal, the investment property included one floor
and four units acquired by the Company for long-term investment purposes.
Accordingly, the costs of the properties for the Company’s own use was
$2,071,225 and the investment properties was $8,092,319.
As
of
December
31, 2007,
the
bank
loan secured by the investment properties was $5,464,286, which is repayable
before August 2, 2010 and bears interest at 8.217% per annum. The bank loan
secured by the
properties
for the Company’s own use was $
574,980,
which is repayable before December 15, 2010 in monthly installments and bears
interest at 6.48% per annum.
ITEM
3. LEGAL PROCEEDINGS
The
Company is not a party to any legal proceedings of a material nature.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock is quoted on the Over-the-Counter Bulletin Board system under
the
symbol “SRRE.” The following table sets forth the high and low bid quotations of
our common stock reported by the OTCBB system for the periods indicated.
Over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commissions, and may not necessarily represent actual
transactions.
(Expressed
in US Dollars)
|
|
2007
|
|
2006
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
quarter
|
|
$
|
1.98
|
|
$
|
1.65
|
|
$
|
3.00
|
|
$
|
0.51
|
|
Second
quarter
|
|
$
|
2.15
|
|
$
|
1.02
|
|
$
|
2.40
|
|
$
|
1.15
|
|
Third
quarter
|
|
$
|
1.95
|
|
$
|
0.25
|
|
$
|
1.85
|
|
$
|
0.25
|
|
Fourth
quarter
|
|
$
|
0.80
|
|
$
|
0.15
|
|
$
|
2.00
|
|
$
|
0.30
|
|
As
of May
9, 2008, we had approximately 1,295 record holders of our common stock. On
May
9, 2008, the closing price of our common stock was $0.52.
No
cash
dividends were declared on our common stock in 2007 and 2006. The major reason
for not declaring any cash dividends is that we are still a growing company
and
require sufficient liquidity to fund our business activities. In the future,
in
the event we have funds available for distribution, we may consider paying
cash
dividends on our common stock.
The
Company did not repurchase any of its outstanding equity securities during
the
year ended December 31, 2007.
No
securities of the Company were issued pursuant to any equity compensation plan
during the year ended December 31, 2007.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
The
following Management’s Discussion and Analysis (“MD&A”) is intended to help
the reader understand Sunrise Real Estate Group, Inc. (“SRRE”). MD&A is
provided as a supplement to, and should be read in conjunction with, our
financial statements and the accompanying notes.
OVERVIEW
In
October 2004, the former shareholders of Sunrise Real Estate Development Group,
Inc. (Cayman Islands) (“CY-SRRE”) and LIN RAY YANG Enterprise Ltd. (“LRY”)
acquired a majority of our voting interests in a share exchange. Before the
completion of the share exchange, SRRE had no continuing operations, and its
historical results would not be meaningful if combined with the historical
results of CY-SRRE, LRY and their subsidiaries.
As
a
result of the acquisition, the former owners of CY-SRRE and LRY hold a majority
interest in the combined entity. Generally accepted accounting principles
require in certain circumstances that a company whose shareholders retain the
majority voting interest in the combined business be treated as the acquirer
for
financial reporting purposes. Accordingly, the acquisition has been accounted
for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to
have purchased SRRE. However, SRRE remains the legal entity and the Registrant
for Securities and Exchange Commission reporting purposes. The historical
financial statements prior to October 5, 2004 are those of CY-SRRE and LRY
and
their subsidiaries. All equity information and per share data prior to the
acquisition have been restated to reflect the stock issuance as a
recapitalization of CY-SRRE and LRY.
SRRE
and
its subsidiaries, namely, CY-SRRE, LRY, Shanghai Xin Ji Yang Real Estate
Consultation Company Limited (“SHXJY”), Suzhou Xin Ji Yang Real Estate
Consultation Company Limited (“SZXJY”), Beijing Xin Ji Yang Real Estate
Consultation Company Limited (“BJXJY”), Shanghai Shangyang Real Estate
Consultation Company Limited (“SHSY”), Suzhou Gao Feng Hui Property Management
Company Limited (“SZGFH”),
Suzhou
Shang Yang Real Estate Consultation Company Limited (“SZSY”)
and
Suzhou
Xin Ji Yang Real Estate Brokerage Company Limited(“SZXJYB”)
are
sometimes hereinafter collectively referred to as “the Company,” “our,” or “us”.
The principal activities of the Company are real estate agency sales, real
estate marketing services, real estate investments, property leasing services
and property management services in the PRC
.
RECENT
DEVELOPMENTS
Before
2004, our major business was an agency business, whereby our only subsidiary
at
the time, SHXJY, contracted with property developers to market and sell their
newly developed property units. For these services we earned a commission fee
calculated as a percentage of the sales prices. SHXJY has focused its sales
on
the whole China market, especially in secondary cities. To expand our agency
business, SHXJY has established branches in NanChang, YangZhou, NanJing and
ChongQing, and subsidiaries in Suzhou and Beijing.
In
2004,
through another subsidiary, SHSY, we ventured into a higher risk business model
(the “Underwriting Model”) whereby our commission is not calculated as a
percentage of the sales price but is equal to the price difference between
the
final sales price and the underwriting price. In this model, we negotiate with
the developer for an underwriting price that is as low as possible, with the
guarantee that all or a majority of the units will be sold by a specific date.
In return, we have the flexibility to establish the final sales price, and
earn
the price difference between the final sales price and the underwriting price.
The risk in this kind of agreement is that if there are any unsold units with
sales guarantees on the expiry date, we may have to buy them from developers
at
the underwriting price. If that occurs we would hold these units in our
inventory or as investments.
In
February 2004, SHSY entered into a property underwriting agreement with an
independent property developer to underwrite the Sovereign Building Project,
a
commercial building located in the Suzhou Industry Park in Suzhou, PRC, at
a
fixed underwriting price.
As
the
sole distribution agent for this office building,
SHSY
committed
to a sales target of $56.53 million, representing all of the units of the
building. We started selling units in January, 2005. As of the end of February,
2007, we have
sold
or
acquired all of the
units
in
the building and achieved the sales target by selling 47,093 square meters
with
a total sales price of $75.96 million.
The
properties under development were completed on March 31, 2006, and titles to
the
properties have been transferred to the respective buyers.
During
the past three years, SHSY has also made some property investments in Suzhou
by
acquiring one floor and six units of the Sovereign Building. The properties
under development were completed on March 31, 2006, and we have paid the full
purchase price to the property developer. The Company decided that these
properties will be held for long-term investment purposes. In 2007, the title
for these properties has been transferred to the Company. On September 19,
2007,
Bank of Jiangsu, Suzhou Branch and SHSY entered into an agreement for the sale
of two units of the Suzhou Sovereign Building. As of December 31, 2007, the
title of these two units has been transferred to the purchaser.
During
2005 SZGFH launched a promotional package by entering into leasing agreements
with certain buyers to lease the properties for them. These leasing agreements
on
the
Sovereign Building are for 62% of the floor space that was sold to third party
buyers.
In
accordance with the leasing agreements, the owners of the properties can enjoy
an annual rental return at 8.5% and 8.8% per annum for a period of 5 years
and 8
years, respectively. The leasing period started in the second quarter of 2006,
and as of December 31, 2007, 97 sub-leasing agreements were signed. The area
represented by the signed sub-leasing agreements represents 76% of the total
area represented by lease commitments. As of May 10, 2008, 120 sub-leasing
agreements have been signed, the area of these signed sub-leasing agreements
represent 93% of total area that have lease commitments.
RISKS
ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-KSB
In
addition to historical information, this Form 10-KSB contains forward-looking
statements. Forward-looking statements are based on our current beliefs and
expectations, information currently available to us, estimates, projections
about our industry, and certain assumptions made by our management. These
statements are not historical facts. We use words such as "anticipates",
"expects", "intends", "plans", "believes", "seeks", "estimates", and similar
expressions to identify our forward-looking statements, which include, among
other things, our anticipated revenue and cost of our agency and investment
business.
Because
we are unable to control or predict many of the factors that will determine
our
future performance and financial results, including future economic,
competitive, and market conditions, our forward-looking statements are not
guarantees of future performance. They are subject to risks, uncertainties,
and
errors in assumptions that could cause our actual results to differ materially
from those reflected in our forward-looking statements. We believe that the
assumptions underlying our forward-looking statements are reasonable. However,
the investor should not place undue reliance on these forward-looking
statements. They only reflect our view and expectations as of the date of this
Form 10-KSB. We undertake no obligation to publicly update or revise any
forward-looking statement in light of new information, future events, or other
occurrences.
There
are
several risks and uncertainties, including those relating to our ability to
raise money and grow our business and potential difficulties in integrating
new
acquisitions with our current operations, especially as they pertain to foreign
markets and market conditions. These risks and uncertainties can materially
affect the results predicted. The Company’s future operating results over both
the short and long term will be subject to annual and quarterly fluctuations
due
to several factors, some of which are outside our control. These factors include
but are not limited to fluctuating market demand for our services, and general
economic conditions.
RECENTLY
ISSUED ACCOUNTING STANDARDS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosure requirements regarding fair value measurement.
This statement simplifies and codifies fair value related guidance previously
issued and is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company does not believe that SFAS 157 will significantly impact
its
financial statements.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of SFAS No. 115”(“SFAS
159”), which permits companies to measure many financial instruments and certain
other assets and liabilities at fair value on an instrument-by-instrument basis
(the fair value option). Adoption of SFAS 159 is optional and it may be adopted
beginning in the first quarter of 2007. The Company does not believe that SFAS
159 will significantly impact its financial statements.
In
June
2007, the EITF reached a consensus on EITF 06-11: "Accounting for Income Tax
Benefits on Dividends on Share-Based Payment Awards". EITF 06-11 addresses
share-based payment arrangements with dividend protection features that entitle
employees to receive (a) dividends on equity-classified non-vested shares,
(b)
dividend equivalents on equity-classified non-vested share units, or (c)
payments equal to the dividends paid on the underlying shares while an
equity-classified share option is outstanding, when those dividends or dividend
equivalents are charged to retained earnings under SFAS No. 123(R) and result
in
an income tax deduction for the employer. A realized income tax benefit from
dividends or dividend equivalents that are charged to retained earnings are
paid
to employees for equity-classified non-vested shares, non-vested equity share
units, and outstanding equity share options should be recognized as an increase
in additional paid in capital. The amount recognized in additional paid-in
capital for the realized income tax benefit from dividends on those awards
should be included in the pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payments. The Company does
not
believe the adoption of EITF 06-11 will have a material impact on its financial
position or results of operation.
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements (SFAS 160). SFAS 160 requires all entities
to
report non-controlling (minority) interests in subsidiaries as equity in the
consolidated financial statements. SFAS 160 requires that transactions between
an entity and non-controlling interests are treated as equity transactions.
SFAS
160 is effective for fiscal years beginning after December 15, 2008. The Company
is currently evaluating the effect of SFAS 160 on its consolidated financial
statements and results of operation and is currently not yet in a position
to
determine such effects.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” (“SFAS 141R”) to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
This Statement applies to all transactions or other events in which an entity
obtains control of one or more businesses, and combinations achieved without
the
transfer of consideration. SFAS No. 141 (revised 2007) is effective for
prospectively to business combinations for which the acquisition date is in
on
or after December 15, 2008. An earlier adoption is not permitted. The Company
is
still considering that impact of SFAS 141R, if any, will depend on the nature
and size or business combinations the Company consummates after the effective
date to its financial statements.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Critical accounting policies for us include impairment of
goodwill, accounting for income taxes, revenue recognition and equity
instruments issued to non-employees.
Goodwill
SFAS
No.
142, “Goodwill and Other Intangible Assets,” requires that goodwill be tested
for impairment on an annual basis (December 31 for us) and between annual tests
if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value. These events
or circumstances could include a significant change in the business climate,
legal factors, operating performance indicators, competition, sale or
disposition of a significant portion of a company. Application of the goodwill
impairment test requires judgment, including the determination of the fair
value
of a company. The fair value of a company is estimated using a discounted cash
flow methodology. This requires significant judgments including estimation
of
future cash flows, which is dependent on internal forecasts, estimation of
the
long-term rate of growth for our business, the useful life over which cash
flows
will occur, and the determination of our weighted average cost of capital.
Changes in these estimates and assumptions could materially affect the
determination of fair value and/or goodwill impairment for a
company.
Income
Taxes
SFAS
No.
109, “Accounting for Income Taxes,” establishes financial accounting and
reporting standards for the effect of income taxes. The objectives of accounting
for income taxes are to recognize the amount of taxes payable or refundable
for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entity’s financial
statements or tax returns. Judgment is required in assessing the future tax
consequences of events that have been recognized in our financial statements
or
tax returns. Variations in the actual outcome of these future tax consequences
could materially impact our financial position or results of our
operations.
Revenue
Recognition
Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer
grant
confirmation to us to be able to invoice them accordingly,
which is
normally at the time when the property developer receives from the buyer a
portion of the sales proceeds in accordance with the terms of the relevant
property sales agreement, or the balance of the bank loan to the buyer has
been
funded, or recognized under the sales schedule or other specific items of the
agency sales agreement with developer.
Revenue
from marketing consultancy services is recognized when services are provided
to
clients.
Commission
revenue from underwriting service is recognized when the property developer
and
the buyer complete a property sales transaction, which is normally at the time
when the property developer has confirmed that the predetermined level of sales
proceeds have been received from buyers.
Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.
All
revenues represent gross revenues less sales and business taxes.
Equity
Instruments Issued to Non-Employees
According
to EITF 96-18, the cost for the
warrants
issued for services was expensed at either the fair value of the services
rendered or the fair value at the warrant grant dates.
Guarantee
Liability
According
to Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of
Others” (“FIN 45”), the Company’s liability for its obligations under a
guarantee is recognized as a liability at the fair value of the guaranteed
obligation at the inception of the guarantee, even if the likelihood of
performance under the guarantee is remote. As of December 31, 2007, the
guarantee liability was $157,812.
RESTATEMENT
OF 2006 FIGURES
As
discussed in Note 1, the Company has restated the 2006 financial statements.
The
financial statements for the year ended December 31, 2006 were restated to
correct errors relating to the unprovided commission accrual of US$335,873
and
the under-provision for China taxes of US$566,879. As a result of correction
of
these errors, the retained earnings for 2007 were reduced by
$902,752.
RESULTS
OF OPERATIONS
We
provide the following discussion and analyses of our changes in financial
condition and results of operations for the year ended December 31, 2007,
with comparisons to the historical year ended December 31, 2006.
Revenue
The
following table shows the detail for net revenues by line of
business:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
%
to total
|
|
2006
|
|
%
to total
|
|
%
change
|
|
Agency
sales
|
|
|
6,655,582
|
|
|
82
|
|
|
7,166,294
|
|
|
44
|
|
|
(7
|
)
|
Underwriting
sales
|
|
|
275,465
|
|
|
3
|
|
|
9,196,271
|
|
|
56
|
|
|
(97
|
)
|
Property
management
|
|
|
1,170,277
|
|
|
15
|
|
|
54,906
|
|
|
-
|
|
|
2031
|
|
Net
revenue
|
|
|
8,101,324
|
|
|
100
|
|
|
16,417,471
|
|
|
100
|
|
|
(51
|
)
|
The
net
revenues for 2007 were $8,101,324, which decreased 51% from $16,417,471 of
2006.
In 2007, agency sales represented 82% of the total net revenues, underwriting
sales represented 3% and property management represented 15%. The decrease
in
2007 was mainly due to the decrease in our underwriting sales
revenue.
Agency
sales
In
2007
82% of our net revenue was due to agency sales, which were from the business
activities of SHXJY and its subsidiaries and branches. As compared with 2006,
net revenue of agency sales in 2007 decreased 7%. Primary reasons for this
change were the following:
i)
|
In
2006 there were two projects that contributed net revenue in the
aggregate
amount of $1.55million to SHXJY, and in 2007 there was one project
that
contributed comparable net revenue.
|
ii)
|
In
2006 there were 38 agency sales projects as compared to 35 agency
sales
projects in 2007.
|
Because
of our diverse market locations, the current macro economic policies had little
impact on our business operations in SHXJY in 2007, and we are seeking stable
growth in our agency sales business in 2008. However, there can be no assurance
that we will be able to do so.
Underwriting
sales
In
February 2004, SHSY entered into an agreement to underwrite an office building
in Suzhou, known as Suzhou Sovereign Building.
Being
the
sole distribution agent for this office building,
SHSY
committed
to a sales target of $56.53 million. Property underwriting sales are
comparatively a higher risk business model compared to our pure commission
based
agency business. Under this higher risk business model, the Underwriting Model,
our commission is not calculated as a percentage of the selling price; instead,
our commission revenue is equivalent to the price difference between the final
selling price and underwriting price. We negotiate with a developer for an
underwriting price that is as low as possible, with the guarantee that all
or a
majority of the units will be sold by a specific date. In return, we are given
the flexibility to establish the final selling price and earn the price
difference between the final selling price and the underwriting price. The
risk
of this kind of arrangement is that if there is any unsold unit on the
expiration date of the agreement, we may have to absorb the unsold property
units from developers at the underwriting price and hold them in our inventory
or as investments.
We
started selling units in the Sovereign Building in January, 2005. As of the
end
of February, 2007, we have
sold
or
acquired all of the
units
in
the building, and we have achieved the sales target by selling 47,093 square
meters with a total sales price of $75.96 million and this underwriting project
has contributed total net revenue of $13,949,683 to the Company from January,
2005 through February, 2007.
The
above
is an one-off transaction but the Company continues to seek opportunities in
underwriting sales.
As
of
December 31, 2007, the guarantee liability arising from the above transaction
in
accordance with FIN45 was $157,812.
Property
Management
SZGFH
launched a promotional package by entering into leasing agreements with certain
buyers to lease the properties for them. These leasing agreements on the
Sovereign Building are for 62% of the floor space that was sold to third party
buyers. The leasing period started in the second quarter of 2006, and in the
leasing period SZGFH has the right to sublease the leased properties to earn
rental income. As of December 31, 2007, 97 sub-leasing agreements were signed.
The area of these sub-leasing agreements represents 76% of total area under
these lease commitments. We expect that the income from the sub-leasing business
will be on a stable growth trend in 2008 and that it can cover the lease
commitments in the leasing period as a whole. However there can be no assurance
that we will achieve these objectives.
Cost
of Revenues
The
following table shows the cost of revenues detail by line of
business:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
%
to total
|
|
2006
|
|
%
to total
|
|
%
change
|
|
Agency
sales
|
|
|
3,212,473
|
|
|
48
|
|
|
3,330,662
|
|
|
46
|
|
|
(4
|
)
|
Underwriting
sales
|
|
|
214,559
|
|
|
3
|
|
|
2,354,786
|
|
|
32
|
|
|
(91
|
)
|
Property
management
|
|
|
3,284,672
|
|
|
49
|
|
|
1,561,485
|
|
|
22
|
|
|
110
|
|
Cost
of revenue
|
|
|
6,711,704
|
|
|
100
|
|
|
7,246,933
|
|
|
100
|
|
|
(7
|
)
|
The
cost
of revenues for 2007 was $6,711,704, this was a decrease of 7% from $7,246,933
in 2006. In 2007, agency sales represented 48% of total cost of revenues,
underwriting sales represented 3% and property management represented 49%.
The
decrease in cost of revenues in 2007 was mainly due to the decrease in our
underwriting sales.
Agency
sales
As
compared with 2006, cost of revenue of agency sales in 2007 decreased 4%. The
primary reason for the change was the decrease in our staff cost. In 2007,
our
staff cost decreased $120,756 compared to 2006.
Underwriting
sales
Since
all
of the units under
the
Sovereign Building underwriting project
were
sold by the end of February, 2007, we incurred very few sales cost relating
to
this project in 2007.
Property
management
In
order
to distribute all of the properties of the Sovereign Building underwriting
project, during the year of 2005, SZGFH launched a promotional package by
entering into leasing agreements with certain buyers to lease the properties
for
them. In accordance with the leasing agreements, the owners of the properties
can enjoy an annual rental return at 8.5% and 8.8% per annum for a period of
5
years and 8 years, respectively.
The
leasing period started in the second quarter, 2006, and we recognized the rental
coverage that we pay under these leasing agreements as our cost. As certain
properties under this promotion package were not leased out in 2007, the Company
recorded a negative gross profit margin for 2007. We expect that these
properties will be leased out in 2008, the gross margin will be improved.
However, no assurance can be given that this will be the case.
Operating
Expenses
The
following table shows operating expenses detail by line of
business:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
%
to total
|
|
2006
|
|
%
to total
|
|
%
change
|
|
Agency
sales
|
|
|
853,309
|
|
|
75
|
|
|
865,180
|
|
|
85
|
|
|
(1
|
)
|
Underwriting
sales
|
|
|
99,385
|
|
|
9
|
|
|
84,610
|
|
|
8
|
|
|
17
|
|
Property
management
|
|
|
177,318
|
|
|
16
|
|
|
69,014
|
|
|
7
|
|
|
157
|
|
Operating
expenses
|
|
|
1,130,012
|
|
|
100
|
|
|
1,018,804
|
|
|
100
|
|
|
11
|
|
The
operating expenses of 2007 were $1,130,012; these increased 11% from $1,018,804
in 2006. In 2007, agency sales represented 75% of the total operating expenses,
underwriting sales represented 9% and property management represented 16%.
The
increase in operating expenses in 2007 was mainly due to the increase in our
property management.
Agency
sales
When
compared to 2006, the operating expenses for agency sales in 2007 decreased
1%.
The primary reason for the decrease in 2007 was the decrease in lease expenses.
In 2007, the lease expenses decreased $39,499, compared to 2006.
Underwriting
sales
When
compared to 2006, the operating expenses for underwriting sales in 2007
increased 17%. The primary reason for the change was the increase in our staff
expenses. In 2007, our staff expenses increased $20,175 over 2006
levels.
Property
management
When
compared to 2006, the operating expenses for property management in 2007
increased 157%. The main reason for the increase was the payment of agency
commissions of SZGFH. In 2007, the agency commissions increased $100,462,
compared to 2006.
General
and Administrative Expenses
The
general and administrative expenses in 2007 were $
4,654,995
,
increasing 52% from $3,064,138 in 2006. Primary reasons for the change were
the
following:
i)
|
The
increase in our depreciation expenses. In 2007, our depreciation
expenses
increased $233,235, compared to 2006. The increase in our depreciation
expenses by $500,365 is mainly due to the increase of our property
investments. Also, the increase in property investments resulted
that the
building management fees in 2007 were higher than 2006 by approximately
$204,000.
|
ii)
|
The
legal and professional fees in 2007 were increased by approximately
$265,000 due to more corporate finance consultancy services acquired.
|
iii)
|
The
Company accounted for the acquisition of BJXJY as described in Note
1 in
accordance with SFAS No. 141 "Business Combinations", which resulted
in
the recognition of goodwill. Goodwill represents the excess of acquisition
cost over the estimated fair value of the net assets acquired as
of
December 24, 2004. The portion of the purchase price allocated to
goodwill
was $193,995. The Company has tested goodwill of BJXJY for impairment
annually during the forth quarter of each fiscal year using a fair
value
approach, in accordance with the provisions of SFAS 142. As of December
31, 2007, the Company completed the annual impairment test. Based
on the
result of impairment test, the Company wrote off the whole amount
of
goodwill arising from BJXJY.
|
Interest
Expenses
When
compared to 2006, the interest expenses in 2007 increased 88%. The interest
expense relates to bank loans and promissory notes payable.
Major
Related Party Transaction
During
the year, SHSY paid a portrait fee of approximately $411,000 to Ms
Chang
Shu-Ching
.
Ms
Chang is an ex-director of the Company and the portrait fee was agreed on an
arm
length basis.
LIQUIDITY
AND CAPITAL RESOURCES
In
2007,
our principal sources of cash were revenues from our agency sales business
and
proceeds from disposal of investment properties we acquired. We expect these
sources of revenues will continue to meet our cash requirements, including
debt
service, operating expenses and promissory deposits for various property
projects.
Most
of
our cash resources were used to fund our revenue related expenses, such as
salaries and commissions paid to the sales force, daily administrative expenses
and the maintenance of regional offices, and the repayments of our bank loans
and promissory notes.
We
ended
the period with a cash position of $4,723,095 (including cash and cash
equivalents of $2,281,516 and restricted cash of $2,441,579). The Company’s
operating activities used cash in the amount of $948,983, which was primarily
attributable to the Company’s net loss in the amount of $4,765,749 and the
decrease in income taxes payable.
The
Company’s investing activities provided cash resources of $1,660,783 in 2007,
which was primarily attributable to the proceeds from disposal of investment
properties offset by the amounts paid for investment properties.
The
Company’s financing activities obtained cash resources of $202,932 in 2007,
which was primarily attributable to the refinancing of bank loans and promissory
notes.
The
potential cash needs for 2008 will be the repayments of our bank loans and
promissory notes, the rental guarantee payments and promissory deposits for
various property projects.
We
anticipate that our current available funds, cash inflows from providing
property agency services, underwriting services and management services, and
sales proceeds from disposal of investment properties acquired will be
sufficient to meet our anticipated needs for working capital expenditures,
business expansion and the potential cash needs during 2008.
If
our
business otherwise grows more rapidly than we currently predict, we plan to
raise funds through the issuance of additional shares of our equity securities
in one or more public or private offerings. We will also consider raising funds
through credit facilities obtained with lending institutions. There can be
no
guarantee that we will be able to obtain such funds through the issuance of
debt
or equity that are with terms satisfactory to management and our board of
directors.
OFF
BALANCE SHEET ARRANGEMENTS
The
Company has no off-balance sheet arrangements.
RISK
FACTORS
SRRE
has
identified a number of risk factors faced by the Company. These factors, among
others, may cause actual results, events or performance to differ materially
from those expressed in this 10-KSB or in press releases or other public
disclosures. You should be aware of the existence of these factors.
RISKS
RELATING TO THE GROUP
SRRE
is a holding company and depends on its subsidiaries’ cash flows to meet its
obligations.
SRRE
is a
holding company, and it conducts all of its operations through its subsidiaries.
As a result, its ability to meet any obligations depends upon its subsidiaries’
cash flows and payment of funds as dividends, loans, advances or other payments.
In addition, the payment of dividends or the making of loans, advances or other
payments to SRRE may be subject to regulatory or contractual
restrictions.
Our
invoicing for commissions may be delayed.
Generally,
we recognize our commission revenues after the contracts signed with developers
are completed and confirmations are received from the developers. However,
sometimes we do not recognize income even when we have rendered our services
for
any of the following reasons:
a.
The
developers have not received payments from potential purchasers who have
promised to pay the outstanding sum by cash;
b.
The
purchasers, who need to obtain mortgage financing to pay the outstanding balance
due, are unable to obtain the necessary financing from their banks;
c.
Banks
are sometimes unwilling to grant the necessary bridge loan to the developers
in
time due to the developers’ relatively low credit rating;
d.
The
developers tend to be in arrears with sales commissions; therefore, do not
grant
confirmation to us to be able to invoice them accordingly.
Development
of new business may stretch our cash flow and strain our operation
efficiency.
Business
expansion and the need to integrate operations arising from the expansion may
place a significant strain on our managerial, operational and financial
resources, and will further contribute to a needed increase in our financial
needs.
Risks
associated with a Guaranteed Rental Return Promotion.
During
2005, we launched a promotional package that allows property buyers and
investors to enjoy a 5 or 8 year guaranteed rental return at 8.5% or 8.8% of
the
property purchase costs per annum for a leasing period of 5 or 8 years,
respectively. The return is guaranteed by SZGFH, whereby SZGFH’s principal
activities are real estate leasing and property management services. However,
we
may not successfully sublease the targeted properties at prices higher than
what
we committed in the promotional package. Our failure to do so could adversely
affect our financial condition.
The
Company accounts for its liability for its obligations under a guarantee in
accordance with FASB Interpretation No. 45, (FIN45) Guarantor's Accounting
and
Disclosure Requirements for Guarantees, Including Direct Guarantees of
Indebtedness of Others. FIN 45 requires that guarantors recognize a liability
for certain guarantees at the fair value of the guaranteed obligation at the
inception of the guarantee and the movement in the guaranteed obligation is
charged to the income statement in the period in which it incurs.
Our
acquisition of new property may involve risks.
These
acquisitions involve several risks including, but not limited to, the following:
a.
The
acquired properties may not perform as well as we expected or ever become
profitable.
b.
Improvements to the properties may ultimately cost significantly more than
we
had originally estimated.
Additional
acquisitions might harm our business.
As
part
of our business strategy, we may seek to acquire or invest in additional
businesses, products, services or technologies that we think could complement
or
expand our business. If we identify an appropriate acquisition opportunity,
we
might be unable to negotiate the terms of that acquisition successfully, finance
it, or integrate it into our existing business and operations. We may also
be
unable to select, manage or absorb any future acquisitions successfully.
Furthermore, the negotiation of potential acquisitions, as well as the
integration of an acquired business, would divert management time and other
resources. We may have to use a substantial portion of our available cash to
consummate an acquisition. If we complete acquisitions through exchange of
our
securities, our shareholders could suffer significant dilution. In addition,
we
cannot assure you that any particular acquisition, even if successfully
completed, will ultimately benefit our business.
Our
real estate investments are subject to numerous risks.
We
are
subject to risks that generally relate to investments in real estate. The
investment returns available from equity investments in real estate depend
in
large part on the amount of income earned and capital appreciation generated
by
the related properties, as well as the expenses incurred. In addition, a variety
of other factors affect income from properties and real estate values, including
governmental regulations, insurance, zoning, tax and eminent domain laws,
interest rate levels and the availability of financing. For example, new or
existing real estate zoning or tax laws can make it more expensive and/or
time-consuming to develop real property or expand, modify or renovate
properties. When interest rates increase, the cost of acquiring, developing,
expanding or renovating real property increases and real property values may
decrease as the number of potential buyers decrease. Similarly, as financing
becomes less available, it becomes more difficult both to acquire and to sell
real property. Finally, governments can, under eminent domain laws, take real
property. Sometimes this taking is for less compensation than the owner believes
the property is worth. Any of these factors could have a material adverse impact
on results of our operations or financial condition. In addition, equity real
estate investments, such as the investments we hold and any additional
properties that we may acquire, are relatively difficult to sell quickly. If
our
properties do not generate sufficient revenue to meet operating expenses,
including debt servicing and capital expenditures, our income will be
reduced.
Competition,
economic conditions and similar factors affecting us, and the real estate
industry in general, could affect our performance.
Our
properties and business are subject to all operating risks common to the real
estate industry. These risks include:
a.
Adverse effects of general and local economic conditions;
b.
Increases in operating costs attributable to inflation and other factors;
and
c.
Overbuilding in certain property sectors.
These
factors could adversely affect our revenues, profitability and results of
operations.
We
operate in a highly competitive environment.
Our
competitors may be able to adapt more quickly to changes in customer needs
or to
devote greater resources than we can to developing and expanding our services.
Such competitors could also attempt to increase their presence in our markets
by
forming strategic alliances with other competitors, by offering new or improved
services or by increasing their efforts to gain and retain market share through
competitive pricing. As the market for our services matures, price competition
and penetration into the market will intensify. Such competition may adversely
affect our gross profits, margins and results of operations. There can be no
assurance that we will be able to compete successfully with existing or new
competitors.
We
may be unable to effectively manage our growth.
We
will
need to manage our growth effectively, which may entail devising and effectively
implementing business and integration plans, training and managing our growing
workforce, managing our costs, and implementing adequate control and reporting
systems in a timely manner. We may not be able to successfully manage our growth
or to integrate and assimilate any acquired business operations. Our failure
to
do so could affect our success in executing our business plan and adversely
affect our revenues, profitability and results of operations.
If
we fail to successfully manage our planned expansion of operations, our growth
prospects will be diminished and our operating expenses could exceed budgeted
amounts.
Our
ability to offer our services in an evolving market requires an effective
planning and management process. We have expanded our operations rapidly since
inception, and we intend to continue to expand them in the foreseeable future.
This rapid growth places significant demand on our managerial and operational
resources and our internal training capabilities. In addition, we have hired a
significant number of employees and plan to further increase our total work
force. This growth will continue to substantially burden our management team.
To
manage growth effectively, we must:
a.
Implement
and improve our operational, financial and other systems, procedures and
controls on a timely basis.
b.
Expand, train and manage our workforce, particularly our sales and marketing
and
support organizations.
We
cannot
be certain that our systems, procedures and controls will be adequate to support
our current or future operations or that our management will be able to handle
such expansion and still achieve the execution necessary to meet our growth
expectations. Failure to manage our growth effectively could diminish our growth
prospects and could result in lost opportunities as well as operating expenses
exceeding the amount budgeted.
We
may be unable to maintain internal funds or obtain financing or renew credit
facilities in the future.
Adequate
financing is one of the major factors, which can affect
our
ability to execute our business plan in this regard. We finance our business
mainly through internal funds, bank loans or raising equity funds. There is
no
guarantee that we will always have internal funds available for future
developments or we will not experience difficulties in obtaining financing
and
renewing credit facilities granted by financial institutions in the future.
In
addition, there may be a delay in equity fundraising activities. Our access
to
obtain debt or equity financing depends on the banks' willingness to lend and
on
conditions in the capital markets, and we may not be able to secure additional
sources of financing on commercially acceptable terms, if at all.
We
may need to raise additional capital that may not be available on terms
favorable to us, if at all.
We
may
need to raise additional capital in the future, and we cannot be certain that
we
will be able to obtain additional financing on favorable terms, if at all.
If we
cannot raise additional capital on acceptable terms, we may not be able to
develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. To fully realize
our business objectives and potential, we may require additional financing.
We
cannot be sure that we will be able to secure the financing we will require,
or
that it will be available on favorable terms. If we are unable to obtain any
necessary additional financing, we will be required to substantially curtail
our
approach to implementing our business objectives. Additional financing may
be
debt, equity or a combination of debt and equity. If equity is used, it could
result in significant dilution to our shareholders.
Our
operations and growth prospects may be significantly impeded if we are unable
to
retain our key personnel or attract additional key personnel, particularly
since
experienced personnel and new skilled personnel are in short
supply.
Competition
for key personnel is intense. As a small company, our success depends on the
service of our executive officers, and other skilled managerial and technical
personnel, and our ability to attract, hire, train and retain personnel. There
is always the possibility that certain of our key personnel may terminate their
employment with us to work for one of our competitors at any time for any
reason. There can be no assurance that we will be successful in attracting
and
retaining key personnel. The loss of services of one or more key personnel
could
have a material adverse effect on us and would materially impede the operation
and growth of our business.
If
our partnering developers experience financial or other difficulties, our
business and revenues could be adversely affected.
Currently,
SHXJY is one of our major contributors in terms of both revenues and net income.
As a service-based company, SHXJY greatly depends on the working relationships
and agency contracts with its partnering developers. We are exposed to the
risks
that our partnering developers may experience financial or other difficulties,
which may affect their ability or will to carry out any existing development
projects or resell contracts, thus delaying or canceling the fulfillment of
their agency contracts with SHXJY. Any of these factors could adversely affect
our revenues, profitability and results of operations.
If
we fail to establish and maintain strategic relationships, the market acceptance
of our services, and our profitability, may suffer.
To
offer
services to a larger customer base, our direct sales force depends on strategic
partnerships, marketing alliances, and partnering developers to obtain customer
leads and referrals. If we are unable to maintain our existing strategic
relationships or fail to enter into additional strategic relationships, we
will
have to devote substantially more resources to the marketing of our services.
We
would also lose anticipated customer introductions and co-marketing benefits.
Our success depends in part on the success of our strategic partners and their
ability to market our services successfully. In addition, our strategic partners
may not regard us as significant for their own businesses. Therefore, they
could
reduce their commitment to us or terminate their respective relationships with
us, pursue other partnerships or relationships, or attempt to develop or acquire
services that compete with our services. Even if we succeed in establishing
these relationships, they may not result in additional customers or
revenues.
We
are subject to the risks associated with
projects
operated through joint ventures.
Some
of
our projects are operated through joint ventures in which we have controlling
interests. We may enter into similar joint ventures in the future. Any joint
venture investment involves risks such as the possibility that the joint venture
partner may seek relief under federal or state insolvency laws, or have economic
or business interests or goals that are inconsistent with our business interests
or goals. While the bankruptcy or insolvency of our joint venture partner
generally should not disrupt the operations of the joint venture, we could
be
forced to purchase the partner’s interest in the joint venture, or the interest
could be sold to a third party. Additionally, we may enter into joint ventures
in the future in which we have non-controlling interests. If we do not have
control over a joint venture, the value of our investment may be affected
adversely by a third party that may have different goals and capabilities than
ours. It may also be difficult for us to exit a joint venture that we do not
control after an impasse. In addition, a joint venture partner may be unable
to
meet its economic or other obligations, and we may be required to fulfill those
obligations.
We
are subject to risks relating to acts of God, terrorist activity and
war.
Our
operating income may be reduced by acts of God, such as natural disasters or
acts of terror, in locations where we own and/or operate significant properties
and areas from which we draw customers and partnering developers. Some types
of
losses, such as from earthquake, hurricane, terrorism and environmental hazards,
may be either uninsurable or too expensive to justify insuring against. Should
an uninsured loss or a loss in excess of insured limits occur, we could lose
all
or a portion of the capital we have invested in any particular property, as
well
as any anticipated future revenue from such property. In that event, we might
nevertheless remain obligated for any mortgage debt or other financial
obligations related to the property. Similarly, wars (including the potential
for war), terrorist activity (including threats of terrorist activity),
political unrest and other forms of civil strife as well as geopolitical
uncertainty have caused in the past, and may cause in the future, our results
to
differ materially from anticipated results.
We
have limited business insurance coverage in China.
The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products. As a result,
we do
not have any business liability or disruption insurance coverage for our
operations in China. Any business disruption, litigation or natural disaster
might result in substantial costs and diversion of resources.
RISKS
RELATING TO OUR SECURITIES
Our
controlling shareholders could take actions that are not in the public
shareholders’ best interests.
As
of May
9, 2008, Ace Develop directly controls 38.08% of our outstanding common stock
and Lin Chi-Jung, our Chairman, is the principal and controlling shareholder
of
Ace Develop. Accordingly, pursuant to our Articles of Incorporation and bylaws,
Ace Develop and Lin Chi-Jung, by virtue of their controlling ownership of share
interests, will be able to exercise substantial influence over our business
by
directly or indirectly voting at either shareholders meetings or the board
of
directors meetings in matters of significance to us and our public shareholders,
including matters relating to:
a.
Election of directors and officers;
b.
The
amount and timing of dividends and other distributions;
c.
Acquisition of or merger with another company; and
d.
Any
proposed amendments to our Articles of Incorporation.
Future
sales of our common stock could adversely affect our stock
price.
If
our
shareholders sell substantial amounts of our common stock in the public market,
the market price of our common stock could be adversely affected. In addition,
the sale of these shares could impair our ability to raise capital through
the
sale of additional equity securities.
We
are listed on the OTC Bulletin Board, which can be a volatile
market.
Our
common stock is quoted on the OTC Bulletin Board, a FINRA sponsored and operated
quotation system for equity securities. It is a more limited trading market
than
the Nasdaq Capital Market, and timely and accurate quotations of the price
of
our common stock may not always be available. Investors may expect trading
volume to be low in such a market. Consequently, the activity of only a few
shares may affect the market and may result in wide swings in price and in
volume.
We
may be subject to exchange rate fluctuations.
A
majority of our revenues are received, and a majority of our operating costs
are
incurred, in Renminbi. Because our financial statements are presented in U.S.
Dollars, any significant fluctuation in the currency exchange rates between
the
Renminbi and the U.S. Dollar will affect our reported results of operations.
We
do not currently engage in currency-hedging transactions.
Trading
of our common stock is limited, which may make it difficult for investors to
sell their shares at times and prices that investors feel are
appropriate.
Trading
of our common stock has been extremely limited. This adversely effects the
liquidity of our common stock, not only in terms of the number of shares that
can be bought and sold at a given price, but also through delays in the timing
of transactions and reduction in security analysts’ and the media’s coverage of
us. This may result in lower prices for our common stock than might otherwise
be
obtained and could also result in a larger spread between the bid and asked
prices for our common stock.
There
is a limited market for our common stock and an active trading market for our
common stock may never develop.
Trading
in our common stock has been limited and has been characterized by wide
fluctuations in trading prices, due to many factors that may have little to
do
with a company’s operations or business prospects.
Because
it may be a “penny stock,” it will be more difficult for shareholders to sell
shares of our common stock.
In
addition, our common stock may be considered a “penny stock” under SEC rules
because it has been trading on the OTC Bulletin Board at prices lower than
$1.00. Broker-dealers who sell penny stocks must provide purchasers of these
stocks with a standardized risk-disclosure document prepared by the SEC. This
document provides information about penny stocks and the nature and level of
risks involved in investing in the penny-stock market. A broker must also give
a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination
that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser’s written agreement for the purchaser. Broker-dealers also must
provide customers that hold penny stocks in their accounts with such
broker-dealers a monthly statement containing price and market information
relating to the penny stock. If a penny stock is sold to investors in violation
of the penny stock rules, investors may be able to cancel the purchase and
get
the money back. The penny stock rules may make it difficult for investors to
sell their shares of our stock, and because of these rules, there is less
trading in penny stocks. Moreover, many brokers simply choose not to participate
in penny-stock transactions. Accordingly, investors may not always be able
to
resell shares of our common stock publicly at times and at prices that investors
feel are appropriate.
Our
stock price is, and we expect it to remain, volatile, which could limit
investors’ ability to sell stock at a profit.
Since
the
completion of the SRRE – CY-SRRE/LRY share exchange transactions the market
price of our common stock has ranged from a high of $3.00 per share to a low
of
$0.15 per share in the 2006 and 2007. The volatile price of our stock makes
it
difficult for investors to predict the value of our investment, to sell shares
at a profit at any given time, or to plan purchases and sales in advance. A
variety of factors may affect the market price of our common stock. These
include, but are not limited to:
a.
Announcements of new technological innovations or new commercial services by
our
competitors or us;
b.
Developments concerning proprietary rights;
c.
Regulatory developments in Mainland China and foreign countries;
d.
Period-to-period fluctuations in our revenues and other results of
operations;
e.
Economic or other crises and other external factors;
f.
Changes in financial estimates by securities analysts; and
g.
Sales
of our common stock.
We
will not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily
be
indicative of our future performance.
The
stock
market in general has experienced extreme price and volume fluctuations that
may
have been unrelated and disproportionate to the operating performance of
individual companies. These broad market and industry factors may seriously
harm
the market price of our common stock, regardless of our operating
performance.
Because
we have not paid and do not plan to pay cash dividends, investors will not
realize any income from an investment in our common stock unless and until
investors sell their shares at profit.
We
did
not pay cash dividends on our common stock in 2007, and we do not anticipate
paying any cash dividends in the near future. Investors should not rely on
an
investment in our stock if they require dividend income. Further, investors
will
only realize income on an investment in our stock in the event they sell or
otherwise dispose of their shares at a price higher than the price they paid
for
their shares. Such a gain would result only from an increase in the market
price
of our common stock, which is uncertain and unpredictable.
We
intend to retain all of our earnings for use in our business and do not
anticipate paying any cash dividends in the near future.
The
payment of any future dividends will be at the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
the success of our business activities, general financial condition, future
prospects, general business conditions and such other factors as our Board
of
Directors may deem relevant.
RISKS
RELATING TO THE REAL ESTATE INDUSTRY IN YANGTZE DELTA AND OTHER AREAS OF THE
PRC
The
real estate market in Yangtze Delta and other areas of the PRC is at an early
stage of development.
We
are
subject to real estate market conditions in the PRC generally and Yangtze Delta
in particular. Private ownership of property in the PRC is still at an early
stage of development. Although there is a perception that economic growth in
the
PRC and the higher standard of living resulting from such growth will lead
to a
greater demand for private properties in the PRC, it is not possible to predict
with certainty that such a correlation exists as many social, political,
economic, legal and other factors may affect the development of the property
market.
The
PRC
property market, including the Yangtze Delta property market, is volatile and
may experience oversupply and property price fluctuations. The central and
local
governments frequently adjust monetary and other economic policies to prevent
and curtail the overheating of the PRC and local economies, and such economic
adjustments may affect the real estate market in Yangtze Delta and other parts
of China. Furthermore, the central and local governments from time to time
make
policy adjustments and adopt new regulatory measures in a direct effort to
control the over development of the real estate market in China, including
Yangtze Delta. Such policies may lead to changes in market conditions, including
price instability and an imbalance of supply and demand of residential
properties, which may materially adversely affect our business and financial
conditions. Also, there is no assurance that there will not be over development
in the property sector in Yangtze Delta and other parts of China in the future.
Any future over development in the property sector in Yangtze Delta and other
parts of China may result in an oversupply of properties and a fall of property
prices in Yangtze Delta or any of our other markets, which could adversely
affect our business and financial condition.
We
face increasing competition, which may adversely affect our revenues,
profitability and results of operations.
In
recent
years, a large number of property companies have begun undertaking property
sales and investment projects in Yangtze Delta and elsewhere in the PRC. Some
of
these property companies may have better track records and greater financial
and
other resources than we do. The intensity of the competition may adversely
affect our business and financial position. In addition, the real estate market
in Yangtze Delta and elsewhere in the PRC is rapidly changing. If we cannot
respond to the changes in the market conditions more swiftly or effectively
than
our competitors do, our business and financial position will be adversely
affected.
If
the
availability or attractiveness of mortgage financing were significantly limited,
many of our prospective customers would not be able to purchase the properties,
thus adversely affecting our business and financial position.
Mortgages
are becoming increasingly popular as a means of financing property purchases
in
the PRC. An increase in interest rates may significantly increase the cost
of
mortgage financing, thus reducing the affordability of mortgages as a source
of
financing for residential property purchases. The PRC government has increased
the down payment requirements and imposed certain other conditions that make
mortgage financing unavailable or unattractive for some potential property
purchasers. There is no assurance that the down payment requirements and other
conditions will not be further revised. If the availability or attractiveness
of
mortgage financing is further significantly limited, many of our prospective
customers would not be able to purchase the properties and, as a result, our
business and future prospects would be adversely affected.
Our
future prospects are heavily dependent on the performance of property sectors
in
specific geographical areas.
The
properties we resell and intend to invest in are mainly based in Yangtze Delta.
Our future prospects are, therefore, heavily dependent on the continued growth
of the property sector around Yangtze Delta, and our business may be affected
by
any adverse developments in the supply and demand or housing prices in the
property sector around Yangtze Delta.
The
current level of property development and investment activity in Yangtze Delta
and other markets is substantial. However, there is no assurance that such
property resale and investment activity in Yangtze Delta or any of our other
markets will continue at this level in the future or that we will be able to
benefit from the future growth of these property markets.
Our
revenues and operating income could be reduced by adverse conditions specific
to
our property locations.
The
properties we resell and intend to invest in are concentrated geographically
and
are located predominately in Yangtze Delta. As a result, our business and our
financial operating results may be materially affected by adverse economic,
weather or business conditions in this area. Adverse conditions that affect
these areas such as economic recession, changes in extreme weather conditions
and natural disasters, may have an adverse impact on our
operations.
RISKS
RELATING TO THE PEOPLES REPUBLIC OF CHINA
All
of
our current prospects and deals are generated in Mainland China; thus all of
our
revenues are derived from our operations in the PRC. Accordingly, our business,
financial condition, results of operations and prospects are subject, to a
significant extent, to economic, political and legal developments in the
PRC.
PRC
economic, political policies and social conditions could adversely affect our
business.
The
economy of PRC differs from the economies of most developed countries in a
number of respects, including the amount of government involvement, level of
development, growth rate, control of foreign exchange and allocation of
resources.
The
PRC
Government has been reforming the PRC economic system from planned economy
to
market oriented economy for more than 20 years, and has also begun reforming
the
government structure in recent years. These reforms have resulted in significant
economic growth and social progress. Although we believe these reforms will
have
a positive effect on our overall and long-term development, we cannot predict
whether any future changes in PRC’s political, economic and social conditions,
laws, regulations and policies will have any adverse effect on our current
or
future business, results of operations or financial condition.
Changes
in foreign exchange regulations may adversely affect our ability to pay
dividends and could adversely affect our results of operations and financial
condition.
Substantially
all of our revenues and operating expenses are denominated in Renminbi.
Conversion of Renminbi is under strict government regulation in the PRC. The
Renminbi is currently freely convertible under the "current account", including
trade and service related foreign exchange transactions and payment of
dividends, but not under the "capital account", which includes foreign direct
investment and loans. Under the existing foreign exchange regulations in the
PRC, we will be able to pay dividends in foreign currencies without prior
approval from the State Administration for Foreign Exchange by complying with
certain procedural requirements. However, there is no assurance that the above
foreign policies regarding payment of dividends in foreign currencies will
continue in the future.
Fluctuation
of the Renminbi could materially affect the value of, and dividends payable
on,
the common stock.
The
value
of the Renminbi is subject to changes in the PRC Government’s policies and
depends to a large extent on China’s domestic and international economic and
political developments, as well as supply and demand in the local market. Since
1994, the official exchange rate for the conversion of Renminbi to U.S. Dollars
has generally been stable
,
and in
2005 the official exchange rate between U.S. Dollars and Renminbi
had
a
little fluctuation
.
However,
we cannot give any assurance that the value of the Renminbi will continue to
remain stable against the U.S. Dollar or any other foreign currency. Since
our
income and profit are denominated in Renminbi, any devaluation of the Renminbi
would adversely affect the value of, and dividends, if any, payable on, our
shares in foreign currency terms.
Our
operations could be adversely affected by changes in the political and economic
conditions in the PRC.
The
PRC
is our main market and accounted for all of our revenue in 2006 and 2007.
Therefore, we face risks related to conducting business in the PRC. Changes
in
the social, economic and political conditions of the PRC may adversely affect
our business. Unfavorable changes in government policies, political unrest
and
economic developments may also have a negative impact on our operations.
Since
the
adoption of the “open door policy” in 1978 and the “socialist market economy” in
1993, the PRC government has been reforming and is expected to continue to
reform its economic and political systems. Any changes in the political and
economic policies of the PRC government may lead to changes in the laws and
regulations or the interpretation of the same, as well as changes in the foreign
exchange regulations, taxation and import and export restrictions, which may,
in
turn, adversely affect our financial performance. While the current policy
of
the PRC government seems to be one of imposing economic reform policies to
encourage foreign investments and greater economic decentralization, we cannot
assure that such a policy will continue to prevail in the future.
The
PRC Legal System Embodies Uncertainties
The
PRC
legal system is a civil law system based on written statutes. Unlike common
law
systems, it is a system in which decided legal cases have little value as
precedents. In 1979, the PRC Government began to promulgate a comprehensive
system of laws and regulations governing economic matters in general. The
overall effect of legislation over the past 28 years has significantly enhanced
the protections afforded to various forms of foreign investment in Mainland
China. Our PRC operating subsidiaries, wholly foreign-owned enterprises
(“WFOEs”), are subject to laws and regulations applicable to foreign investment
in the PRC in general and laws and regulations applicable to WFOEs in
particular. However, these laws, regulations and legal requirements are
constantly changing, and their interpretation and enforcement involve
uncertainties. These uncertainties could limit the legal protections available
to us and other foreign investors. In addition, we cannot predict the effect
of
future developments in the PRC legal system, including the promulgation of
new
laws, changes to existing laws or the interpretation or enforcement thereof,
or
the pre-emption of local regulations by national laws.
Our
shareholders may not be able to enforce U.S. civil liabilities
claims.
Our
assets are located outside the United States and are held through subsidiaries
incorporated under the laws of the Cayman Islands, British Virgin Islands and
the PRC. Our current operations are conducted in the PRC. In addition, our
directors and officers are residents of the PRC. As a result, it may be
difficult for shareholders to implement service of process on these individuals.
In addition, there is uncertainty as to whether the courts of China would
recognize or enforce judgments of United States courts obtained against the
Company or such persons predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent
to
hear original actions brought in these countries against us or such persons
predicated upon the securities laws of the United States or any state
thereof.
ITEM
7. FINANCIAL STATEMENTS
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
24
|
|
|
Consolidated
Balance Sheets - December 31, 2007 and 2006
|
25
|
|
|
Consolidated
Statements of Operations - December 31, 2007 and 2006
|
26
|
|
|
Consolidated
Statements of Stockholders' Equity -December 31, 2007 and 2006
|
27
|
|
|
Consolidated
Statements of Cash Flows - December 31, 2007 and 2006
|
28
|
|
|
Notes
to Consolidated Financial Statements
|
30
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and stockholders of
Sunrise
Real Estate Group, Inc.
We
have
audited the accompanying consolidated balance sheets of Sunrise Real Estate
Group, Inc. as of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2007 and 2006. 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 audits.
We
conducted our audits 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 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 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 financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Sunrise Real Estate Group,
Inc. as of December 31, 2007 and 2006 and the results of its consolidated
operations and its cash flows for the years ended December 31, 2007 and 2006,
in
conformity with accounting principles generally accepted in the United States
of
America.
As
described in Note 1 to the financial statements, the Company has restated the
2006 financial statements
.
BDO
McCabe Lo Limited
Hong
Kong, May 15, 2008
Sunrise
Real Estate Group, Inc.
Consolidated
Balance Sheets
(Expressed
in US Dollars)
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
(Restated)
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,281,516
|
|
$
|
945,727
|
|
Restricted
cash (Note 10)
|
|
|
2,441,579
|
|
|
-
|
|
Accounts
receivable
|
|
|
842,868
|
|
|
4,824,031
|
|
Promissory
deposits (Note 3)
|
|
|
273,800
|
|
|
192,093
|
|
Amounts
due from venturers (Note 4)
|
|
|
79,662
|
|
|
1,939,616
|
|
Amount
due from related party (Note 12)
|
|
|
312,132
|
|
|
-
|
|
Other
receivables and deposits (Note 5)
|
|
|
602,373
|
|
|
509,745
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
6,833,930
|
|
|
8,411,212
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment – net (Note 6)
|
|
|
2,519,585
|
|
|
2,491,633
|
|
Equity
investment (Note 7)
|
|
|
78,033
|
|
|
-
|
|
Investment
properties (Note 8)
|
|
|
7,800,228
|
|
|
-
|
|
Deferred
tax assets
|
|
|
-
|
|
|
142,842
|
|
Deposits
for acquisitions of properties
|
|
|
-
|
|
|
10,662,642
|
|
Goodwill
(Note 9)
|
|
|
13,307
|
|
|
207,302
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
17,245,083
|
|
$
|
21,915,631
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Bank
loans (Note 10)
|
|
$
|
191,660
|
|
$
|
1,256,282
|
|
Promissory
notes payable (Note 11)
|
|
|
976,435
|
|
|
740,833
|
|
Accounts
payable
|
|
|
230,654
|
|
|
528,814
|
|
Amounts
due to venturers
|
|
|
-
|
|
|
1,410,377
|
|
Amount
due to director (Note 12)
|
|
|
171,458
|
|
|
180,630
|
|
Amount
due to related party (Note 12)
|
|
|
159,561
|
|
|
-
|
|
Other
payables and accrued expenses (Note 13)
|
|
|
2,074,833
|
|
|
1,874,577
|
|
Other
tax payable (Note 14)
|
|
|
546,873
|
|
|
258,732
|
|
Income
tax payable (Note 15)
|
|
|
1,238,912
|
|
|
1,933,491
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,590,386
|
|
|
8,183,736
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank loans (Note 10)
|
|
|
5,847,606
|
|
|
3,927,478
|
|
Long-term
promissory notes payable (Note 11)
|
|
|
111,112
|
|
|
244,445
|
|
Minority
interest
|
|
|
542,809
|
|
|
375,406
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share; 200,000,000 shares authorized;
23,691,925 and 23,001,614 shares issued and outstanding as of December
31,
2007 and December 31, 2006, respectively (Note 17)
|
|
|
236,919
|
|
|
230,016
|
|
Additional
paid-in capital
|
|
|
3,620,008
|
|
|
2,922,997
|
|
Statutory
reserve (Note 18)
|
|
|
729,744
|
|
|
716,862
|
|
Retained
earnings
|
|
|
(741,548
|
)
|
|
4,857,948
|
|
Accumulated
other comprehensive income (Note 19)
|
|
|
1,308,047
|
|
|
456,743
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
5,153,170
|
|
|
9,184,566
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
17,245,083
|
|
$
|
21,915,631
|
|
See
accompanying notes to consolidated financial statements.
Sunrise
Real Estate Group, Inc.
Consolidated
Statements of Operations
(Expressed
in US Dollars)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Net
Revenues
|
|
$
|
8,101,324
|
|
$
|
16,417,471
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
(6,711,704
|
)
|
|
(7,246,933
|
)
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,389,620
|
|
|
9,170,538
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
(1,130,012
|
)
|
|
(1,018,804
|
)
|
|
|
|
|
|
|
|
|
General
and Administrative Expenses
|
|
|
(4,654,995
|
)
|
|
(3,064,138
|
)
|
|
|
|
|
|
|
|
|
Operating
(Loss)/Profit
|
|
|
(4,395,387
|
)
|
|
5,087,596
|
|
|
|
|
|
|
|
|
|
Profit
on disposal of investment properties (Note 8)
|
|
|
1,115,025
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Other
Income, Net
|
|
|
14,008
|
|
|
11,139
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
29,072
|
|
|
7,136
|
|
|
|
|
|
|
|
|
|
Interest
Expenses
|
|
|
(944,824
|
)
|
|
(501,995
|
)
|
|
|
|
|
|
|
|
|
(Loss)/Income
Before Income Tax and Minority Interest
|
|
|
(4,182,106
|
)
|
|
4,603,876
|
|
|
|
|
|
|
|
|
|
Income
Tax (Note 15)
|
|
|
(426,054
|
)
|
|
(1,767,088
|
)
|
|
|
|
|
|
|
|
|
(Loss)/Income
Before Minority Interest
|
|
|
(4,608,160
|
)
|
|
2,836,788
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
(157,589
|
)
|
|
(63,478
|
)
|
|
|
|
|
|
|
|
|
Net
(Loss)/Income
|
|
$
|
(4,765,749
|
)
|
$
|
2,773,310
|
|
|
|
|
|
|
|
|
|
(Loss)/Earnings
Per Share – Basic and Fully Diluted
|
|
$
|
(0.20
|
)
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
– Basic
and Fully Diluted
1
|
|
|
23,691,925
|
|
|
23,631,246
|
|
See
accompanying notes to
consolidated
financial statements.
1.
|
Share
amounts have been retroactively restated to reflect the effect of
a 3%
stock dividend of common stock for each share of common stock outstanding
at August 1, 2007.
|
Sunrise
Real Estate Group, Inc.
Consolidated
Statements of Stockholders’ Equity
(Expressed
in US Dollars)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
issued
|
|
Amount
|
|
Additional
paid-in
capital
|
|
Statutory
reserve
|
|
Accumulated
other comprehensive income
|
|
Retained
earnings
|
|
Total
stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
21,636,614
|
|
$
|
216,366
|
|
$
|
2,233,844
|
|
$
|
241,664
|
|
$
|
147,349
|
|
$
|
2,559,836
|
|
$
|
5,399,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
1,365,000
|
|
|
13,650
|
|
|
689,153
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
702,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,773,310
|
|
|
2,773,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
between reserves
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
475,198
|
|
|
-
|
|
|
(475,198
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
of foreign operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
309,394
|
|
|
-
|
|
|
309,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
(Restated)
|
|
|
23,001,614
|
|
$
|
230,016
|
|
$
|
2,922,997
|
|
$
|
716,862
|
|
$
|
456,743
|
|
$
|
4,857,948
|
|
$
|
9,184,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock dividend
|
|
|
690,311
|
|
|
6,903
|
|
|
697,011
|
|
|
-
|
|
|
-
|
|
|
(703,914
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,765,749
|
)
|
|
(4,765,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
return to minority interest in subsidiary
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(116,951
|
)
|
|
(116,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
between reserves
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,882
|
|
|
-
|
|
|
(12,882
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
of foreign operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
851,304
|
|
|
-
|
|
|
851,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
23,691,925
|
|
$
|
236,919
|
|
$
|
3,620,008
|
|
$
|
729,744
|
|
$
|
1,308,047
|
|
$
|
(741,548
|
)
|
$
|
5,153,170
|
|
See
accompanying notes to
consolidated
financial statements.
Sunrise
Real Estate Group, Inc.
Consolidated
Statements of Cash Flows
Increase/(Decrease)
in Cash and Cash Equivalents
(Expressed
in US Dollars)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
(Restated
|
)
|
Net
income
|
|
$
|
(4,765,749
|
)
|
$
|
2,773,310
|
|
Adjustments
to reconcile net income to net cash (used in)/provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
733,534
|
|
|
112,793
|
|
Loss
on disposal of property, plant and equipment
|
|
|
9,092
|
|
|
1,292
|
|
Loss
on disposal of equity interest in subsidiary
|
|
|
14,750
|
|
|
-
|
|
Bad
debts
|
|
|
114,543
|
|
|
-
|
|
Profit
on disposal of investment properties
|
|
|
(1,115,172
|
)
|
|
-
|
|
Change
in fair value of guarantee liability
|
|
|
157,812
|
|
|
-
|
|
Impairment
of goodwill
|
|
|
199,217
|
|
|
-
|
|
Deferred
tax credit
|
|
|
-
|
|
|
6,265
|
|
Minority
interest
|
|
|
157,589
|
|
|
63,478
|
|
Change
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,029,670
|
|
|
(4,806,249
|
)
|
Promissory
deposits
|
|
|
(65,755
|
)
|
|
62,747
|
|
Other
receivables and deposits
|
|
|
(355,030
|
)
|
|
(328,794
|
)
|
Amount
due from related party
|
|
|
(76,525
|
)
|
|
-
|
|
Accounts
payable
|
|
|
(321,477
|
)
|
|
443,773
|
|
Amounts
with venturers
|
|
|
543,487
|
|
|
311,547
|
|
Amount
due to related party
|
|
|
153,278
|
|
|
-
|
|
Deferred
commission income
|
|
|
-
|
|
|
(40,931
|
)
|
Other
payables and accrued expenses
|
|
|
(194,814
|
)
|
|
608,239
|
|
Interest
payable on promissory notes
|
|
|
385,602
|
|
|
7,500
|
|
Interest
payable on amount due to director
|
|
|
(17,268
|
)
|
|
11,214
|
|
Other
tax payable
|
|
|
259,643
|
|
|
93,145
|
|
Income
tax payable
|
|
|
(795,410
|
)
|
|
1,388,049
|
|
Net
cash (used in)/provided by operating activities
|
|
|
(948,983
|
)
|
|
707,378
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Acquisition
of plant and equipment
|
|
|
(158,346
|
)
|
|
(435,556
|
)
|
Proceeds
from disposal of plant and equipment
|
|
|
36,116
|
|
|
23,996
|
|
Acquisition
of equity investment
|
|
|
(74,961
|
)
|
|
-
|
|
Proceeds
from disposal of equity interest in subsidiary
|
|
|
63,200
|
|
|
-
|
|
Acquisition
of equity interest in subsidiary
|
|
|
-
|
|
|
(60,000
|
)
|
Proceeds
from disposal of investment properties
|
|
|
6,470,212
|
|
|
-
|
|
Payment
for investment properties
|
|
|
(2,233,841
|
)
|
|
(2,095,726
|
)
|
Restricted
cash
|
|
|
(2,441,597
|
)
|
|
-
|
|
Refund
of deposits paid for acquisition of properties
|
|
|
-
|
|
|
3,319,987
|
|
Net
cash
provided by investing
activities
|
|
|
1,660,783
|
|
|
752,701
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Bank
loans repayment
|
|
|
(8,069,964
|
)
|
|
(3,474,926
|
)
|
Bank
loan obtained
|
|
|
8,548,133
|
|
|
2,095,726
|
|
Repayment
of promissory note
|
|
|
(2,849,236
|
)
|
|
(747,715
|
)
|
Proceeds
from promissory note
|
|
|
2,565,903
|
|
|
600,000
|
|
Capital
contribution from minority interest
|
|
|
-
|
|
|
125,021
|
|
Repayment
to director
|
|
|
(241,904
|
)
|
|
-
|
|
Advances
from director
|
|
|
250,000
|
|
|
-
|
|
Net
cash generated from (used in) financing
activities
|
|
|
202,932
|
|
|
(1,401,894
|
)
|
Sunrise
Real Estate Group, Inc.
Consolidated
Statements of Cash Flows
Increase/(Decrease)
in Cash and Cash Equivalents
(Continued)
(Expressed
in US Dollars)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
421,057
|
|
|
31,954
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,335,789
|
|
|
90,139
|
|
Cash
and cash equivalents at beginning of
year
|
|
|
945,727
|
|
|
855,588
|
|
Cash
and cash equivalents at end of year
|
|
$
|
2,281,516
|
|
$
|
945,727
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow
information
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
Income
tax paid
|
|
|
1,166,869
|
|
|
366,627
|
|
Interest
paid
|
|
|
576,490
|
|
|
494,495
|
|
See
accompanying notes to consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed
in US Dollars)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Sunrise
Real Estate Development Group, Inc. (“CY-SRRE”) was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly
owned by Ace Develop Properties Limited, a corporation, (“Ace Develop”), of
which Lin Chi-Jung, an individual, is the principal and controlling shareholder.
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”) was
established in the People’s Republic of China (the “PRC”) on August 14, 2001 as
a limited liability company. SHXJY was originally owned by a Taiwanese company,
of which the principal and controlling shareholder was Lin Chi-Jung. On June
8,
2004, all the fully paid up capital of SHXJY was transferred to CY-SRRE. On
June
25, 2004 SHXJY and two individuals established a subsidiary, namely, Suzhou
Xin
Ji Yang Real Estate Consultation Company Limited (“SZXJY”) in the PRC, at which
point in time, SHXJY held a 90% equity interest in SZXJY. On December 24, 2004,
SHXJY acquired 85% of equity interest in Beijing Xin Ji Yang Real Estate
Consultation Company Limited (“BJXJY”), a PRC company incorporated on April 16,
2003 with limited liability. On August 9, 2005, SHXJY sold a 10% equity interest
in SZXJY to a company owned by a director of SZXJY, and transferred a 5% equity
interest in SZXJY to CY-SRRE. Following the disposal and the transfer, CY-SRRE
effectively held an 80% equity interest in SZXJY. On November 24, 2006, CY-SRRE,
SHXJY, a director of SZXJY and a third party established a subsidiary, namely,
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”) in the PRC,
with CY-SRRE holding a 12.5% equity interest, SHXJY holding a 26% equity
interest and the director of SZXJY holding a 12.5% equity interest in SZSY.
At
the date of incorporation, SRRE and the director of SZXJY entered into a voting
agreement that SRRE is entitled to exercise the voting right in respect of
his
12.5% equity interest in SZSY. Following that, SRRE effectively holds 51% equity
interest in SZSY. On September 24, 2007, CY-SRRE sold a 5% equity interest
in
SZXJY to a company owned by a director of SZXJY. Following the disposal, CY-SRRE
effectively holds 75% equity interest in SZXJY. On November 1, 2007, SZXJY
established a wholly owned subsidiary, Suzhou Xin Ji Yang Real Estate Brokerage
Company Limited (“SZXJYB”) in the PRC as a limited liability
company.
LIN
RAY
YANG Enterprise Ltd. (“LRY”) was established in the British Virgin Islands on
November 13, 2003 as a limited liability company. LRY was owned by Ace Develop,
Planet Technology Corporation (“Planet Tech”) and Systems & Technology
Corporation (“Systems Tech”). On February 5, 2004, LRY established a wholly
owned subsidiary, Shanghai Shang Yang Real Estate Consultation Company Limited
(“SHSY”) in the PRC as a limited liability company. On January 10, 2005, LRY and
a PRC third party established a subsidiary, Suzhou Gao Feng Hui Property
Management Company Limited (“SZGFH”), in the PRC, with LRY holding 80% of the
equity interest in SZGFH. On May 8, 2006, LRY acquired 20% of the equity
interest in SZGFH from the third party. Following the acquisition, LRY
effectively holds 100% of the equity interest in SZGFH. On September 11, 2007
SHSY and other third parties established a subsidiary, namely, Suzhou Bin Fen
Nian Dai Administration Consultancy Company Limited (“SZBFND”) in the PRC, with
SHSY holding a 19% equity interest in SZBFND.
SHXJY,
SZXJY, BJXJY, SHSY, SZGFH, SZSY and SZXJYB commenced operations in November
2001, June 2004, January 2004, February 2004, January 2005, November 2006 and
November 2007 respectively. Each of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY
and
SZXJYB has been granted a twenty-year operation period from the PRC, which
can
be extended with approvals from relevant PRC authorities.
On
August
31, 2004, Sunrise Real Estate Group, Inc. (“SRRE”), CY-SRRE and Lin Chi-Jung, an
individual and agent for the beneficial shareholder of CY-SRRE, i.e., Ace
Develop, entered into an exchange agreement under which SRRE issued 5,000,000
shares of common stock to the beneficial shareholder or its designees, in
exchange for all outstanding capital stock of CY-SRRE. The transaction closed
on
October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE,
the
President of CY-SRRE and the principal and controlling shareholder of Ace
Develop.
Also
on
August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual and agent for
beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems
Tech,
entered into an exchange agreement under which SRRE issued 10,000,000 shares
of
common stock to the beneficial shareholders, or their designees, in exchange
for
all outstanding capital stock of LRY. The transaction was closed on October
5,
2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the President
of LRY and the principal and controlling shareholder of Ace Develop. Regarding
the 10,000,000 shares of common stock of SRRE issued in this transaction, SRRE
issued 8,500,000 shares to Ace Develop, 750,000 shares to Planet Tech and
750,000 shares to Systems Tech.
As
a
result of the acquisition, the former owners of CY-SRRE and LRY hold a majority
interest in the combined entity. Generally accepted accounting principles
require in certain circumstances that a company whose shareholders retain the
majority voting interest in the combined business be treated as the acquirer
for
financial reporting purposes. Accordingly, the acquisition has been accounted
for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to
have purchased SRRE. However, SRRE remains the legal entity and the Registrant
for Securities and Exchange Commission reporting purposes. All shares and per
share data prior to the acquisition have been restated to reflect the stock
issuance as a recapitalization of CY-SRRE and LRY.
SRRE
was
initially incorporated in Texas on October 10, 1996, under the name of Parallax
Entertainment, Inc. (“Parallax”). On December 12, 2003, Parallax changed its
name to Sunrise Real Estate Development Group, Inc. On April 25, 2006, Sunrise
Estate Development Group, Inc. filed Articles of Amendment with the Texas
Secretary of State, changing the name of Sunrise Real Estate Development Group,
Inc. to Sunrise Real Estate Group, Inc., effective from May 23, 2006.
Figure
1:
Company Organization Chart
SRRE
and
its subsidiaries, namely, CY-SRRE, LRY, SHXJY, SZXJY, SZXJYB, SZSY, BJXJY,
SHSY
and SZGFH are sometimes hereinafter collectively referred to as “the
Company.”
The
principal activities of the Company are property brokerage services, real estate
marketing services, property leasing services and property management services
in the PRC
.
Restatement
Summary
The
financial statements for the year ended December 31, 2006 were restated to
correct the errors relating to an unprovided commission accrual of US$335,873
and an under-provision for China-taxes of US$566,879. As a result of the
correction of these errors, the financial statements for the year ended 2006
were restated and the Company’s profit for the year ended December 31, 2006 and
retained earnings as of December 31, 2007 were reduced by $902,752.
NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting and Principles of Consolidation
The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America and present
the
financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
SZXJYB, SZSY, BJXJY, SHSY and SZGFH. All inter-company transactions and balances
have been eliminated.
Foreign
Currency Translation and Transactions
The
functional currency of SRRE, CY-SRRE and LRY is United States Dollars (“US$”)
and the financial records are maintained and the financial statements prepared
in US $. The functional currency of SHXJY, SZXJY, SZXJYB, SZSY, BJXJY, SHSY
and
SZGFH is Renminbi (“RMB”) and the financial records are maintained and the
financial statements prepared in RMB.
Foreign
currency transactions during the period are translated into each company’s
denominated currency at the exchange rates ruling at the transaction dates.
Gain
and loss resulting from foreign currency transactions are included in the
consolidated statement of operations. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company’s
denominated currency at period end exchange rates. All exchange differences
are
dealt with in the consolidated statements of operations.
The
financial statements of the Company’s operations based outside of the United
States have been translated into US$ in accordance with SFAS 52. Management
has
determined that the functional currency for each of the Company’s foreign
operations is its applicable local currency. When translating functional
currency financial statements into US$, period-end exchange rates are applied
to
the consolidated balance sheets, while average period rates are applied to
consolidated statements of operations. Translation gains and losses are recorded
in translation reserve as a component of shareholders’ equity.
The
exchange rate between US$ and RMB had little fluctuation during the periods
presented. The rates ruling as of December 31, 2007 and December 31, 2006 are
US$1: RMB7.3046 and US$1: RMB7.8087, respectively.
Property,
Plant, Equipment and Depreciation
Property,
plant and equipment are stated at cost. Depreciation is computed using the
straight-line method to allocate the cost of depreciable assets over the
estimated useful lives of the assets as follows:
|
Estimated
Useful Life (in years)
|
|
|
Furniture
and fixtures
|
5-10
|
Computer
and office equipment
|
5
|
Motor
vehicles
|
5
|
Properties
|
20
|
Maintenance,
repairs and minor renewals are charged directly to the statement of operations
as incurred. Additions and improvements are capitalized. When assets are
disposed of, the related cost and accumulated depreciation thereon are removed
from the accounts and any resulting gain or loss is included in the statement
of
operations.
Investment
property
Investment
properties are stated at cost. Depreciation is computed using the straight-line
method to allocate the cost of depreciable assets over the estimated useful
lives of 20 years.
Significant
additions that extend property lives are capitalized and are depreciated over
their respective estimated useful lives. Routine maintenance and repair costs
are expensed as incurred. The Company reviews its investment property for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an investment property may not be recoverable.
Use
of Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires the Company’s management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Advertising
Costs
All
advertising costs incurred in the promotion of the Company’s real estate
projects are expensed as incurred.
Revenue
Recognition
Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer
grant
confirmation to us to be able to invoice them accordingly,
which is
normally at the time when the property developer receives from the buyer a
portion of the sales proceeds in accordance with the terms of the relevant
property sales agreement, or the balance of the bank loan to the buyer has
been
funded, or recognized under the sales schedule or other specific items of agency
sales agreement with developer.
Revenue
from marketing consultancy services is recognized when services are provided
to
clients.
Commission
revenue from underwriting service is recognized when the property developer
and
the buyer complete a property sales transaction, which is normally at the time
when the property developer has confirmed that the predetermined level of sales
proceeds have been received from buyers.
Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.
All
revenues represent gross revenues less sales and business tax.
Net
Earnings per Common Share
The
Company computes net earnings per share in accordance with SFAS No. 128,
“Earnings per Share.” Under the provisions of SFAS No. 128, basic net earnings
per share is computed by dividing the net earnings available to common
shareholders for the period by the weighted average number of shares of common
stock outstanding during the period. The calculation of diluted net earnings
per
share gives recognizes common stock equivalents, however; potential common
stock
in the diluted EPS computation is excluded in net loss periods, as their effect
is anti-dilutive.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109 “Accounting
for Income Taxes.” Under SFAS No. 109, deferred tax liabilities or assets at the
end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
We
continue to account for income tax
contingencies
using a benefit recognition model.
Beginning
January 1, 2007, if we consider that a tax position is 'more likely than not'
of
being sustained upon audit, based solely on the technical merits of the
position, we recognize the benefit. We measure the benefit by determining the
amount that is greater than 50% likely of being realized upon settlement,
presuming that the tax position is examined by the appropriate taxing authority
that has full knowledge of all relevant information. These assessments can
be
complex and we often obtain assistance from external advisors.
Under
the
benefit recognition model
,
if
our
initial assessment fails to result in the recognition of a tax benefit, we
regularly monitor our position and subsequently recognize the tax benefit if
there are changes in tax law or analogous case law that sufficiently raise
the
likelihood of prevailing on the technical merits of the position to more likely
than not; if the statute of limitations expires; or if there is a completion
of
an audit resulting in a settlement of that tax year with the appropriate agency.
Uncertain
tax positions, represented by liabilities on our balance sheet, are now
classified as current only when we expect to pay cash within the next 12 months.
Interest and penalties, if any, continue to be recorded in Provision for taxes
on income and are classified on the balance sheet with the related tax
liability.
Historically,
our policy had been to account for income tax contingencies based on whether
we
determined our tax position to be 'probable' under current tax law of being
sustained, as well as an analysis of potential outcomes under a given set of
facts and circumstances.
In
addition, we previously considered all tax liabilities as current once the
associated tax year was under audit.
Guarantees
The
Company accounts for its liability for its obligations under a guarantee in
accordance with FASB Interpretation No. 45, (FIN45) Guarantor's Accounting
and
Disclosure Requirements for Guarantees, Including Direct Guarantees of
Indebtedness of Others. FIN 45 requires that guarantors recognize a liability
for certain guarantees at the fair value of the guaranteed obligation at the
inception of the guarantee, even if the likelihood of performance under the
guarantee is remote.
Non-employee
stock based compensation
The
cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task Force
Issue ("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18").
Segment
Information
The
Company believes that it operates in one business segment. Management does
with
the business as consisting of several revenue streams; however it is not
possible to attribute assets or indirect costs to the individual streams other
than direct expenses.
NOTE
3 - PROMISSORY DEPOSITS
The
balance of $273,800 represents the deposits placed with several property
developers in respect of a number of real estate projects where the Company
is
appointed as sales agent.
NOTE
4 – AMOUNTS DUE FROM VENTURERS
The
Company has entered into co-operation agreements with two venturers (one of
them
is an independent third party; the other is the Company’s ex-director, Chang
Shu-Ching) to jointly carry out a property underwriting project for a commercial
building in Suzhou, the PRC. According to the agreements, the Company, Chang
Shu-Ching and the other venturer are entitled to share 65%, 10% and 25% of
the
net results of the project, respectively. On February 14, 2007, the venturers
entered into an additional agreement that Chang Shu-Ching obtained 25% of the
net results of the project from the other venturer. As a result, the Company
and
Chang Shu-Ching are entitled to share 65% and 35% of the net results of the
project, respectively.
NOTE
5 - OTHER RECEIVABLES AND DEPOSITS
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Advances
to staff
|
|
$
|
20,486
|
|
$
|
25,912
|
|
Rental
deposits
|
|
|
101,370
|
|
|
51,333
|
|
Prepaid
rental
|
|
|
406,833
|
|
|
365,138
|
|
Other
receivables
|
|
|
73,684
|
|
|
67,362
|
|
|
|
$
|
602,373
|
|
$
|
509,745
|
|
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
-
NET
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Furniture
and fixtures
|
|
$
|
133,970
|
|
$
|
105,288
|
|
Computer
and office equipment
|
|
|
275,988
|
|
|
234,460
|
|
Motor
vehicles
|
|
|
618,024
|
|
|
607,431
|
|
Properties
|
|
|
2,071,225
|
|
|
1,909,671
|
|
|
|
|
3,099,207
|
|
|
2,856,850
|
|
Less:
Accumulated depreciation
|
|
|
(579,622
|
)
|
|
(365,217
|
)
|
|
|
$
|
2,519,585
|
|
$
|
2,491,633
|
|
All
above
properties as of December 31, 2007 and 2006 were pledged to secure a loan in
note 10.
NOTE
7 – EQUITY INVESTMENT
On
September 11, 2007, SHSY invested approximately $78,000 for a 19% equity
interest in a newly-formed PRC company named Suzhou Bin Fen Nian Dai
Administration Consultancy Company Limited (“SZBFND”).
NOTE
8 – INVESTMENT PROPERTY
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Investment
property
|
|
$
|
8,092,319
|
|
$
|
-
|
|
Less:
Accumulated depreciation
|
|
|
(292,091
|
)
|
|
-
|
|
|
|
$
|
7,800,228
|
|
$
|
-
|
|
During
the past three years, the Company made some property investments in Suzhou
by
acquiring one floor and six units of the Sovereign Building. The properties
under development were completed on March 31, 2006 and we paid the full purchase
price to the property developer. The Company decided that these properties
will
be held for long-term investment purposes. As of June 30, 2007, the title for
these properties had been transferred to the Company. On September 19, 2007,
the
Bank of Jiangsu, Suzhou Branch and SHSY entered into an agreement for the sale
of two units of the Suzhou Sovereign Building to the Bank of Jiangsu. As of
December 31, 2007, the title of these two units had been transferred to the
purchaser, and the profit from disposal of these two units was $1,115,025.
Following the disposal, the
investment
property included one floor and four units of a commercial building in Suzhou,
the PRC, which was acquired by the Company for
long-term
investment purposes
.
As
of May
10, 2008, the four units of the Sovereign Building were leased to SZBFND, a
related party of the Company, and the remaining one floor of the Sovereign
Building was still available for lease.
All
above
investment properties as of December 31, 2007 were pledged to secure a loan
in
note 10.
NOTE
9 - GOODWILL
The
Company accounted for the acquisition of BJXJY as described in Note 1 in
accordance with SFAS No. 141 "Business Combinations", which resulted in the
recognition of goodwill. Goodwill represents the excess of acquisition cost
over
the estimated fair value of the net assets acquired as of December 24, 2004.
The
portion of the purchase price allocated to goodwill was $193,995. The Company
has tested goodwill of BJXJY for impairment annually during the forth quarter
of
each fiscal year using a fair value approach, in accordance with the provisions
of SFAS 142. As of December 31, 2007, the Company completed the annual
impairment test. Based on the result of impairment test, the Company wrote
off
the whole amount of goodwill arising from BJXJY.
The
Company accounted for the acquisition of 20% of the equity interest in SZGFH
as
described in Note 1 in accordance with SFAS No. 141 "Business Combinations",
which resulted in the recognition of goodwill. Goodwill represents the excess
of
acquisition cost over the estimated fair value of the net assets acquired as
of
May 8, 2006. The portion of the purchase price allocated to goodwill was
$13,307. The Company has tested goodwill for impairment annually during the
forth quarter of each fiscal year using a fair value approach, in accordance
with the provisions of SFAS 142. As of December 31, 2007, the Company completed
the annual impairment test. Based on the result of the first step of the test,
the Company believes that there was no impairment of goodwill as of December
31,
2007. If an event occurs or circumstances change that would more likely than
not
reduce the fair value of the Company below its carrying value, goodwill will
be
evaluated for impairment between annual year-end tests.
NOTE
10 - BANK LOANS
Bank
loans as of December 31, 2007 are comprised of two bank loans, as listed
below:
First,
the balance includes a bank loan of $5,464,286. This bank loan is repayable
before August 2, 2010 and bears interest at a rate of 8.217% per annum. This
bank loan is secured by the investment properties as mentioned in Note 8 above.
The repayment schedule of this bank loan is as follows:
February
1, 2010
|
|
$
|
1,357,285
|
|
August
2, 2010
|
|
$
|
4,107,001
|
|
Pursuant
to the relevant loan agreement, the Company used part of the loan to repay
bank
loans at the date of the loan agreement but is restricted from using the
remaining loan balance for deposits and expenditures incurred in performing
any
real estate marketing projects of the Company. Additionally, approval from
the
lending bank is required for any drawings in excess of RMB1 million from the
remaining bank balance. Restricted cash as of 31 December 2007 was $2,441,579
(2006: $Nil).
Second,
the remaining bank loan bears interest at 6.48% per annum, and is repayable
before December 15, 2010 in monthly installments. The bank loan is secured
by
the properties as mentioned in Note 6 above.
NOTE
11 – PROMISSORY NOTES PAYABLE
There
are
four promissory notes, as listed below:
First,
the balance includes a promissory note of $244,445. This promissory note of
$244,445 bears interest at a rate of 5% per annum. The promissory note is
unsecured and will be repayable before October 31, 2009
.
Second,
the balance includes a promissory note of $150,000 and accrued interest of
$6,875 thereon. This promissory note of $150,000 bears interest at a rate of
5%
per annum. This promissory note is unsecured and the term of repayment is not
specifically defined
.
Third,
the balance includes a promissory note of $300,000. This promissory note of
$300,000 bears interest at a rate of 15% per annum. This promissory note is
unsecured and the term of repayment is not specifically defined
.
Four,
the
balance includes an outstanding balance of $386,227 of a promissory note, which
is unsecured, bears interest at a rate of 1.5% per month and repayable by
January 14, 2008.
NOTE
12 – AMOUNTS WITH RELATED PARTIES AND DIRECTORS
A
related
party is an entity that can control or significantly influence the management
or
operating policies of another entity to the extent one of the entities may
be
prevented from pursuing its own interests. A related party may also be any
party
the entity deals with that can exercise that control.
Amount
due from related party
The
amount represents an advance to SZBFND, which is unsecured, interest free and
has no fixed term of repayment.
Amount
due to related party
The
amount represents a rental deposit received from SZBFND.
Amount
due to director
Prior
to
April 25, 2005, the amount due to one of the directors was interest-free.
Thereafter, the amount due to this director has borne interest at a rate of
9.6%
per annum. As of December 31, 2007, the balance of $171,458 includes principal
of
$167,122
and accrued interest of $4,336 thereon
.
The
principal is unsecured and
the
term
of repayment is not specifically defined
.
NOTE
13 - OTHER PAYABLES AND ACCRUED EXPENSES
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Accrued
staff commission & bonus
|
|
$
|
1,013,650
|
|
$
|
997,794
|
|
Rental
deposits received
|
|
|
519,352
|
|
|
240,329
|
|
Other
payables
|
|
|
541,831
|
|
|
636,454
|
|
|
|
$
|
2,074,833
|
|
$
|
1,874,577
|
|
NOTE
14 – OTHER TAX PAYABLE
Other
tax
payable mainly represents the outstanding payables of business tax, urban real
estate tax and land appreciation tax in the PRC.
Business
tax is charged at a rate of 5% on the revenue from services rendered. At
December 31, 2007, the outstanding business tax payable was $248,070 (2006:
$258,732).
Urban
real estate tax is levied at 1.2% per annum on the standard value of the
buildings in accordance with the Provisional Rules on Urban Real Estate Tax
in
the PRC. At December 31, 2007, the outstanding urban real estate tax payable
was
$120,472 (2006: Nil).
Land
appreciation tax is levied on the gain realized on the transfer of investment
properties in the year. Tax is charged in progressive rates ranging from 30%
to
60% depending on the percentage gain realised. At December 31, 2007, the
outstanding land appreciation tax payable was $178,331 (2006: Nil).
NOTE
15 – INCOME TAX PAYABLE
A.
Adoption
of New Accounting Standard
FIN
48
We
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in
income taxes recognized in an enterprise’s financial statements in accordance
with Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” The Interpretation prescribes a threshold for the financial statement
recognition and measurement of a tax position taken or expected to be taken
within an income tax return. For each tax position, the enterprise must
determine whether it is more likely than not that the position will be sustained
upon examination based on the technical merits of the position, including
resolution of any related appeals or litigation. A tax position that meets
the
more likely than not recognition threshold is then measured to determine the
amount of benefit to recognize within the financial statements. No benefits
may
be recognized for tax positions that do not meet the more likely than not
threshold. With respect to United States federal and Chinese income taxes,
no
reclassification was required.
B.
Income Taxes Payable
Enterprise
Income Tax in the PRC
Enterprise
Income Tax ("EIT") in the PRC before December 31, 2007 is generally charged
at
33% of the assessable profit. According to the relevant PRC tax rules and
regulations, SHXJY and SHSY are companies registered in Shanghai Pudong
Development Zone that are entitled to a lower EIT rate of 15%, whereas SZXJY,
SZXJYB, SZSY, BJXJY and SZGFH are subject to EIT rate of 33%.
On
January 1, 2008, China unified income tax rates for domestic and foreign
companies at 25 %. The new law will be phased in five years. Companies that
currently face an income tax of 15% will pay 18% in 2008, 20% in 2009, 22%
in
2010, 24% in 2011 and 25 % in 2012.
Income
tax represents current PRC income tax, which is calculated at the statutory
income tax rate on the assessable income for the years ended December 31, 2007
and 2006.
The
provision for China income tax consisted of:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
(Restated)
|
|
Current
PRC corporate income tax
|
|
$
|
426,054
|
|
$
|
1,760,948
|
|
Deferred
tax debit
|
|
|
-
|
|
|
6,140
|
|
|
|
$
|
426,054
|
|
$
|
1,767,088
|
|
Reconciliation
between the provision for income taxes computed by applying the statutory tax
rate in Mainland China to income before income taxes and the actual provision
for income taxes is as follows:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
(Restated)
|
|
Provision
for income taxes at statutory tax rate
|
|
$
|
(1,380,096
|
)
|
$
|
2,832,655
|
|
Tax
concessions
|
|
|
965,134
|
|
|
(1,189,401
|
)
|
Permanent
difference
|
|
|
(284,410
|
)
|
|
(11,972
|
)
|
Effect
of change in FEIT tax rate
|
|
|
202,146
|
|
|
-
|
|
Increase
in valuation allowances
|
|
|
923,280
|
|
|
135,806
|
|
Income
tax
|
|
$
|
426,054
|
|
$
|
1,767,088
|
|
United
States and State of Texas Taxes:
The
Company incurred a US federal net operating loss in the amount of $280,000
for
calendar 2007. Therefore, it has US federal net operating loss carryforwards
in
the amount of $280,000 and $564,000 which expire in 2027 and 2025, respectively.
The
net
operating loss generated in 2007 was different from the Sunrise US holding
company’s book loss because $530,000 of foreign assets were considered
repatriated to and, thus, taxable by the United States through loans made by
CY-SRRE and LRY to SRRE.
The
net
operating loss generated in 2006 was different from the Sunrise US holding
company’s book loss because $583,000 of foreign assets was considered
repatriated to and, thus, taxable by the United States through loans made
directly by CY-SRRE and indirectly by SHSY to SRRE. Another difference between
book and tax income in 2006 was the exclusion from income of $165,000 of
dividends which were previously taxed as subpart F income.
The
realization of deferred tax assets depends upon the existence of sufficient
taxable income in the carryforward period. We have considered the following
possible sources of taxable income when assessing the realization of the
deferred tax assets:
l
|
Future
taxable income exclusive of reversing temporary differences and
carryforwards,
|
l
|
Future
reversals of existing taxable temporary
differences,
|
l
|
Taxable
income in prior carry-back years,
|
l
|
Tax
planning strategies.
|
We
have
not relied upon future taxable income exclusive of temporary differences and
carryforwards for the realization of U.S. deferred tax assets. Reliance on
this
source is difficult when there is negative evidence such as current and
cumulative losses in recent years.
We
have
not provided for U.S. deferred income taxes or foreign withholding taxes on
undistributed earnings of $12.2 and $9.0 million, at
December
31,
2007
and 2006
,
respectively, of our non-U.S.
subsidiaries
because
it is not practicable to estimate the amount of additional taxes that might
be
payable on such undistributed earnings. The Company intends to distribute only
an amount sufficient to meet future expenses of the holding company as they
are
incurred. Furthermore, distributions are limited under China corporate law
to
the entity’s earnings in the preceding calendar year and, then, must be approved
by China regulators. As noted above, US income tax net operating loss carryovers
are available to offset $844,000 of future taxable income.
The
Tax
Increase Prevention and Reconciliation Act (“TIPRA”) which was signed
March
17,
2006
,
modified what income is taxed to
the
Company
as an
owner of a controlled foreign corporation (“CFC”). This modification is
effective for Sunrise’s 2006 through 2008 tax years. For Sunrise, the TIPRA
modification means that certain dividend or interest income received by CY-SRRE
or LRY will not trigger income recognition by SRRE US if the funds remain at
the
CY-SRRE or LRY level. Such dividends and interest must be properly allocable
to
non-subpart-F income, e.g., active income, of the Chinese level subs of CY-SRRE
and LRY.
The
SRRE
is incorporated in the State of Texas, which does not have a corporate income
tax.
NOTE
16- COMMITMENTS AND CONTINGENCIES
Operating
Lease Commitments
During
the years ended December 31, 2007 and 2006, the Company incurred lease expenses
amounting to $338,463 and $389,865, respectively. As of December 31, 2007,
the
Company had commitments under operating leases, requiring annual minimum rentals
as follows:
|
|
December
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Within
one year
|
|
$
|
132,628
|
|
$
|
124,429
|
|
Two
to five years
|
|
|
133,847
|
|
|
2,349
|
|
Operating
lease commitments
|
|
$
|
266,475
|
|
$
|
126,778
|
|
In
order
to distribute the properties of the Sovereign Building underwriting project,
during the year of 2005, the Company launched a promotional package by entering
into leasing agreements with certain buyers to lease the properties for them.
These leasing agreements
on
these
properties
are for
62% of the floor space that was sold to third party buyers.
In
accordance with the leasing agreements, the owners of the properties can enjoy
an annual rental return of 8.5% and 8.8% per annum for a period of 5 years
and 8
years, respectively. The leasing period started in the second quarter, 2006,
and
the Company has the right to sublease the leased properties to cover these
lease
commitments in the leasing period. As of
December
31
,
2007,
97 sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 76% of total area with these lease
commitments.
As
of
December 31, 2007, the lease commitments under the above promotional package
are
as follows:
|
|
December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Within
one year
|
|
$
|
3,047,216
|
|
$
|
2,807,847
|
|
Two
to five years
|
|
|
8,412,157
|
|
|
10,319,497
|
|
Over
five years
|
|
|
2,181,446
|
|
|
2,774,208
|
|
Operating
lease commitments arising from the promotional package
|
|
$
|
13,640,819
|
|
$
|
15,901,552
|
|
According
to the sub-leasing agreements that have been signed through December 31, 2007,
the rental income from these sub-leasing agreements will be $1,991,366 within
one year and $1,812,374 within two to five years. However,
no
assurance can be given that we can collect all of the rental income in
2008.
According
to the leasing agreements, the Company has an option to terminate any agreement
by paying a predetermined compensation. As of December 31, 2007, the
compensation to terminate all leasing agreements is $3,029,111.
NOTE
17 – ISSUE OF COMMON STOCKS
On
July
16, 2007, the Board of Directors declared a 3% stock dividend on its outstanding
shares of common stock to be paid on August 15, 2007, to shareholders of record
as of August 1, 2007. All fractional shares resulting from the stock dividend
will be rounded up to the next whole share and will be paid in stock. Following
the stock dividend, Sunrise Real Estate Group, Inc. had 23,691,925 shares of
common stock outstanding.
NOTE
18 – STATUTORY RESERVE
According
to the relevant corporation laws in the PRC, a PRC company is required to
transfer at least 10% of its profit after taxes, as determined under accounting
principles generally accepted in the PRC, to the statutory reserve until the
balance reaches 50% of its registered capital. The statutory reserve can be
used
to make good on losses or to increase the capital of the relevant
company.
NOTE
19– ACCUMULATED OTHER COMPREHENSIVE INCOME
As
of
December 31, 2007, the only component of accumulated other comprehensive income
was translation reserve.
NOTE
20 – CONCENTRATION OF CUSTOMERS
During
the years ended December 31, 2007 and 2006, the following customer accounted
for
more than 10% of total net revenue:
|
Percentage
of Net Revenue for
the
years ended December 31,
|
|
Percentage
of Accounts Receivable
as
at December 31,
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Customer
A
|
*
|
|
56%
|
|
*
|
|
59%
|
Customer
B
|
16%
|
|
*
|
|
12%
|
|
*
|
*
less
than 10%
NOTE
21 – RELATED PARTY TRANSACTION
During
the year ended December 31, 2007, SHSY paid a portrait fee of approximately
$411,000 to Ms
Chang
Shu-Ching
.
Ms
Chang is an ex-director of the Company and the portrait fee was agreed on an
arm
length basis.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
8A. CONTROLS AND PROCEDURES
Our
management has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the
Securities Exchange Act of 1934, as amended), or the Exchange Act, as of the
end
of the fiscal year covered by this report. Based on such evaluation, our chief
executive officer and chief financial officer have concluded that, as of the
end
of the fiscal year covered by this report, the Company’s disclosure controls and
procedures were partially ineffective in providing reasonable assurance that
information required to be disclosed by the Company in reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities
and
Exchange Commission. This was due to a significant deficiency that existed
in
the design and operation of our internal control over financial reporting that
adversely affected our disclosure controls relating to the unaccrual of
commission and under-provision for China-taxes.
We
identified significant deficiencies in our internal controls and disclosure
controls related to the failure to accrue for commission and to recognize
provision for taxation. These deficiencies, when taken together, resulted in
a
conclusion that the Company’s controls suffered from material
weaknesses.
Management's
Report of Internal Control over Financial Reporting
The
management of the company is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under
the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company’s principal executive and principal financial
officers and effected by the company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets of
the
company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the
company
are being made only in accordance with authorizations of management
and
directors of the company; and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Because
of its 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 or procedures may deteriorate.
The
company’s management assessed the effectiveness of the company’s internal
control over financial reporting as of December 31, 2007. In making this
assessment, the company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report. However, in connection with its audit of our financial
statements, our independent registered public accounting firm reported material
weaknesses in our internal controls over our ability to produce financial
statements free from material misstatements. Those material weaknesses are
the
failure to accrue commission and to recognize provision for taxation. We
determined that the Company’s controls had material weaknesses.
We
have
started to formulate a program which we believe will remedy the material
weaknesses described above. We also expect to review and, as appropriate, revise
our accounting and management information systems software. We also expect
to
increase the areas to be reviewed and discussed with the board of directors.
We
will continue these efforts until we are satisfied that all “material
weaknesses” have been eliminated. We expect that resolution of all of these
issues will take several months.
ITEM
8B. OTHER INFORMATION
None
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Date
of Appointment
|
|
Name
of Individual
|
|
Age
|
|
Position
with Company
|
October
28, 2003
|
|
LIN
CHI-JUNG
|
|
48
|
|
Chief
Executive Officer, President and Chairman
|
May
23, 2005
|
|
LIN
CHAO-CHIN
|
|
58
|
|
Director
and Senior Vice President
|
November
28, 2006
|
|
LIN
HSIN-HUNG
|
|
53
|
|
Executive
Director
|
November
23, 2004
|
|
CHEN
REN
|
|
60
|
|
Director
|
November
23, 2004
|
|
FU
XUAN-JIE
|
|
78
|
|
Director
|
November
23, 2004
|
|
LI
XIAO-GANG
|
|
50
|
|
Director
|
August
23, 2005
|
|
ZHANG
XI
|
|
37
|
|
Director
|
Following
is biographical information for each of the 7 directors consisting of the age,
principal occupation, and other relevant information. The designation of
"Affiliated" noted beside the director’s name indicates that the director is an
officer or employee of Sunrise. The designation of “Independent” noted beside
the director’s name indicates that the director is considered an independent
director with in the meaning of the Marketplace Rules of the Nasdaq Stock
Market, Inc., which is the independence standard that we have chosen to report
under.
Lin
Chi-Jung, CEO, Chairman, and President (Affiliated)
Lin
Chi-Jung, age 48, is the Chairman of the Board of Directors of SRRE. He also
serves as our President and CEO and the Chairman of all of our operating
subsidiaries. Mr. Lin began serving as a Director of SRRE on October 28, 2003,
and was appointed Chairman on October 11, 2004. He founded Shanghai Xin Ji
Yang
Real Estate Consultation Co., Ltd. (“SHXJY”) in late 2001, Shanghai Shang Yang
Real Estate Consultation Co., Ltd. (“SHSY”) in early 2004 and Suzhou Gao Feng
Hui Property Management Co., Ltd. (“SZGFH”) in early 2005. Under his leadership
and management, SHXJY, SHSY and SZGFH have grown rapidly. Prior to establishing
this property business, Mr. Lin invested in the film making and publishing
businesses. In his younger days, Mr. Lin was a well known actor in Chinese
communities around the world, including Mainland China, Taiwan, North America
and South East Asia.
Lin
Chao-Chin, Director (Affiliated)
Lin
Chao-Chin, age 58, was appointed as a director on May 23, 2005, and serves
on
our Compensation and Governance and Nominating Committees. He is one of the
co-founders of SHXJY. Mr. Lin brings with him 28 years of real estate industry
experience, particularly in the areas of agency, property investment, and
development services. Prior to starting his business in Mainland China, he
co-founded Taipei Xin Lian Yang Property Co. Ltd. in Taiwan in the early 1980’s.
Under Mr. Lin’s leadership, this business had contracted sales of NTD 120
Billion (approx. US$ 3.4 billion) and 800 employees. In 2001 he joined Lin
Chi-Jung to re-establish his career in Mainland China. Currently, Lin Chao-Chin
is managing the day-to-day business operation of SHXJY. Lin Chao-Chin graduated
from Taiwan Chung Yuan University with a Bachelors Degree in Business
Administration.
Lin
Hsin-Hung, Executive Director
Lin
Hsin
Hung, age 53, was appointed as an executive director on November 28, 2006.
He
graduated from the Economics Department of Taiwan Wen Hua College in 1981.
Mr.
Lin has served as the Chairman of the Board of Tian Li Manufacture Corporation,
Ding Kai Industry Corporation, Hua Wei Development Corporation and an executive
Director of Di Heng Capital Management Corporation.
Chen
Ren, Director (Independent)
Chen
Ren,
age 60, was appointed an independent director on November 23, 2004. Mr. Chen
is
Chairman and General Manager of Shanghai Real Estate Group of Companies. He
has
been involved in the Shanghai real property market for the past 15 years. Among
some of the companies that he has been associated with are: Shanghai She-ye
Property Ltd, Shanghai Rui Nan Property Limited, the General Manager of Shanghai
Gong Zhi Jing Center and Shanghai An Ju Property Development Center.
Fu
Xuan-Jie, Director (Independent)
Fu
Xuan-Jie, age 78, was appointed an independent director on November 23, 2004,
and serves on our Audit, Compensation, and Governance and Nominating Committees.
Mr. Fu has been an attorney since February 1980 and has practiced law in
his co-founded firm, Fu Xuan-Jie & Associates Law Office since April 1994.
Mr. Fu specializes in corporate and international law, especially in the areas
of international compensation and other financial matters. Among the clientele
that Mr. Fu serves are Coca-Cola, Banque Endosuez, AT&T, and
L'Oreal.
Li
Xiao-Gang, Director (Independent)
Li
Xiao-Gang, age 50, was appointed an independent director on November 23, 2004,
and serves on our Audit, Compensation, and Governance and Nominating Committees.
Mr. Li graduated from Shanghai Finance and Economics University in 1984, and
joined the Shanghai Academy of Social Science. In 1992, he was appointed the
deputy director of the Economics Law Consultation Center of the Shanghai
Academy. In 2000, he was the Director of the Foreign Investment Research Center
of the Academy. From 1992 to the present, Mr. Li has served as a Director cum
Deputy Secretary-General of the Shanghai Consultation Association.
Zhang
Xi, Director (Independent)
Zhang
Xi,
age 37, was appointed an independent director on August 23, 2005, and serves
as
Chairman of our Audit Committee. He has a Doctorate Degree in Economics, and
he
is a Senior Economist, a Certified Public Accountant and a Certified Public
Appraiser. He is working as a Vice President of Shanghai General Building
Material Group Corporation. He has also served in Shanghai Zhonghua Audit
Company as the manager of the International Department, Shanghai Zhangjiang
Hi-tech Zone Development Company, Ltd. as Vice General Manager and Financial
Controller, and Shanghai Zhang Jiang Semiconductor Industry Park Co., Ltd.
as
General Manager.
Other
Executive Officers
Art
Honanyan
,
the
Company’s Chief Financial Officer, is 63 years old. In 1973, he received an MBA
in Accounting and Finance from New York University. He is a Certified Management
Accountant and a member of the Institute of Management Accountants. For 10
years
he was Manager and Assistant Secretary in the corporate planning and control
Department of Continental Corporation, a large New York based international
insurance company. For the next 10 years, he held the CFO position at California
Central Bank & Trust, a California based trust services bank. After this
time, he held adjunct faculty positions in finance and accounting at several
Los
Angeles area graduate businesses MBA programs. During the past 2 years, he
has
held the CFO position at the Company. During the four previous years, he was
controller of a Southern California based group of engineering companies and
held adjunct faculty positions at two MBA programs.
Family
Relationships
There
are
no family relationships among directors, executive officers, or person nominated
or chosen to become the directors or executive officers.
Code
of Ethics
On
October 8, 2005, we adopted a code of ethics. We believe our code of ethics
is
reasonably designed to deter wrongdoing and promote honest and ethical conduct;
provide full, fair, accurate, timely and understandable disclosure in public
reports; comply with applicable laws; ensure prompt internal reporting of code
violations; and provide accountability for adherence to the code. The Company
will provide to any person without charge, upon request, a copy of the corporate
code of ethics. Any person wishing a copy should write to Alice Wang, Sunrise
Real Estate Group, Inc., Suite 701, No. 333, Zhaojiabang Road, Shanghai, PRC
200032.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who own more than 10% of a registered class
of
our equity securities to file reports of ownership and changes in ownership
with
the Securities and Exchange Commission. Copies of these filings must be
furnished to the Company. Based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports
were
required, during the fiscal year ending December 31, 2007, all Section 16(a)
filing requirements applicable to our executive officers, directors and greater
than 10% beneficial owners have been met on a timely basis.
Information
Concerning our Board and Committees of our Board
The
Company’s Board has three standing committees: an Audit Committee, a Governance
and Nominating Committee, and a Compensation Committee. We have a written
Audit Committee Charter, a written Governance and Nominating Committee Charter
and a written Compensation Committee Charter. Except for Lin Chao-Chin, all
of
our directors serving on our committees are “independent” within the meaning of
the Marketplace Rules of the Nasdaq Stock Market, Inc., which is the
independence standard that we have chosen to report under.
Audit
Committee and Audit Committee Financial Expert
Our
Board
established the Audit Committee on August 23, 2005. The Audit Committee consists
of three members, Fu Xuan-Jie, Li Xiao-Gang, and Zhang Xi, all of whom are
“independent” within the meaning of the Marketplace Rules of the Nasdaq Stock
Market, Inc., which is the independence standard that we have chosen to report
under. At least one member of the Audit Committee, Zhang Xi, is a financial
expert, as that term is used under Item 407(d)(5) of Regulation
S-B.
Governance
and Nominating Committee
The
Governance and Nominating Committee of the Board consists of Mr. Lin Chao-Chin,
Mr. Li Xiao-Gang and Mr. Fu Xuan-Jie. The primary duties of the Governance
and
Nominating Committee are to identify and review candidates for the Board and
recommend candidates for election to the Board, periodically review the skills
and characteristics required of Board members in the context of the current
Board, and periodically review the Company’s corporate governance policies and
recommend modifications to the Board as appropriate. The Governance and
Nominating Committee operates pursuant to a charter that was approved by our
Board, a current copy of which is available on our website at
www.sunrise.sh
under
the
heading “Investor” and subheading “Corporate Governance.”
Our
shareholders may recommend director nominees, and the Governance and Nominating
Committee will consider nominees recommended by shareholders. We anticipate
that
nominees recommended by shareholders will be evaluated in the same manner as
nominees recommended by anyone else, although the Governance and Nominating
Committee may prefer nominees who are personally known to the existing directors
and whose reputations are highly regarded. The Governance and Nominating
Committee will consider all relevant qualifications as well as the needs of
the
company in terms of compliance with SEC rules.
While
the
selection of qualified directors is a complex, subjective process that requires
consideration of many intangible factors, the Governance and Nominating
Committee and the Board takes into account the following criteria, among others,
in considering directors and candidates for the board: judgment, experience,
skills and personal character of the candidate, and the needs of the
Board.
The
Governance and Nominating Committee conducts a process of making a preliminary
assessment of each proposed nominee based upon the resume and biographical
information, an indication of the individual’s willingness to serve and other
background information. This information is evaluated against the criteria
set
forth above and our specific needs at that time. Based upon a preliminary
assessment of the candidate(s), those who appear best suited to meet our needs
may be invited to participate in a series of interviews, which are used as
a
further means of evaluating potential candidates. On the basis of information
learned during this process, the Governance and Nominating Committee determines
which nominee(s) to recommend to the Board to submit for election at the next
annual meeting. The Governance and Nominating Committee uses the same process
for evaluating all nominees, regardless of the original source of the
nomination.
Compensation
Committee
The
Compensation Committee of the Board consists of Mr. Lin Chao-Chin, Mr. Li
Xiao-Gang and Mr. Fu Xuan-Jie. The primary duties of the Compensation Committee
are to annually review and approve the Company’s compensation strategy to ensure
that employees are rewarded appropriately; review annually and approve corporate
goals and objectives relevant to executive compensation; annually review and
determine elements of compensation of the CEO and other officers; and review
and
recommend compensation for non-employee members of our Board. The Compensation
Committee operates pursuant to a charter that was approved by our Board, a
current copy of which is available on our website at
www.sunrise.sh
under
the
heading “Investor” and subheading “Corporate Governance.”
ITEM
10. EXECUTIVE COMPENSATION
The
following table reflects the compensation paid to the Company’s Chief Executive
Officer and each of the Company’s compensated executive officers whose
compensations exceeded $100,000 in fiscal years 2007 and 2006 for services
rendered to the Company and its subsidiaries.
Name
and Principal Position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)
(e)
|
|
Option
Awards
($)
(f)
|
|
Non-Equity
Incentive Plan Compensation
($)
(g)
|
|
Change
in Pension
Value
and Nonqualified Deferred Compensation Earnings
($)
(h)
|
|
All
Other
Compensation
($)
(i)
|
|
Total
($)
(j)
|
|
Lin
Chi-Jung
CEO,
President & Chairman
Executive
Officer of subsidiaries
|
|
|
2007
2006
|
|
|
145,976
146,826
|
|
|
21,950
150,364
|
(2)
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
91,796
92,825
|
(3)
|
|
259,722
390,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art
Honanyan
Chief
Financial Officer
|
|
|
2007
2006
|
|
|
55,234
52,707
|
|
|
0
6,852
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
12,624
12,047
|
|
|
67,858
71,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lin
Chao-Chin
Senior
Vice President
Managing
director of subsidiaries
|
|
|
2007
2006
|
|
|
145,976
146,826
|
|
|
21,950
150,364
|
(2)
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
91,796
92,825
|
(3)
|
|
259,722
390,015
|
|
(1)
|
There
are no stock option, retirement, pension, or profit sharing plans
for the
benefit of our officers.
|
(2)
|
Lin
Chi-Jung and Lin Chao-Chin each received a discretionary bonus of
$21,950
in 2007. This incentive was attributed to the initial management
team
members for their valuable contribution to the Company. Each bonus
was
calculated at 10% of net profit before income tax of SHXJY and
subsidiaries in 2007.
|
(3)
|
Lin
Chi-Jung and Lin Chao-Chin each received housing allowance of $86,796
and
travel allowance of $5,000 during the year 2007.
|
Option/SAR
Grants
The
Company has no stock option plan or other equity incentive plan in place.
Accordingly, no individual grants of stock options, whether or not in tandem
with Stock Appreciation Rights (“SARs”) and freestanding SARs have been made to
any executive officer or any director since the Company’s inception,
accordingly, no stock options have been exercised by the Company’s officers or
directors in any fiscal year.
DIRECTOR
COMPENSATION
Name
(a)
|
|
Fees Earned
or
Paid in
Cash
($)
(b)
|
|
Stock Awards
($)
(c)
|
|
Option
Awards
($)
(d)
|
|
Non-Equity
Incentive Plan
Compensation
($)
(e)
|
|
Change
in Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
(f)
|
|
All
Other
Compensation
($)
(g)
|
|
Total
($)
(h)
|
|
LIN
CHI-JUNG
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIN
CHAO-CHIN
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIN
HSIN-HUNG
|
|
|
31,562
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
31,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FU
XUAN-JIE
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LI
XIAO-GANG
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEN
REN
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZHANG
XI
|
|
|
15,781
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
15,781
|
|
(1)
|
There
are no stock option, retirement, pension, or profit sharing plans
for the
benefit of directors.
|
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth, as of May 9, 2008, the number and percentage of
our
23,691,925 shares of common stock outstanding that were beneficially owned
by
(1) each person known to the Company to be the beneficial owner of five percent
or more of our common stock, (2) each director and named executive officer,
and
(3) all of the Company's directors and executive officers as a group. Unless
otherwise indicated, the person listed in the table is the beneficial owner
of,
and has sole voting and investment power with respect to, the shares
indicated.
|
|
|
|
Amount and Nature of
|
|
Percent
|
|
Title of Class
|
|
Name and Address
|
|
Beneficial Ownership
|
|
of Class
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Lin
Chi-Jung
|
|
|
9,022,800
|
(1)
|
|
38.08
|
%
|
|
|
|
Suite
701, No. 333, Zhaojiabang Road
|
|
|
|
|
|
|
|
|
|
|
Shanghai,
PRC 200032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Art
Honanyan
|
|
|
160,000
|
|
|
1
|
%
|
|
|
|
Suite
701, No. 333, Zhaojiabang Road
|
|
|
|
|
|
|
|
|
|
|
Shanghai,
PRC 200032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
LIN
HSIN-HUNG
|
|
|
334,750
|
(2)
|
|
1
|
%
|
|
|
|
Suite
701, No. 333, Zhaojiabang Road
|
|
|
|
|
|
|
|
|
|
|
Shanghai,
PRC 200032
|
|
|
|
|
|
|
|
(1)
These
shares are owned by Ace
Develop Properties Limited, of which Mr. Lin Chi-Jung is the sole beneficiary
owner
(2)
These shares are owned by Glorystar International Enterprise Limited, of which
Mr. Lin Hsing Hung is a minority shareholder and an officer.
Changes
in Control
To
the
knowledge of management, there are no present arrangements or pledges of our
securities that may result in a change in control of the Company.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
None
ITEM
13. EXHIBITS
Exhibit
|
|
Number
|
Description
|
|
|
31.1
|
Certification
of Lin Chi-Jung, pursuant to Rule 15d-14(a).
|
|
|
31.2
|
Certification
of Art Honanyan, pursuant to Rule 15d-14(a).
|
|
|
32.1
|
Certifications
of Lin Chi-Jung, pursuant to 18 U.S.C. 1350.
|
|
|
32.2
|
Certifications
of Art Honanyan, pursuant to 18 U.S.C.
1350.
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
aggregate fees billed by BDO McCabe Lo Limited for services rendered during
the
year ended December 31, 2007, 2006 and 2005 are described as
follows:
Fees
for
audit and review services amounted to $141,500 in 2007, $116,500 in 2006 and
$82,500 in 2005, respectively. Fees for audit and review services include the
annual audit of the consolidated financial statements of the Company and its
subsidiaries, and review of the Company's Quarterly Reports on Form
10-QSB.
Audit-Related
Fees
Aggregate
fees billed for all audit-related services rendered by BDO McCabe Lo Limited
consisted of $13,000 for 2007 and $14,500 for 2005. Fees for audit related
services include audits required in the Form 8-K and review of related
documents. There were no audit-related fees billed by BDO McCabe Lo Limited
in
2006.
Tax
Fees
There
were no tax services fees paid to BDO McCabe Lo Limited; they are not the tax
accountants of the Company.
All
Other Fees
BDO
McCabe Lo Limited did not bill the Company any additional fees for professional
services rendered to the Company during fiscal years ended December 31, 2007,
2006 and 2005.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Independent Auditors
According
to the charter of the Audit Committee, the Company’s policy on pre-approval of
audit and permissible non-audit services of independent auditors is to
pre-approve all audit services and permissible non-audit services by the
independent accountants, as set forth in Section 10A of the Exchange Act and
the
rules and regulations promulgated thereunder by the SEC. The Audit Committee
may
establish pre-approval policies and procedures, as permitted by Section 10A
of
the Exchange Act and the rules and regulations promulgated thereunder by the
SEC, for the engagement of independent accountants to render services to the
Company, including but not limited to policies that would allow the delegation
of pre-approval authority to one or more members of the Audit Committee,
provided that any pre-approvals delegated to one or more members of the Audit
Committee are reported to the Audit Committee at its next scheduled meeting.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Sunrise
Real Estate Group, Inc.
|
|
/s/
Lin Chi-Jung
|
BY:
Lin Chi-Jung
|
Principal Executive Officer and Director
|
|
DATE:
May 15, 2008
|
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.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Lin Chi-Jung
|
|
Principal
Executive Officer
|
|
May
15, 2008
|
Lin
Chi-Jung
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
Art Honanyan
|
|
Chief
Financial Officer
|
|
May
15, 2008
|
Art
Honanyan
|
|
|
|
|
|
|
|
|
|
/s/
Lin Chao-Chin
|
|
Director
|
|
May
15, 2008
|
Lin
Chao-Chin
|
|
|
|
|
|
|
|
|
|
/s/
Lin Hsin-Hung
|
|
Director
|
|
May
15, 2008
|
Lin
Hsin-Hung
|
|
|
|
|
|
|
|
|
|
/s/
Fu Xuan-Jie
|
|
Director
|
|
May
15, 2008
|
Fu
Xuan-Jie
|
|
|
|
|
|
|
|
|
|
/s/
Li Xiao-Gang
|
|
Director
|
|
May
15, 2008
|
Li
Xiao-Gang
|
|
|
|
|
|
|
|
|
|
/s/
Chen Ren
|
|
Director
|
|
May
15, 2008
|
Chen
Ren
|
|
|
|
|
|
|
|
|
|
/s/
Zhang Xi
|
|
Director
|
|
May
15, 2008
|
Zhang
Xi
|
|
|
|
|
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