UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
(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
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6351
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75-2713701
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Primary
Standard Industrial
Classification
Code Number)
|
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(I.R.S.
Employer Identification No.)
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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
Explanatory
Paragraph
Sunrise
Real Estate Group, Inc. (“the Company”) is filing this amendment No. 1 to our
Form 10-KSB to amend our Annual Report on Form 10-KSB for the fiscal years ended
December 31, 2007, 2006, and 2005 as filed with the Securities and Exchange
Commission on May 15, 2008 (the “Original Filing”). On August 13, 2008, the
Company’s Board of Directors determined that the Company’s consolidated
financial statements for the fiscal years ended December 31, 2007, 2006 and 2005
could no longer be relied upon as they did not correctly apply the accounting
principles for the recognition of underwriting sales revenue. This Form 10-KSB/A
included restated financial statements for the fiscal years ended December 31,
2007,2006 and 2005 correcting this error which occurred during 2006 and 2005.
Please see Note 2 – Restatement Summary for more detailed information on the
effect of the restatement on our financial statements for the fiscal years ended
December 31, 2007, 2006 and 2005.
The Items
of this Form 10-KSB/A for the fiscal years ended December 31, 2007 and December
31, 2006 and December 31, 2005 which are amended and restated as a result of the
restatement of our financial statements are as follows:
|
Item
6. Management’s Discussion and Analysis of Financial Condition and Results
of Operations,
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Item
7. Financial Statements, and
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Item
8A. Controls and Procedures.
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Except as
described above, no other information in the Original Filing has been updated
and this Amendment continues to speak as of the date of the Original Filing.
Other events occurring after the filing of the Original Filing or other
disclosures necessary to reflect subsequent events have been or will be
addressed in other reports filed with or furnished to the SEC subsequent to the
date of the Original Filing.
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.
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Description
of Business
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3
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Item
2.
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Description
of Property
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9
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Item
3.
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Legal
Proceedings
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9
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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9
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PART
II
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Item
5.
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Market
for Common Equity and Related Stockholder Matters
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10
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Item
6.
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Management’s
Discussion and Analysis or Plan of Operation
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10
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Item
7.
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Financial
Statements
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25
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Item
8.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
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43
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Item
8A.
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Controls
and Procedures
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43
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Item
8B.
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Other
Information
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44
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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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45
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Item
10.
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Executive
Compensation
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48
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Item
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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49
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Item
12.
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Certain
Relationships and Related Transactions
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49
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Item
13.
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Exhibits
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49
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Item
14.
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Principal
Accountant Fees and Services
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50
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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.
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Integrated
Marketing Planning
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b.
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Advertising
Planning & Execution
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c.
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Sales
Planning and Execution
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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)
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Base
Commission of 1.0% - 1.5% based on the Average sales
value.
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b)
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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
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2003
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10.0
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%
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2004
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10.1
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%
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2005
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10.4
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%
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2006
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10.7
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%
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2007
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11.4
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%
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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:
-
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Increase
the supply of middle and low-income
housing.
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-
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Control
construction of upscale commodity
apartments.
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-
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Stimulate
the secondary housing market.
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-
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Increase
the collection of housing accumulation funds, and exert more efforts in
granting loans.
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-
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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.
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-
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Further
exert controls through tax, bank credit and the agrarian
policy.
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-
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Reasonably
control the speed of urban housing
relocation.
|
-
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Further
normalize the real estate market.
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-
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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
|
|
|
2005
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
quarter
|
|
$
|
1.98
|
|
|
$
|
1.65
|
|
|
$
|
3.00
|
|
|
$
|
0.51
|
|
|
$
|
5.00
|
|
|
$
|
3.00
|
|
Second
quarter
|
|
$
|
2.15
|
|
|
$
|
1.02
|
|
|
$
|
2.40
|
|
|
$
|
1.15
|
|
|
$
|
5.00
|
|
|
$
|
2.50
|
|
Third
quarter
|
|
$
|
1.95
|
|
|
$
|
0.25
|
|
|
$
|
1.85
|
|
|
$
|
0.25
|
|
|
$
|
4.00
|
|
|
$
|
1.25
|
|
Fourth
quarter
|
|
$
|
0.80
|
|
|
$
|
0.15
|
|
|
$
|
2.00
|
|
|
$
|
0.30
|
|
|
$
|
1.25
|
|
|
$
|
0.51
|
|
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, 2006 and 2005. 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
years ended December 31, 2007, 2006 and 2005.
No
securities of the Company were issued pursuant to any equity compensation plan
during the years ended December 31, 2007, 2006 and 2005.
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.
The
Company accounts for its underwriting sales revenue with underwriting rent
guarantees in accordance with SFAS No. 66 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method is used for the revenue from the
sales of floor space with underwriting rent guarantees until the rental revenues
generated by sub-leasing properties exceeds the guaranteed rental amount due to
the purchasers.
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.
Restatement
Summary
The
Company discovered errors to previously issued financial statements for the
fiscal years ended December 31, 2007, 2006 and 2005. The Company has filed the
restated financial statements for these periods to make the correction of the
errors.
The first
restatement relates to the recognition of revenue from underwriting sales. The
Company entered into an agreement in 2004 to underwrite an office building in
Suzhou, known as Suzhou Sovereign Building. Under the Underwriting Model, our
commission revenue is equivalent to the price difference between the final
selling price and underwriting price. In marketing of the property, the Company
also launched a promotional package by entering into leasing agreements with
certain buyers to lease the properties for them. The leasing period started in
the second quarter of 2006, and in the leasing period the Company has the right
to sublease the leased properties to earn rental income. The Company recognised
commission revenue from underwriting service when the property developer and the
buyer completed 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. The Company accounted 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. It is the only
underwriting agreement the Company entered since its incorporation.
The
Company has determined that the correct application of accounting principles had
not been applied for the recognition of underwriting sales revenue. In this
correction, the financial statements for the years ended December 31, 2007 and
2006 and 2005 were restated to increase the Company’s deferred tax assets and
deposits received from underwriting sales by deferring revenue recognition from
the closing of the sale, to generally when the remaining advances to venturers
maximum exposure to loss is reduced below the amount of gain deferred. As a
result, the Company’s net asset values as of December 31, 2007, 2006 and 2005
were reduced by $5,574,548, $5,315,410 and $1,806,588, respectively. The
correction of this error reduced the Company’s losses for the year ended
December, 2007 by $157,811 and reduced the Company’s profit for the year ended
December 31, 2006 and 2005 by $3,365,274 and $1,779,656,
respectively.
The
second restatement relates to correct the overstatement of the minority
shareholders’ share of the Company’s result by $111,135. As a result
of the correction of this item, the Company’s financial statements for the year
ended 2007 were restated and the Company’s loss for the year ended December 31,
2007 were reduced by $106,759 and the total of accumulated losses and
accumulated other comprehensive income as of December 31, 2007 were reduced by
$111,135.
The third
restatement relates to correct the unprovided commission accrual of $335,873 and
the under-provision for China taxes of US$566,879 for the year ended December
31, 2006. As a result of the correction, the retained earnings for
2007 were reduced by $902,752. The effect of this restatement was taken up in
the 10KSB for years ended December 31, 2007 and 2006, which were filed on May
16, 2008. There was no unprovided commission in 2005.
The
fourth restatement relates to reclassifying from the cost of revenue to minority
interest in regards to the venturers’ profit sharing of the underwriting sales
project. As a result of the reclassification, the cost of revenue in 2006 was
reduced by $579,729.
The fifth
restatement relates to recognize an accrual for onerous contracts which is equal
to the difference between the present value of the sublease income and the
present value of the associated lease expense at appropriate discount rate. The
provisions for onerous contacts for the year ended December 31, 2007 and 2006
were $252,070 and $283,741, respectively. As a result of the restatement, the
total of retained earnings and accumulated other comprehensive income for 2007
and 2006 were reduced by $535,811 and $283,741, respectively.
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 and December 31,
2005.
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
|
|
|
|
63
|
|
|
|
(7
|
)
|
Underwriting
sales
|
|
|
275,465
|
|
|
|
3
|
|
|
|
4,290,504
|
|
|
|
37
|
|
|
|
(93
|
)
|
Property
management
|
|
|
1,170,277
|
|
|
|
15
|
|
|
|
54,906
|
|
|
|
-
|
|
|
|
2,031
|
|
Net
revenue
|
|
|
8,101,324
|
|
|
|
100
|
|
|
|
11,511,704
|
|
|
|
100
|
|
|
|
(30
|
)
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
%
to total
|
|
|
2005
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
7,166,294
|
|
|
|
63
|
|
|
|
6,477,636
|
|
|
|
74
|
|
|
|
11
|
|
Underwriting
sales
|
|
|
4,290,504
|
|
|
|
37
|
|
|
|
2,269,598
|
|
|
|
26
|
|
|
|
89
|
|
Property
management
|
|
|
54,906
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Net
revenue
|
|
|
11,511,704
|
|
|
|
100
|
|
|
|
8,747,234
|
|
|
|
100
|
|
|
|
32
|
|
The net
revenues for 2007 were $8,101,324, which decreased 30% from $11,511,704 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.
The net
revenues for 2006 were $11,511,704, which increased 32% from $8,747,234 of 2005.
In 2006, agency sales represented 63% of the total net revenues, underwriting
sales represented 37% and property management represented 0%. The increase in
2006 was mainly due to the increase 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.
|
In 2006,
63% of our net revenues were from agency sales, which were from the business
activities of SHXJY and its subsidiaries. As compared with 2005, net
revenues of agency sales in 2006 increased 11%. The main reasons for the
increase in 2006 were:
i)
|
In
2006, there were 39 agency sales projects that contributed net revenues to
the Company, compared with 33 projects in
2005.
|
ii)
|
In
2006, there were 7 agency sales projects that totally contributed net
revenues of $ 4,243,595 to the Company; these represented 59% of net
revenues from agency sales.
|
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 December
31, 2006, we have achieved the sales target by selling 46,779 square meters with
a total sales price of $70.45 million. However, there are still unsold
properties with floor area of 314 square meters, which represents 1% of total
floor area underwritten, as of December 31, 2006. 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. The Company accounts for its underwriting sales
revenue with underwriting rent guarantees in accordance with SFAS No. 66
“Accounting for Sales of Real Estate” (SFAS 66). Under SFAS 66, the deposit
method should be used for the revenue from the sales of floor space with
underwriting rent guarantees until the rental revenues generated by sub-leasing
properties exceed the guaranteed rental amount due to the
purchasers.
The above
is an one-off transaction but the Company continues to seek opportunities in
underwriting sales.
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, 2006, 39 sub-leasing agreements have been
signed. The area of these sub-leasing agreements represents 40% of total area
under these lease commitments. 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
|
|
|
|
47
|
|
|
|
3,330,662
|
|
|
|
56
|
|
|
|
(4
|
)
|
Underwriting
sales
|
|
|
214,559
|
|
|
|
3
|
|
|
|
785,235
|
|
|
|
13
|
|
|
|
(73
|
)
|
Property
management
|
|
|
3,378,931
|
|
|
|
50
|
|
|
|
1,845,226
|
|
|
|
31
|
|
|
|
83
|
|
Cost
of revenue
|
|
|
6,805,963
|
|
|
|
100
|
|
|
|
5,961,123
|
|
|
|
100
|
|
|
|
14
|
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
%
to total
|
|
|
2005
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
3,330,662
|
|
|
|
56
|
|
|
|
2,560,266
|
|
|
|
76
|
|
|
|
30
|
|
Underwriting
sales
|
|
|
785,235
|
|
|
|
13
|
|
|
|
800,734
|
|
|
|
24
|
|
|
|
(2
|
)
|
Property
management
|
|
|
1,845,226
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost
of revenue
|
|
|
5,961,123
|
|
|
|
100
|
|
|
|
3,361,000
|
|
|
|
100
|
|
|
|
77
|
|
The cost
of revenues for 2007 was $6,805,963, this was an increase of 14% from $5,961,123
in 2006. In 2007, agency sales represented 47% of total cost of
revenues, underwriting sales represented 3% and property management represented
50%. The increase in cost of revenues in 2007 was mainly due to the
increase in our property management.
The cost
of revenues for 2006 was $5,453,974, this was an increase of 77% from $3,361,000
in 2005. In 2006, agency sales represented 56% of total cost of
revenues, underwriting sales represented 13% and property management represented
31%. The increase in cost of revenues in 2006 was mainly due to the
increase in property management.
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.
The cost
of revenue for agency sales in 2006 increased 30% from 2005. The primary reason
for this increase is that we established a branch in Nanjing in December, 2005,
and branches in Zhenjiang and Chongqing in March and November 2006
respectively. We also established SZSY in Shuzhou in November, 2006
to support the growth of our agency sales and diversify our market
presence. The cost of revenues for the new subsidiary and new
branches in 2006 was $673,502; there was no such cost in 2005.
Underwriting
sales
The
Company has entered into co-operation agreements with two venturers to jointly
carry out the underwriting project mentioned above. According to these
agreements, the venturers are entitled to share 35% of the net results of the
underwriting project.
A
significant factor contributing to the increase of the cost of underwriting
sales was that in 2006, we recognized this profit sharing amount as the cost of
the underwriting project, which represented 79% of total underwriting sales
costs in 2006; there was no such cost in 2005.
Since all
of the units under the Sovereign Building underwriting project were sold by the
end of February, 2007, cost of revenue of underwriting sales in 2007 decreased
23% from 2006.
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
|
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
%
to total
|
|
|
2005
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
865,180
|
|
|
|
85
|
|
|
|
894,741
|
|
|
|
88
|
|
|
|
(3
|
)
|
Underwriting
sales
|
|
|
84,610
|
|
|
|
8
|
|
|
|
116,477
|
|
|
|
11
|
|
|
|
(27
|
)
|
Property
management
|
|
|
69,014
|
|
|
|
7
|
|
|
|
7,198
|
|
|
|
1
|
|
|
|
859
|
|
Operating
expenses
|
|
|
1,018,804
|
|
|
|
100
|
|
|
|
1,018,416
|
|
|
|
100
|
|
|
|
16
|
|
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.
The
operating expenses of 2006 were $1,018,804; these increased 16% from $1,018,416
in 2005. In 2006, agency sales represented 85% of the total operating
expenses, underwriting sales represented 8% and property management represented
7%. The increase in operating expenses in 2006 was mainly due to the
increase in our agency sales.
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.
To
support the increase of net revenues from agency sales, the operating expenses
for agency sales in 2006 increased 19% from 2005. This increase was mainly due
to the increase in the staff cost of SHXJY and its subsidiaries and branches in
2006; comparing to 2005, the increase of such expenses was
$151,898.
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.
The
operating expenses for underwriting sales in 2006 decreased 27% from 2005. This
decrease was mainly due to the decrease in the staff cost and travel expenses of
SHSY in 2006; comparing to 2005, the decrease of such expenses was
$26,205.
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.
The
operating expenses for property management in 2006 increased 859% from 2005.
This increase was mainly due to the increase in the staff cost and agency
commissions of SZGFH in 2006; the actual increase was $54,498 from 2005. With
the continued development of SZGFH, the operating expenses will increase to
support property management operations.
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.
|
The
general and administrative expenses in 2006 were $3,064,138, decreasing 16% from
$3,651,186 in 2005. The primary reason for this decrease is that there were
$693,600 of consulting services fees in 2005. These were consulting
services rendered by Marco Partners Limited and Chiang Hui Hsiung, a former
director of the Company in 2005; there were no such expenses in
2006.
Interest
Expenses
When
compared to 2006, the interest expenses in 2007 increased 88%. The interest
expense relates to bank loans and promissory notes payable.
Interest
expenses in 2006 were $501,995, increasing 209% from $162,496 in
2005. The interest expenses were mainly incurred for bank loans and
promissory notes payable. The increase was mainly due to increases in
interest expenses on bank loans for the acquisition of properties.
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 $4,501,179 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
|
|
|
26
|
|
|
|
|
|
|
Consolidated
Balance Sheets -
|
|
|
|
|
December
31, 2007, 2006 and 2005
|
|
|
27
|
|
|
|
|
|
|
Consolidated
Statements of Operations -
|
|
|
|
|
December
31, 2007, 2006 and 2005
|
|
|
28
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity -
|
|
|
|
|
December
31, 2007, 2006 and 2005
|
|
|
29
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows -
|
|
|
|
|
December
31, 2007, 2006 and 2005
|
|
|
30
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
32
|
|
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, 2006, and 2005 and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2007. 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 2 to the financial statements, the Company has restated the
2007, 2006 and 2005 financial statements for the correction of
errors.
BDO McCabe Lo Limited
Hong
Kong, May 15, 2008 (Except for note 2 which is as of 1
4
May,
2009)
Sunrise
Real Estate Group, Inc.
Consolidated
Balance Sheets
(Expressed
in US Dollars)
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,281,516
|
|
|
$
|
945,727
|
|
|
$
|
855,588
|
|
Restricted
cash (Note 12)
|
|
|
2,441,579
|
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivable
|
|
|
842,868
|
|
|
|
4,824,031
|
|
|
|
1,359,246
|
|
Deposits
for acquisition of properties (Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,150,476
|
|
Promissory
deposits (Note 4)
|
|
|
273,800
|
|
|
|
192,093
|
|
|
|
247,924
|
|
Amounts
due from venturers
(Note
5)
|
|
|
1,069,484
|
|
|
|
2,098,790
|
|
|
|
820,040
|
|
Amount
due from related party (Note 14)
|
|
|
312,132
|
|
|
|
-
|
|
|
|
-
|
|
Other
receivables and deposits (Note 6)
|
|
|
602,373
|
|
|
|
509,745
|
|
|
|
168,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,823,752
|
|
|
|
8,570,386
|
|
|
|
7,601,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment – net (Note 7)
|
|
|
2,519,585
|
|
|
|
2,491,633
|
|
|
|
531,458
|
|
Equity
investment (Note 8)
|
|
|
78,033
|
|
|
|
-
|
|
|
|
-
|
|
Investment
properties (Note 9)
|
|
|
7,800,228
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
tax asset (Note 10)
|
|
|
1,021,059
|
|
|
|
938,134
|
|
|
|
358,923
|
|
Deposits
for acquisitions of properties (Note 9)
|
|
|
-
|
|
|
|
10,662,642
|
|
|
|
7,488,899
|
|
Goodwill
(Note 11)
|
|
|
13,307
|
|
|
|
207,302
|
|
|
|
187,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
19,255,964
|
|
|
$
|
22,870,097
|
|
|
$
|
16,169,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loans (Note 12)
|
|
$
|
191,660
|
|
|
$
|
1,256,282
|
|
|
$
|
1,073,650
|
|
Promissory
notes payable (Note 13)
|
|
|
976,435
|
|
|
|
740,833
|
|
|
|
1,123,962
|
|
Accounts
payable
|
|
|
230,654
|
|
|
|
528,814
|
|
|
|
73,522
|
|
Amount
due to director (Note 14)
|
|
|
171,458
|
|
|
|
180,630
|
|
|
|
169,416
|
|
Amount
due to related party (Note 14)
|
|
|
159,561
|
|
|
|
-
|
|
|
|
-
|
|
Other
payables and accrued expenses (Note 15)
|
|
|
2,452,833
|
|
|
|
2,158,318
|
|
|
|
1,914,622
|
|
Other
tax payable (Note 16)
|
|
|
546,873
|
|
|
|
258,732
|
|
|
|
158,439
|
|
Income
tax payable (Note 17)
|
|
|
1,238,912
|
|
|
|
1,790,649
|
|
|
|
367,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,968,386
|
|
|
|
6,914,258
|
|
|
|
4,880,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank loans (Note 12)
|
|
|
5,847,606
|
|
|
|
3,927,478
|
|
|
|
5,306,506
|
|
Long-term
promissory notes payable (Note 13)
|
|
|
111,112
|
|
|
|
244,445
|
|
|
|
-
|
|
Deposits
received from underwriting sales (Note 19)
|
|
|
7,743,240
|
|
|
|
7,243,366
|
|
|
|
2,165,511
|
|
Minority
interest of consolidated subsidiaries
|
|
|
431,674
|
|
|
|
375,406
|
|
|
|
223,580
|
|
Minority
interest of consolidated project venturers
|
|
|
-
|
|
|
|
579,729
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share; 200,000,000 shares authorized;
23,691,925, 23,001,614 and 23,631,246 shares issued and outstanding as of
December 31, 2007, December 31, 2006 and December 31, 2005, respectively
(Note 20)
|
|
|
236,919
|
|
|
|
230,016
|
|
|
|
216,366
|
|
Additional
paid-in capital
|
|
|
3,620,008
|
|
|
|
2,922,997
|
|
|
|
2,233,844
|
|
Statutory
reserve (Note 21)
|
|
|
729,744
|
|
|
|
716,862
|
|
|
|
241,664
|
|
(Accumulated
losses)/ Retained earnings
|
|
|
(6,157,723
|
)
|
|
|
(570,727
|
)
|
|
|
780,180
|
|
Accumulated other comprehensive income (Note
22)
|
|
|
724,998
|
|
|
|
286,267
|
|
|
|
120,417
|
|
Total
shareholders’ equity (deficit)
|
|
|
(846,054
|
)
|
|
|
3,585,415
|
|
|
|
3,592,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
19,255,964
|
|
|
$
|
22,870,097
|
|
|
$
|
16,169,046
|
|
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
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues
|
|
$
|
8,101,324
|
|
|
$
|
11,511,704
|
|
|
$
|
8,747,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
(6,805,963
|
)
|
|
|
(5,961,123
|
)
|
|
|
(3,361,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,295,361
|
|
|
|
5,550,581
|
|
|
|
5,386,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
(1,130,012
|
)
|
|
|
(1,018,804
|
)
|
|
|
(1,018,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative Expenses
|
|
|
(4,654,995
|
)
|
|
|
(3,064,138
|
)
|
|
|
(3,651,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(Loss)/Profit
|
|
|
(4,489,646
|
)
|
|
|
1,467,639
|
|
|
|
716,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
on disposal of investment properties (Note 9)
|
|
|
1,115,025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income, Net
|
|
|
14,008
|
|
|
|
11,139
|
|
|
|
63,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
29,072
|
|
|
|
7,136
|
|
|
|
10,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expenses
|
|
|
(944,824
|
)
|
|
|
(501,995
|
)
|
|
|
(162,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/
Profit Before Income Tax (benefit) and Minority Interest
|
|
|
(4,276,365
|
)
|
|
|
983,919
|
|
|
|
628,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax (Benefit) (Note 17)
|
|
|
(426,054
|
)
|
|
|
(1,216,421
|
)
|
|
|
(147,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
/ Profit Before Minority Interest
|
|
|
(4,702,
419
|
)
|
|
|
(232,502
|
)
|
|
|
481,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest of consolidated subsidiaries
|
|
|
(50,830
|
)
|
|
|
(63,478
|
)
|
|
|
(164,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest of controlled joint venture
|
|
|
-
|
|
|
|
(579,729
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)/ Profit
|
|
$
|
(4,753,249
|
)
|
|
$
|
(875,709
|
)
|
|
$
|
(316,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss)_ Per Share – Basic and Fully Diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
–
Basic and Fully Diluted
1
|
|
|
23,691,925
|
|
|
|
23,631,925
|
|
|
|
23,691,925
|
|
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/
(accumulated
losses)
|
|
|
Total
stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Balance,
December 31, 2004
|
|
|
21,636,614
|
|
|
$
|
216,366
|
|
|
$
|
2,233,844
|
|
|
$
|
175,004
|
|
|
$
|
-
|
|
|
$
|
530,353
|
|
|
$
|
3,155,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
316,487
|
|
|
|
316,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
between reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,660
|
|
|
|
-
|
|
|
|
(66,660
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
of foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,417
|
|
|
|
-
|
|
|
|
120,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
21,636,614
|
|
|
$
|
216,366
|
|
|
$
|
2,233,844
|
|
|
$
|
241,664
|
|
|
$
|
120,417
|
|
|
$
|
780,180
|
|
|
$
|
3,592,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
1,365,000
|
|
|
|
13,650
|
|
|
|
689,153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
702,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(875,709
|
)
|
|
|
(875,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
between reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475,198
|
|
|
|
-
|
|
|
|
(475,198
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
of foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165,850
|
|
|
|
-
|
|
|
|
165,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
23,001,614
|
|
|
$
|
230,016
|
|
|
$
|
2,922,997
|
|
|
$
|
716,862
|
|
|
$
|
286,267
|
|
|
$
|
(570,727
|
)
|
|
$
|
3,585,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock dividend
|
|
|
690,311
|
|
|
|
6,903
|
|
|
|
697,011
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(703,914
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,753,249
|
)
|
|
|
(4,753,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
return to minority interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(116,951
|
)
|
|
|
(116,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
between reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,882
|
|
|
|
-
|
|
|
|
(12,882
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
of foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
438,731
|
|
|
|
-
|
|
|
|
438,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
23,691,925
|
|
|
$
|
236,919
|
|
|
$
|
3,620,008
|
|
|
$
|
729,744
|
|
|
$
|
724,998
|
|
|
$
|
(6,157,723
|
)
|
|
$
|
(846,054
|
)
|
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
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
(loss) / profit
|
|
$
|
(4,753,249
|
)
|
|
$
|
(875,709
|
)
|
|
$
|
316,487
|
|
Adjustments
to reconcile net income to
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash (used in)/provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
733,534
|
|
|
|
112,793
|
|
|
|
131,072
|
|
Loss
on disposal of property, plant and equipment
|
|
|
9,092
|
|
|
|
1,292
|
|
|
|
13,273
|
|
Loss
on disposal of equity interest in subsidiary
|
|
|
14,750
|
|
|
|
-
|
|
|
|
-
|
|
Bad
debts
|
|
|
114,543
|
|
|
|
-
|
|
|
|
-
|
|
Profit
on disposal of investment properties
|
|
|
(1,115,172
|
)
|
|
|
-
|
|
|
|
-
|
|
Impairment
of goodwill
|
|
|
199,217
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
taxes
|
|
|
-
|
|
|
|
(544,402
|
)
|
|
|
(356,792
|
)
|
Minority
interest
|
|
|
50,830
|
|
|
|
643,207
|
|
|
|
164,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,029,670
|
|
|
|
(4,806,249
|
)
|
|
|
(3,407,046
|
)
|
Promissory
deposits
|
|
|
(65,755
|
)
|
|
|
62,747
|
|
|
|
126,865
|
|
Other
receivables and deposits
|
|
|
(355,030
|
)
|
|
|
(328,794
|
)
|
|
|
257,248
|
|
Amount
due from related party
|
|
|
(76,525
|
)
|
|
|
-
|
|
|
|
-
|
|
Accounts
payable
|
|
|
(321,477
|
)
|
|
|
443,773
|
|
|
|
(122,101
|
)
|
Amounts
with venturers
|
|
|
543,487
|
|
|
|
(1,258,004
|
)
|
|
|
-
|
|
Amount
due to related party
|
|
|
153,278
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
commission income
|
|
|
-
|
|
|
|
(40,931
|
)
|
|
|
948,013
|
|
Other
payables and accrued expenses
|
|
|
57,257
|
|
|
|
891,980
|
|
|
|
212,636
|
|
Deposits
received from underwriting sales
|
|
|
-
|
|
|
|
4,905,767
|
|
|
|
2,165,511
|
|
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
|
|
|
|
39,678
|
|
Income
tax payable
|
|
|
(795,410
|
)
|
|
|
1,388,049
|
|
|
|
297,840
|
|
Restricted
cash
|
|
|
(2,441,597
|
)
|
|
|
-
|
|
|
|
-
|
|
Net
cash (used in)/provided by operating activities
|
|
|
(3,390,580
|
)
|
|
|
707,378
|
|
|
|
787,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of plant and equipment
|
|
|
(158,346
|
)
|
|
|
(435,556
|
)
|
|
|
(69,270
|
)
|
Proceeds
from disposal of plant and equipment
|
|
|
36,116
|
|
|
|
23,996
|
|
|
|
4,519
|
|
Acquisition
of equity investment
|
|
|
(74,961
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from disposal of equity interest in subsidiary
|
|
|
63,200
|
|
|
|
-
|
|
|
|
39,714
|
|
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
|
)
|
|
|
(5,799,951
|
)
|
Refund
of deposits paid for acquisition of properties
|
|
|
-
|
|
|
|
3,319,987
|
|
|
|
-
|
|
Net
cash provided by/(used in) investing activities
|
|
|
4,102,380
|
|
|
|
752,701
|
|
|
|
(5,824,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loans repayment
|
|
|
(8,069,964
|
)
|
|
|
(3,474,926
|
)
|
|
|
(262,503
|
)
|
Bank
loan obtained
|
|
|
8,548,133
|
|
|
|
2,095,726
|
|
|
|
5,001,125
|
|
Repayment
of promissory note
|
|
|
(2,849,236
|
)
|
|
|
(747,715
|
)
|
|
|
-
|
|
Proceeds
from promissory note
|
|
|
2,565,903
|
|
|
|
600,000
|
|
|
|
123,962
|
|
Capital
contribution from minority interest
|
|
|
-
|
|
|
|
125,021
|
|
|
|
12,082
|
|
Repayment
to director
|
|
|
(241,904
|
)
|
|
|
-
|
|
|
|
-
|
|
Advances
from director
|
|
|
250,000
|
|
|
|
-
|
|
|
|
110,249
|
|
Net
cash generated from (used in) financing activities
|
|
|
202,932
|
|
|
|
(1,401,894
|
)
|
|
|
4,984,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
421,057
|
|
|
|
31,954
|
|
|
|
(61,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,335,789
|
|
|
|
90,139
|
|
|
|
(114,325
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
945,727
|
|
|
|
855,588
|
|
|
|
969,913
|
|
Cash
and cash equivalents at end of year
|
|
$
|
2,281,516
|
|
|
$
|
945,727
|
|
|
$
|
855,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax paid
|
|
|
1,166,869
|
|
|
|
366,627
|
|
|
|
187,809
|
|
Interest
paid
|
|
|
576,490
|
|
|
|
494,495
|
|
|
|
188,160
|
|
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
.
NOTE
2 – RESTATEMENTS
The
Company discovered errors to previously issued financial statements for the
fiscal years ended December 31, 2007 and 2006 and 2005. and the condensed
financial statements for period ended March 31, 2007 and 2008, June 30, 2007 and
2008 and September 30, 2007. The Company has filed the restated financial
statements for these periods to make the correction of the errors.
The first
restatement relates to the recognition of revenue from underwriting sales. The
Company entered into an agreement in 2004 to underwrite an office building in
Suzhou, known as Suzhou Sovereign Building. Under the Underwriting Model, our
commission revenue is equivalent to the price difference between the final
selling price and underwriting price. In marketing of the property, the Company
also launched a promotional package by entering into leasing agreements with
certain buyers to lease the properties for them. The leasing period started in
the second quarter of 2006, and in the leasing period the Company has the right
to sublease the leased properties to earn rental income. The Company recognised
commission revenue from underwriting service 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. The Company accounted 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. It is the only
underwriting agreement the Company entered since its incorporation.
The
Securities and Exchange Commission has provided the Company with comments
concerning the Company’s Form 10-KSB for the fiscal year ended December 31,
2006, particularly with respect to certain revenue recognition policies on
underwriting sales. The Company has subsequently determined that the
correct application of accounting principles had not been applied for the
recognition of underwriting sales revenue. In this correction, the financial
statements for the years ended December 31, 2007 and 2006 and 2005 were restated
to increase the Company’s deferred tax assets and deposits received from
underwriting sales by deferring revenue recognition from the closing of the
sale, to generally when the remaining advances to venturers maximum exposure to
loss is reduced below the amount of gain deferred. As a result, the Company’s
net asset values as of December 31, 2007, 2006 and 2005 were reduced by
$5,574,548, $5,315,410 and $1,806,588, respectively. The correction of this
error reduced the Company’s losses for the year ended December, 2007 by $157,811
and reduced the Company’s profit for the year ended December 31, 2006 and 2005
by $3,365,274 and $1,779,656, respectively.
The
second restatement relates to correct the overstatement of the minority
shareholders’ share of the Company’s result by $111,135. As a result
of the correction of this item, the Company’s financial statements for the year
ended 2007 were restated and the Company’s loss for the year ended December 31,
2007 were reduced by $106,759 and the total of accumulated losses and
accumulated other comprehensive income as of December 31, 2007 were reduced by
$111,135.
The third
restatement relates to correct the unprovided commission accrual of $335,873 and
the under-provision for China taxes of US$566,879 for the year ended December
31, 2006. As a result of the correction, the retained earnings for
2007 were reduced by $902,752. The effect of this restatement was taken up in
the 10KSB for years ended December 31, 2007 and 2006, which were filed on May
16, 2008. There was no unprovided commission in 2005.
The
fourth restatement relates to reclassifying from the cost of revenue to minority
interest in regards to the venturers’ profit sharing of the underwriting sales
project. As a result of the reclassification, the cost of revenue in 2006 was
reduced by $579,729.
The fifth
restatement relates to recognize an accrual for onerous contracts which is equal
to the difference between the present value of the sublease income and the
present value of the associated lease expense at appropriate discount rate. The
provisions for onerous contacts for the year ended December 31, 2007 and 2006
were $252,070 and $283,741, respectively. As a result of the restatement, the
total of retained earnings and accumulated other comprehensive income for 2007
and 2006 were reduced by $535,811 and $283,741, respectively.
The
following summarizes the above restatements.
For
the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
-
|
|
|
$
|
1,021,059
|
|
|
$
|
1,021,059
|
|
Amount
due from venturers
|
|
|
79,662
|
|
|
|
989,822
|
|
|
|
1,069,484
|
|
Other
payables and accrued expenses
|
|
|
2,074,833
|
|
|
|
378,000
|
|
|
|
2,452,833
|
|
Deposits
received from underwriting sales
|
|
|
-
|
|
|
|
7,743,240
|
|
|
|
7,743,240
|
|
Minority
interest of consolidated subsidiaries
|
|
|
542,809
|
|
|
|
(111,135
|
)
|
|
|
431,674
|
|
Retained
earnings (Accumulated losses)
|
|
|
(741,548
|
)
|
|
|
(5,416,175
|
)
|
|
|
(6,157,723
|
)
|
Accumulated
other comprehensive income
|
|
|
1,308,047
|
|
|
|
(583,049
|
)
|
|
|
724,998
|
|
Cost
of revenues
|
|
|
6,711,704
|
|
|
|
94,259
|
|
|
|
6,805,963
|
|
Minority
interest of consolidated subsidiaries – Income statements
|
|
|
157,589
|
|
|
|
(106,759
|
)
|
|
|
50,830
|
|
Net
profit (loss)
|
|
|
(4,765,749
|
)
|
|
|
(12,500
|
)
|
|
|
(4,753,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
142,842
|
|
|
$
|
795,292
|
|
|
$
|
938,134
|
|
Amounts
due from venturers
|
|
|
1,939,616
|
|
|
|
159,174
|
|
|
|
2,098,790
|
|
Other
payables and accrued expenses
|
|
|
1,874,577
|
|
|
|
283,741
|
|
|
|
2,158,318
|
|
Deposits
received from underwriting sales
|
|
|
-
|
|
|
|
7,243,366
|
|
|
|
7,243,366
|
|
Income
tax payable
|
|
|
1,933,491
|
|
|
|
(142,842
|
)
|
|
|
1,790,649
|
|
Amounts
due to venturers
|
|
|
1,410,377
|
|
|
|
1,410,377
|
|
|
|
-
|
|
Minority
interest of controlled joint venture
|
|
|
-
|
|
|
|
579,729
|
|
|
|
579,729
|
|
Retained
earnings (Accumulated losses)
|
|
|
4,857,948
|
|
|
|
(5,428,675
|
)
|
|
|
(570,727
|
)
|
Accumulated
other comprehensive income
|
|
|
456,743
|
|
|
|
(170,476
|
)
|
|
|
286,267
|
|
Net
revenues
|
|
|
16,417,471
|
|
|
|
(4,905,767
|
)
|
|
|
11,511,704
|
|
Cost
of revenues
|
|
|
7,246,933
|
|
|
|
(1,285,810
|
)
|
|
|
5,961,123
|
|
Income
tax
|
|
|
1,767,088
|
|
|
|
(550,667
|
)
|
|
|
1,216,421
|
|
Minority
interest of consolidated joint venture – Income statements
|
|
|
-
|
|
|
|
579,729
|
|
|
|
579,729
|
|
Net
profit (loss)
|
|
|
2,773,310
|
|
|
|
(3,649,019
|
)
|
|
|
(875,709
|
)
|
For
the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
144,333
|
|
|
$
|
214,590
|
|
|
$
|
358,923
|
|
Deposits
received from underwriting sales
|
|
|
-
|
|
|
|
2,165,511
|
|
|
|
2,165,511
|
|
Income
tax payable
|
|
|
511,700
|
|
|
|
(144,333
|
)
|
|
|
367,367
|
|
Retained
earnings (Accumulated losses)
|
|
|
2,559,836
|
|
|
|
(1,779,656
|
)
|
|
|
780,180
|
|
Accumulated
other comprehensive income
|
|
|
147,349
|
|
|
|
(26,932
|
)
|
|
|
120,417
|
|
Net
revenues
|
|
|
10,880,468
|
|
|
|
(2,133,234
|
)
|
|
|
8,747,234
|
|
Income
tax
|
|
|
500,732
|
|
|
|
(353,578
|
)
|
|
|
147,154
|
|
Net
profit
|
|
|
2,096,143
|
|
|
|
(1,779,656
|
)
|
|
|
316,487
|
|
NOTE
3 –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 and controlling investments in
joint venture in which the Company is presumed to have control in accordance
with Emerging Issues Task Force Issue No. 04-5. The ownership interests of other
investors in these entities are recorded as minority interests. 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 and December 31, 2005 are US$1: RMB7.3046 and US$1: RMB7.8087 and US$1:
RMB8.067, 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.
The
Company accounts for its underwriting sales revenue with underwriting rent
guarantees in accordance with SFAS No. 66 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from
the sales of floor space with underwriting rent guarantees until the rental
revenues generated by sub-leasing properties exceed the guaranteed rental amount
due to the purchasers.
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.
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
4 - 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
5 – AMOUNTS DUE FROM/TO 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
6 - OTHER RECEIVABLES AND DEPOSITS
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Advances
to staff
|
|
$
|
20,486
|
|
|
$
|
25,912
|
|
|
$
|
13,322
|
|
Rental
deposits
|
|
|
101,370
|
|
|
|
51,333
|
|
|
|
54,580
|
|
Prepaid
rental
|
|
|
406,833
|
|
|
|
365,138
|
|
|
|
-
|
|
Other
receivables
|
|
|
73,684
|
|
|
|
67,362
|
|
|
|
100,807
|
|
|
|
$
|
602,373
|
|
|
$
|
509,745
|
|
|
$
|
168,709
|
|
NOTE 7 – PROPERTY, PLANT AND
EQUIPMENT
–
NET
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Furniture
and fixtures
|
|
$
|
133,970
|
|
|
$
|
105,288
|
|
|
$
|
57,811
|
|
Computer
and office equipment
|
|
|
275,988
|
|
|
|
234,460
|
|
|
|
182,867
|
|
Motor
vehicles
|
|
|
618,024
|
|
|
|
607,431
|
|
|
|
532,887
|
|
Properties
|
|
|
2,071,225
|
|
|
|
1,909,671
|
|
|
|
-
|
|
|
|
|
3,099,207
|
|
|
|
2,856,850
|
|
|
|
773,565
|
|
Less:
Accumulated depreciation
|
|
|
(579,622
|
)
|
|
|
(365,217
|
)
|
|
|
(242,107
|
)
|
|
|
$
|
2,519,585
|
|
|
$
|
2,491,633
|
|
|
$
|
531,458
|
|
All above
properties as of December 31, 2007 and 2006 were pledged to secure a loan in
note 12.
NOTE
8 – 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
9 – INVESTMENT PROPERTIES AND DEPOSITS FOR ACQUISITION OF
PROPERTIES
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Investment
property
|
|
$
|
8,092,319
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Less:
Accumulated depreciation
|
|
|
(292,091
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
7,800,228
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Deposits
paid for acquisition of properties
|
|
$
|
-
|
|
|
$
|
10,662,642
|
|
|
$
|
11,639,375
|
|
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 12.
NOTE
10 – DEFERRED TAX ASSETS
The net
deferred tax assets from continuing operations are determined under the
liability method based on the difference between the financial statement and tax
basis of assets and liabilities as measured by the enacted statutory tax rates.
The deferred tax provision (benefit) is the result of changes in these temporary
differences.
Deferred
tax assets consist of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Deferred
gain from underwriting sale
|
|
$
|
1,021,059
|
|
|
$
|
938,134
|
|
|
$
|
358,923
|
|
Tax
losses carried forward
|
|
|
1,208,127
|
|
|
|
284,847
|
|
|
|
149,041
|
|
|
|
|
2,229,186
|
|
|
|
1,222,981
|
|
|
|
507,964
|
|
Less
: Valuation allowances
|
|
|
(1,208,127
|
)
|
|
|
(284,847
|
)
|
|
|
(149,041
|
)
|
|
|
$
|
1,021,059
|
|
|
$
|
1,201,607
|
|
|
$
|
358,923
|
|
Deferred
tax assets were primarily raised from the deferred gain from underwriting sale
and the tax losses carryforwards. A valuation allowance has been established for
the entire deferred tax assets as management believes that the Group may not be
able to fully utilize the deferred tax assets because of the uncertainty of
the future profit streams.
NOTE
11 - 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
12 - 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 9 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 & 2005: $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 7 above.
NOTE
13 – 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
14 – AMOUNTS WITH RELATED PARTIES AND DIRECTOR
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
15 - OTHER PAYABLES AND ACCRUED EXPENSES
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Accrued
staff commission & bonus
|
|
$
|
1,013,650
|
|
|
$
|
997,794
|
|
|
$
|
1,022,333
|
|
Rental
deposits received
|
|
|
519,352
|
|
|
|
240,329
|
|
|
|
-
|
|
Accrued
consulting services fees
|
|
|
-
|
|
|
|
-
|
|
|
|
693,600
|
|
Accrual
for onerous contracts
|
|
|
535,811
|
|
|
|
283,741
|
|
|
|
-
|
|
Other
payables
|
|
|
384,020
|
|
|
|
636,454
|
|
|
|
198,689
|
|
|
|
$
|
2,452,833
|
|
|
$
|
2,158,318
|
|
|
$
|
1,914,622
|
|
NOTE
16 – 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; 2005: $158,439).
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 & 2005: 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 & 2005:
Nil).
NOTE
17 – 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 (“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,
2006 and 2005.
The
provision for China income tax consisted of:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Current
PRC corporate income tax
|
|
$
|
426,054
|
|
|
$
|
1,760,948
|
|
|
$
|
506,077
|
|
Deferred
tax debit
|
|
|
-
|
|
|
|
(544,427
|
)
|
|
|
(358,923
|
)
|
|
|
$
|
426,054
|
|
|
$
|
1,216,421
|
|
|
$
|
147,154
|
|
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
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Provision
for income taxes at statutory tax rate
|
|
$
|
(1,380,096
|
)
|
|
$
|
1,305,020
|
|
|
$
|
557,785
|
|
Tax
concessions
|
|
|
965,134
|
|
|
|
(212,433
|
)
|
|
|
(271,345
|
)
|
Permanent
difference
|
|
|
(284,410
|
)
|
|
|
(11,972
|
)
|
|
|
(20,871
|
)
|
Effect
of change in FEIT tax rate
|
|
|
202,146
|
|
|
|
-
|
|
|
|
-
|
|
Increase
in valuation allowances
|
|
|
923,280
|
|
|
|
135,806
|
|
|
|
(118,415
|
)
|
Income
tax
|
|
$
|
426,054
|
|
|
$
|
1,216,421
|
|
|
$
|
147,154
|
|
NOTE
18- COMMITMENTS AND CONTINGENCIES
Operating Lease
Commitments
During
the years ended December 31, 2007 and 2006 and 2005, the Company incurred lease
expenses amounting to $338,463 and $389,865 and $358,914, respectively. As of
December 31, 2007, the Company had commitments under operating leases, requiring
annual minimum rentals as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Within
one year
|
|
$
|
132,628
|
|
|
$
|
124,429
|
|
|
$
|
183,816
|
|
Two
to five years
|
|
|
133,847
|
|
|
|
2,349
|
|
|
|
46,169
|
|
Operating
lease commitments
|
|
$
|
266,475
|
|
|
$
|
126,778
|
|
|
$
|
229,985
|
|
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,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Within
one year
|
|
$
|
3,047,216
|
|
|
$
|
2,807,847
|
|
|
$
|
1,630,983
|
|
Two
to five years
|
|
|
8,412,157
|
|
|
|
10,319,497
|
|
|
|
9,210,256
|
|
Over
five years
|
|
|
2,181,446
|
|
|
|
2,774,208
|
|
|
|
4,216,715
|
|
Operating
lease commitments arising from the promotional package
|
|
$
|
13,640,819
|
|
|
$
|
15,901,552
|
|
|
$
|
15,057,954
|
|
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. An accrual for
onerous contracts was recognised which is equal to the difference between the
present value of the sublease income and the present value of the associated
lease expense at appropriate discount rate. The accrual for onerous contacts as
of December 31, 2007, 2006 and 2005 were $535,811, $283,741 and $Nil,
respectively.
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
19 –DEPOSITS RECEIVED FROM UNDERWRTING SALES
The
Company accounts for its underwriting sales revenue with underwriting rent
guarantees in accordance with SFAS No. 66 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from
the sales of floor space with underwriting rent guarantees until the rental
revenues generated by sub-leasing properties exceed the guaranteed rental amount
due to the purchasers.
NOTE
20 – ISSUANCE OF COMMON STOCK
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
21 – 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
22– ACCUMULATED OTHER COMPREHENSIVE INCOME
As of
December 31, 2007, the only component of accumulated other comprehensive income
was translation reserve.
NOTE
23 – 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
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Customer
A
|
|
|
*
|
|
|
|
56
|
%
|
|
|
40
|
%
|
|
|
*
|
|
|
|
59
|
%
|
|
|
*
|
|
Customer
B
|
|
|
*
|
|
|
|
*
|
|
|
|
10
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer
C
|
|
|
16
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
12
|
%
|
|
|
*
|
|
|
|
*
|
|
* less
than 10%
NOTE
24 – 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, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) under the Securities Exchange Act of 1934, as amended (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 concluded
that as of the end of the fiscal year covered by this report, our disclosure
controls and procedures were ineffective in recording, processing, summarizing
and reporting, on a timely basis, information required to be disclosed by us in
the reports that we file or submit under the Exchange Act.
In the
course of evaluating our internal controls over financial reporting as at
December 31, 2007, management has identified deficiencies related to the failure
to correctly apply accounting principle in underwriting revenue recognition, to
recognize the minority interest, to accrue for commission and to recognize
provision for taxation.
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.
We rely
on certain compensating controls, including substantive periodic review of the
financial statements by our Chief Executive Officer, Chief Financial Officer and
Audit Committee.
There
were no changes in our internal controls over financial reporting during the
fiscal year ended December 31, 2007, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
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 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 correctly
apply accounting principle in underwriting revenue recognition, to recognize the
minority interest, to accrue for commission and to recognize provision for
taxation. We determined that there were material weaknesses in the Company’s
internal controls and therefore they were ineffective as of December 31,
2007.
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
(2)
150,364
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
91,796
(3)
92,825
|
|
|
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
(2)
150,364
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
91,796
(3)
92,825
|
|
|
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.
Title
of Class
|
|
Name
and Address
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent 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 Wang Wen-Yan, pursuant to Rule 15d-14(a).
|
|
|
|
32.1
|
|
Certifications
of Lin Chi-Jung, pursuant to 18 U.S.C. 1350.
|
|
|
|
32.2
|
|
Certifications
of Wang Wen-Yan, 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 14,
2009
|
|
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
14, 2009
|
Lin
Chi-Jung
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
Wang Wen-Yan
|
|
Chief
Financial Officer
|
|
May
14, 2009
|
Wang
Wen-Yan
|
|
|
|
|
|
|
|
|
|
/s/
Lin Chao-Chin
|
|
Director
|
|
May
14, 2009
|
Lin
Chao-Chin
|
|
|
|
|
|
|
|
|
|
/s/
Lin Hsin-Hung
|
|
Director
|
|
May
14, 2009
|
Lin
Hsin-Hung
|
|
|
|
|
|
|
|
|
|
/s/
Fu Xuan-Jie
|
|
Director
|
|
May
14, 2009
|
Fu
Xuan-Jie
|
|
|
|
|
|
|
|
|
|
/s/
Li Xiao-Gang
|
|
Director
|
|
May
14, 2009
|
Li
Xiao-Gang
|
|
|
|
|
|
|
|
|
|
/s/
Chen Ren
|
|
Director
|
|
May
14, 2009
|
Chen
Ren
|
|
|
|
|
|
|
|
|
|
/s/
Zhang Xi
|
|
Director
|
|
May
14, 2009
|
Zhang
Xi
|
|
|
|
|
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