UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q/A
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2008
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________ to __________
Commission
File Number 000-32585
SUNRISE
REAL ESTATE GROUP, INC.
(Exact
name of registrant as specified in its charter)
Texas
|
|
75-2713701
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
Suite
701, No. 333, Zhaojiabang Road
Shanghai,
PRC 200032
(Address
of principal executive offices Zip Code)
Registrant’s
telephone number: + 86-21-6422-0505
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
reporting company
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
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: November 10, 2008 - 23,691,925 shares
of Common Stock
FORM
10-Q
For
the Quarter Ended September 30, 2008
INDEX
|
|
Page
|
|
PART
I. FINANCIAL
INFORMATION
|
|
|
4
|
|
Item
1. Financial Statements
|
|
|
4
|
|
Consolidated
Balance
Sheets
|
|
|
4
|
|
Consolidated
Statements of
Operations
|
|
|
5
|
|
Consolidated
Statements of Cash Flows
|
|
|
6
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
|
19
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
|
|
25
|
|
Item
4. Controls and Procedures
|
|
|
25
|
|
|
|
|
|
|
PART
II. OTHER
INFORMATION
|
|
|
26
|
|
Item
1. Legal Proceedings
|
|
|
26
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
|
26
|
|
Item
3. Defaults Upon Senior Securities
|
|
|
26
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
|
|
26
|
|
Item
5. Other Information
|
|
|
26
|
|
Item
6. Exhibits
|
|
|
26
|
|
|
|
|
|
|
SIGNATURES
|
|
|
27
|
|
Explanatory
Note
This
Quarterly Report on Form 10-Q/A (Amendment No. 1) discloses and discusses the
impact and effect of a restatement of our previously filed unaudited
consolidated financial statements contained in our originally-filed Quarterly
Report on Form 10-Q for the period ended September 30, 2008 filed with the
Securities and Exchange Commission on November 19, 2008. This restatement is
necessary because after consideration of the comments from the Securities and
Exchange Commission, we concluded that our previously reported consolidated
financial statements for the fiscal years ended December 31, 2007, 2006 and 2005
and the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008 did
not correctly apply accounting principles for the recognition of underwriting
sales revenue. The impact of the incorrect application of accounting principles
is summarized below under Restatement Summary.
As a
result, we are filing this amended Quarterly Report on Form 10-Q/A for September
30, 2008, to make the necessary corrections to account for the underwriting
sales revenue, the overstatement of minority interests and provision for onerous
contracts during this period, which contains an explanation in Note 1 to the
financial statements.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Sunrise
Real Estate Group, Inc.
Unaudited
Condensed Consolidated Balance Sheets
(Expressed
in US Dollars)
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
733,600
|
|
|
$
|
2,281,516
|
|
Restricted
cash (Note 10)
|
|
|
107,636
|
|
|
|
2,441,579
|
|
Accounts
receivable
|
|
|
870,868
|
|
|
|
842,868
|
|
Promissory
deposits (Note 3)
|
|
|
1,129,314
|
|
|
|
273,800
|
|
Amounts
due from venturers (Note 4)
|
|
|
989,822
|
|
|
|
1,069,484
|
|
Amount
due from related party (Note 12)
|
|
|
327,108
|
|
|
|
312,132
|
|
Other
receivables and deposits (Note 5)
|
|
|
398,479
|
|
|
|
602,373
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
4,556,827
|
|
|
|
7,823,752
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment – net (Note 6)
|
|
|
2,733,376
|
|
|
|
2,519,585
|
|
Equity
investment (Note 7)
|
|
|
83,599
|
|
|
|
78,033
|
|
Investment
properties (Note 8)
|
|
|
8,366,063
|
|
|
|
7,800,228
|
|
Deferred
tax asset (Note 9)
|
|
|
1,112,675
|
|
|
|
1,021,059
|
|
Goodwill
|
|
|
13,307
|
|
|
|
13,307
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
16,865,847
|
|
|
$
|
19,255,964
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Bank
loans (Note 10)
|
|
$
|
205,330
|
|
|
$
|
191,660
|
|
Promissory
notes payable (Note 11)
|
|
|
959,784
|
|
|
|
976,435
|
|
Accounts
payable
|
|
|
335,929
|
|
|
|
230,654
|
|
Amount
due to director (Note 12)
|
|
|
72,987
|
|
|
|
171,458
|
|
Amount
due to related party (Note 12)
|
|
|
134,043
|
|
|
|
159,561
|
|
Other
payables and accrued expenses (Note 13)
|
|
|
2,121,097
|
|
|
|
2,452,833
|
|
Other
tax payable (Note 14)
|
|
|
608,058
|
|
|
|
546,873
|
|
Income
tax payable
|
|
|
1,060,565
|
|
|
|
1,238,912
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,497,793
|
|
|
|
5,968,386
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank loans (Note 10)
|
|
|
6,110,676
|
|
|
|
5,847,606
|
|
Long-term
promissory notes payable (Note 11)
|
|
|
22,222
|
|
|
|
111,112
|
|
Deposits
received from underwriting sales (Note 16)
|
|
|
8,295,509
|
|
|
|
7,743,240
|
|
Minority
interest
|
|
|
439,907
|
|
|
|
431,674
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share; 200,000,000 shares authorized;
23,691,925 and 23,691,925 shares issued and outstanding as of September
30, 2008 and December 31, 2007, respectively
|
|
|
236,919
|
|
|
|
236,919
|
|
Additional
paid-in capital
|
|
|
3,620,008
|
|
|
|
3,620,008
|
|
Statutory
reserve (Note 17)
|
|
|
729,744
|
|
|
|
729,744
|
|
Accumulated
losses
|
|
|
(8,770,643
|
)
|
|
|
(6,157,723
|
)
|
Accumulated
other comprehensive income (Note 18)
|
|
|
683,712
|
|
|
|
724,998
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
(3,500,260
|
)
|
|
|
(846,054
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
16,865,847
|
|
|
$
|
19,255,964
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
Sunrise
Real Estate Group, Inc.
Unaudited
Condensed Consolidated Statements of Operations
(Expressed
in US Dollars)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues
|
|
$
|
2,475,921
|
|
|
$
|
1,817,590
|
|
|
$
|
6,437,147
|
|
|
$
|
4,472,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
(1,697,306
|
)
|
|
|
(1,506,577
|
)
|
|
|
(4,797,779
|
)
|
|
|
(4,286,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
778,651
|
|
|
|
311,013
|
|
|
|
1,639,368
|
|
|
|
185,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
(361,464
|
)
|
|
|
(311,956
|
)
|
|
|
(1,000,579
|
)
|
|
|
(806,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative Expenses
|
|
|
(802,226
|
)
|
|
|
(1,155,748
|
)
|
|
|
(2,793,690
|
)
|
|
|
(2,987,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(385,075
|
)
|
|
|
(1,156,691
|
)
|
|
|
(2,154,901
|
)
|
|
|
(3,608,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
2,191
|
|
|
|
5,505
|
|
|
|
11,521
|
|
|
|
13,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income/(Expenses), Net
|
|
|
11,183
|
|
|
|
(224,452
|
)
|
|
|
16,321
|
|
|
|
(203,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expenses
|
|
|
(161,652
|
)
|
|
|
(267,551
|
)
|
|
|
(460,128
|
)
|
|
|
(692,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Income Tax and Minority Interest
|
|
|
(533,353
|
)
|
|
|
(1,643,189
|
)
|
|
|
(2,587,187
|
)
|
|
|
(4,491,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
(18,845
|
)
|
|
|
(23,835
|
)
|
|
|
(47,729
|
)
|
|
|
(52,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Minority Interest
|
|
|
(552,198
|
)
|
|
|
(1,667,024
|
)
|
|
|
(2,634,916
|
)
|
|
|
(4,544,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
19,649
|
|
|
|
3,613
|
|
|
|
21,996
|
|
|
|
(31,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(532,549
|
)
|
|
$
|
(1,663,411
|
)
|
|
$
|
(2,612,920
|
)
|
|
$
|
(4,576,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Per Share – Basic and Fully Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
–
Basic and Fully Diluted
1
|
|
|
23,691,925
|
|
|
|
23,691,925
|
|
|
|
23,691,925
|
|
|
|
23,691,925
|
|
See
accompanying notes to unaudited condensed 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.
Unaudited
Condensed Consolidated Statements of Cash Flows
(Decrease)/Increase
in Cash and Cash Equivalents
(Expressed
in US Dollars)
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,612,920
|
)
|
|
$
|
(4,576,245
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
net
cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
586,666
|
|
|
|
498,547
|
|
(Gain)/loss
on disposal of property, plant and equipment
|
|
|
(2,360
|
)
|
|
|
6,749
|
|
Loss
on disposal of equity interest in subsidiary
|
|
|
-
|
|
|
|
14,750
|
|
Bad
debts
|
|
|
-
|
|
|
|
349,195
|
|
Minority
interest
|
|
|
21,996
|
|
|
|
31,840
|
|
Change
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
31,321
|
|
|
|
4,421,404
|
|
Promissory
deposits
|
|
|
(815,299
|
)
|
|
|
(652,078
|
)
|
Other
receivables and deposits
|
|
|
240,748
|
|
|
|
(840,816
|
)
|
Accounts
payable
|
|
|
86,626
|
|
|
|
(332,909
|
)
|
Amount
with related party
|
|
|
(28,879
|
)
|
|
|
-
|
|
Amounts
with venturers
|
|
|
83,232
|
|
|
|
582,544
|
|
Other
payables and accrued expenses
|
|
|
(458,069
|
)
|
|
|
111,452
|
|
Interest
payable on promissory notes
|
|
|
(381,642
|
)
|
|
|
301,911
|
|
Interest
payable on amount due to director
|
|
|
5,909
|
|
|
|
(21,604
|
)
|
Other
tax payable
|
|
|
21,632
|
|
|
|
(216,226
|
)
|
Income
tax payable
|
|
|
(260,110
|
)
|
|
|
(1,158,493
|
)
|
Restricted
cash
|
|
|
2,446,021
|
|
|
|
-
|
|
Net
cash used in by operating activities
|
|
|
(1,035,128
|
)
|
|
|
(1,479,979
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition
of plant and equipment
|
|
|
(370,063
|
)
|
|
|
(79,733
|
)
|
Deposits
paid for acquisition of properties
|
|
|
-
|
|
|
|
(1,981,956
|
)
|
Investment
properties renovation
|
|
|
(401,882
|
)
|
|
|
-
|
|
Proceeds
from disposal of property, plant and equipment
|
|
|
136,009
|
|
|
|
6,199,246
|
|
Net
cash (used in) provided by investing activities
|
|
|
(635,936
|
)
|
|
|
4,137,557
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Bank
loan obtained
|
|
|
-
|
|
|
|
8,477,008
|
|
Bank
loans repayment
|
|
|
(150,186
|
)
|
|
|
(4,685,624
|
)
|
Repayment
of promissory note
|
|
|
(163,891
|
)
|
|
|
(250,000
|
)
|
Proceeds
from promissory note
|
|
|
429,105
|
|
|
|
2,565,903
|
|
Repayment
to director
|
|
|
(104,380
|
)
|
|
|
(109,026
|
)
|
Advances
from director
|
|
|
-
|
|
|
|
250,000
|
|
Net
cash provided by financing activities
|
|
|
10,648
|
|
|
|
6,248,261
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
112,500
|
|
|
|
296,678
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents
|
|
|
(1,547,916
|
)
|
|
|
9,202,517
|
|
Cash
and cash equivalents at beginning of period
|
|
|
2,281,516
|
|
|
|
945,727
|
|
Cash
and cash equivalents at end of period
|
|
$
|
733,600
|
|
|
$
|
10,148,244
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Income
tax paid
|
|
|
307,838
|
|
|
|
1,181,313
|
|
Interest
paid
|
|
|
835,861
|
|
|
|
412,591
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed
in US Dollars)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Sunrise
Real Estate Development Group, Inc. (“CY-SRRE”) was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly
owned by Ace Develop Properties Limited, a corporation, (“Ace Develop”), of
which Lin Chi-Jung, an individual, is the principal and controlling shareholder.
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”) was
established in the People’s Republic of China (the “PRC”) on August 14, 2001 as
a limited liability company. SHXJY was originally owned by a
Taiwanese company, of which the principal and controlling shareholder was Lin
Chi-Jung. On June 8, 2004, all the fully paid up capital of SHXJY was
transferred to CY-SRRE. On June 25, 2004 SHXJY and two individuals established a
subsidiary, namely, Suzhou Xin Ji Yang Real Estate Consultation Company Limited
(“SZXJY”) in the PRC, at which point in time, SHXJY held a 90% equity interest
in SZXJY. On 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. On May 8, 2008, SHXJY established a wholly owned
subsidiary, Kunshan Shang Yang Real Estate Brokerage Company Limited (“KSSY”) 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. On September 18, 2008, SHSY
established a wholly owned subsidiary, San Ya Shang Yang Real Estate
Consultation Company Limited (“SYSY”) in the PRC as a limited liability
company.
SHXJY,
SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB, KSSY and SYSY commenced operations in
November 2001, June 2004, January 2004, February 2004, January 2005, November
2006, November 2007, May 2008 and September 2008 respectively. Each
of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB and KSSY has been granted a
twenty-year operation period and SYSY has been granted a thirty-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, KSSY, BJXJY,
SHSY, SZGFH and SYSY are sometimes hereinafter collectively referred to as “the
Company.”
The principal activities of the Company
are property brokerage services, real estate marketing services, property
leasing services and property management services in the
PRC
.
Restatement
Summary
The
Company discovered errors to previously issued financial statements for the
fiscal years ended December 31, 2007 and 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 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
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, advances to venturers and deposits received from
underwriting sales by deferring revenue recognition from the closing of the
sale, to generally when the remaining 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 and September 30, 2008 and 2007 were reduced by
$5,574,548, $5,315,410, $1,806,588, $989,822, and $5,291,570,
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, $1,779,656,
respectively. The correction of this error does not have any effect on Company’s
income statement for the three months and nine months ended September 30, 2008
and 2007.
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 total of the accumulated losses and
accumulated 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 $566,879 for the year ended December 31,
2006. The effect of this restatement was taken up in the 10KSB for
year ended December 31, 2007 and 2006, which were filed on May 16,
2008. As a result of the correction, the retained earnings and
accumulated comprehensive income for period ended September 30, 2007 were
reduced by $902,752 in total.
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. The provisions for onerous contacts
for the nine months and three months period ended September 30, 2007 were
$177,771 and $82,995, respectively. As a result of the restatement,
the retained earnings and and accumulated other comprehensive income for 2007
and 2006 were reduced by $535,811 and $283,741, respectively. The retained
earnings as of September 30, 2007 and September 30, 2008 are $461,511 and
$203,639, respectively. No restatement was made on September 30, 2008 as the
effect was taken up on the filing dated November 19, 2008.
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 (loss)
|
|
|
2,096,143
|
|
|
|
(1,779,656
|
)
|
|
|
316,487
|
|
For
the nine months period ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
received for underwriting sales
|
|
$
|
-
|
|
|
$
|
7,530,658
|
|
|
$
|
7,530,658
|
|
Amounts
due from venturers
|
|
|
-
|
|
|
|
989,822
|
|
|
|
989,822
|
|
Exchange
reserve
|
|
|
967,875
|
|
|
|
(428,224
|
)
|
|
|
539,651
|
|
Deferred
tax assets
|
|
|
-
|
|
|
|
985,973
|
|
|
|
985,973
|
|
Income
tax payable
|
|
|
238,107
|
|
|
|
566,879
|
|
|
|
804,986
|
|
Other
payables and accrued expenses
|
|
|
7,860,858
|
|
|
|
797,384
|
|
|
|
8,658,242
|
|
Retained
earnings (Accumulated losses)
|
|
|
640,222
|
|
|
|
(6,491,082
|
)
|
|
|
(5,850,860
|
)
|
Cost
of revenues
|
|
|
4,109,220
|
|
|
|
177,771
|
|
|
|
4,286,991
|
|
Net
profit (loss)
|
|
|
(4,398,474
|
)
|
|
|
(177,771
|
)
|
|
|
(4,576,245
|
)
|
For
the three months period ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
received for underwriting sales
|
|
$
|
-
|
|
|
$
|
7,530,658
|
|
|
$
|
7,530,658
|
|
Amounts
due from venturers
|
|
|
-
|
|
|
|
989,822
|
|
|
|
989,822
|
|
Exchange
reserve
|
|
|
967,875
|
|
|
|
(428,224
|
)
|
|
|
539,651
|
|
Deferred
tax assets
|
|
|
-
|
|
|
|
985,793
|
|
|
|
985,793
|
|
Income
tax payable
|
|
|
238,107
|
|
|
|
566,879
|
|
|
|
804,986
|
|
Other
payables and accrued expenses
|
|
|
7,860,858
|
|
|
|
797,384
|
|
|
|
8,658,242
|
|
Retained
earnings (Accumulated losses)
|
|
|
640,222
|
|
|
|
(6,491,082
|
)
|
|
|
(5,850,860
|
)
|
Cost
of revenues
|
|
|
1,423,582
|
|
|
|
82,995
|
|
|
|
1,506,577
|
|
Net
profit (loss)
|
|
|
(1,580,416
|
)
|
|
|
(82,995
|
)
|
|
|
(1,663,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months period ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Advances
to venturers
|
|
|
-
|
|
|
|
989,822
|
|
|
|
989,822
|
|
Deferred
tax assets
|
|
|
1,376,148
|
|
|
|
(263,473
|
)
|
|
|
1,112,675
|
|
Retained
earnings (Accumulated losses)
|
|
|
(9,496,992
|
)
|
|
|
989,822
|
|
|
|
(8,507,170
|
)
|
For
the three months period ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Advances
to venturers
|
|
|
-
|
|
|
|
989,822
|
|
|
|
989,822
|
|
Deferred
tax assets
|
|
|
1,376,148
|
|
|
|
(263,473
|
)
|
|
|
1,112,675
|
|
Retained
earnings (Accumulated losses)
|
|
|
(9,496,992
|
)
|
|
|
989,822
|
|
|
|
(8,507,170
|
)
|
NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting and Principles of Consolidation
The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America and present the
financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
SZXJYB, SZSY, KSSY, BJXJY, SHSY, SZGFH and SYSY. All inter-company
transactions and balances have been eliminated.
Going
Concern
The
Company’s financial statements are prepared according to the accounting
principles generally accepted in the United States of America applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred losses of
$2,612,920 for the first three quarters of 2008 and had a net working capital
deficiency of $1,930,788 as of September 30, 2008. The Company’s net working
capital deficiency, recurring losses and negative cash flows from operations
raise substantial doubt about its ability to continue as a going
concern.
However,
management believes that the Company is able to generate sufficient cash flow to
meet its obligations on a timely basis and ultimately to attain successful
operations in respect of the agency sales and building management operations.
Accordingly, the accompanying financial statements do not include any
adjustments that may be necessary if the Company is unable to continue as a
going concern.
Foreign
Currency Translation and Transactions
The
functional currency of SRRE, CY-SRRE and LRY is United States Dollars (“US$”)
and the financial records are maintained and the financial statements prepared
in US $. The functional currency of SHXJY, SZXJY, SZXJYB, SZSY, KSSY, BJXJY,
SHSY, SZGFH and SYSY is Renminbi (“RMB”) and the financial records are
maintained and the financial statements prepared in RMB.
Foreign
currency transactions during the period are translated into each company’s
denominated currency at the exchange rates ruling at the transaction dates. Gain
and loss resulting from foreign currency transactions are included in the
consolidated statement of operations. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company’s
denominated currency at period end exchange rates. All exchange
differences are dealt with in the consolidated statements of
operations.
The
financial statements of the Company’s operations based outside of the United
States have been translated into US$ 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 as of September 30, 2008 and December 31, 2007 are US$1:
RMB6.8183 and US$1: RMB7.3046, 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.
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.
Revenue
Recognition
Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer grants confirmation to us to be able to invoice them accordingly. The
time when we receive the commission is normally at the time when the property
developer receives from the buyer a portion of the sales proceeds in accordance
with the terms of the relevant property sales agreement, or the balance of the
bank loan to the buyer has been funded, or recognized under the sales schedule
or other specific items of agency sales agreement with developer. At no point
does the Company handle any monetary transactions nor act as an escrow
intermediary between the developer and the buyer.
Revenue
from marketing consultancy services is recognized when services are provided to
clients.
Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.
The
Company accounts for underwriting sales in accordance with SFAS No. 66
“Accounting for Sales of Real Estate” (SFAS 66). The gain on underwriting sales
is recognized when the criteria in SFAS No. 66 have been met, generally when
title is transferred and the Company no longer has substantial continuing
involvement with the real estate asset sold. If the Company provides certain
rent guarantees or other forms of support where the maximum exposure to loss
exceeds the gain, it defers the related commission income and expenses by
applying the deposit method. In future periods, the commission income and
related expenses are recognized when the remaining maximum exposure to loss is
reduced below the amount of gain deferred.
All
revenues represent gross revenues less sales and business tax.
Net
Earnings per Common Share
The
Company computes net earnings per share in accordance with 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 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 considered that a tax position is 'more likely than not' of being
sustained upon audit, based solely on the technical merits of the position, we
recognize the benefit. We measure the benefit by determining the amount that is
greater than 50% likely of being realized upon settlement, presuming that the
tax position is examined by the appropriate taxing authority that has full
knowledge of all relevant information. These assessments can be complex and we
often obtain assistance from external advisors.
Under the
benefit recognition model, if our initial assessment fails to result in the
recognition of a tax benefit, we regularly monitor our position and subsequently
recognize the tax benefit if there are changes in tax law or analogous case law
that sufficiently raise the likelihood of prevailing on the technical merits of
the position to more likely than not; if the statute of limitations expires; or
if there is a completion of an audit resulting in a settlement of that tax year
with the appropriate agency.
Uncertain
tax positions, represented by liabilities on our balance sheet, are now
classified as current only when we expect to pay cash within the next 12 months.
Interest and penalties, if any, continue to be recorded in Provision for taxes
on income and are classified on the balance sheet with the related tax
liability.
Historically,
our policy had been to account for income tax contingencies based on whether we
determined our tax position to be 'probable' under current tax law of being
sustained, as well as an analysis of potential outcomes under a given set of
facts and circumstances. In addition, we previously considered all tax
liabilities as current once the associated tax year was under
audit.
Segment
information
The
Company believes that it operates in one business segment. Management views the
business as consisting of several revenue streams; however it is not possible to
attribute assets or indirect costs to the individual streams other than direct
expenses.
NOTE
3 - PROMISSORY DEPOSITS
The
balance of $1,129,314 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.
As of
September 30, 2008, $733,321 out of the total promissory deposits were pledged
to secure a promissory note payable in note 10.
NOTE
4 – AMOUNTS DUE FROM VENTURERS
The
Company has entered into co-operation agreements with two venturers (one of them
is an independent third party; the other is the Company’s ex-director, Chang
Shu-Ching) to jointly carry out a property underwriting project for a commercial
building in Suzhou, the PRC. According to the agreements, the
Company, Chang Shu-Ching and the other venturer are entitled to share 65%, 10%
and 25% of the net results of the project, respectively. On February 14, 2007,
the venturers entered into an additional agreement that Chang Shu-Ching obtained
25% of the net results of the project from the other venturer. As a result, the
Company and Chang Shu-Ching are entitled to share 65% and 35% of the net results
of the project, respectively.
NOTE
5 - OTHER RECEIVABLES AND DEPOSITS
|
|
September
30
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Advances
to staff
|
|
$
|
23,201
|
|
|
$
|
20,486
|
|
Rental
deposits
|
|
|
87,247
|
|
|
|
101,370
|
|
Prepaid
rental
|
|
|
263,822
|
|
|
|
406,833
|
|
Other
receivables
|
|
|
24,209
|
|
|
|
73,684
|
|
|
|
$
|
398,479
|
|
|
$
|
602,373
|
|
NOTE 6 – PROPERTY, PLANT AND
EQUIPMENT
–
NET
|
|
September,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
147,224
|
|
|
$
|
133,970
|
|
Computer
and office equipment
|
|
|
325,896
|
|
|
|
275,988
|
|
Motor
vehicles
|
|
|
667,541
|
|
|
|
618,024
|
|
Properties
|
|
|
2,218,950
|
|
|
|
2,071,225
|
|
|
|
|
3,359,611
|
|
|
|
3,099,207
|
|
Less:
Accumulated depreciation
|
|
|
(626,235
|
)
|
|
|
(579,622
|
)
|
|
|
$
|
2,733,376
|
|
|
$
|
2,519,585
|
|
All above
properties as of September 30, 2008 and as of December 31, 2007 were pledged to
secure a loan in note 9.
NOTE
7 – EQUITY INVESTMENT
On
September 11, 2007, SHSY invested a 19% equity interest in a PRC company named
Suzhou Bin Fen Nian Dai Administration Consultancy Company Limited
(“SZBFND”).
NOTE
8 – INVESTMENT PROPERTIES
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Investment
property
|
|
$
|
9,081,565
|
|
|
$
|
8,092,319
|
|
Less:
Accumulated depreciation
|
|
|
(715,502
|
)
|
|
|
(292,091
|
)
|
|
|
$
|
8,366,063
|
|
|
$
|
7,800,228
|
|
The
investment properties included one floor and four units of a commercial building
in Suzhou, the PRC, from which the Company derives its underwriting sales
income. The investment properties were acquired by the Company for long-term
investment purposes and were pledged to secure a loan in note 9. The carrying
amount of $6,121,114 was pledged to a promissory note payable in note
11.
As of
November 10, 2008, the four units of the investment properties were leased to
SZBFND, a related party of the Company, and 64% of the total area of the one
remaining floor was leased out.
NOTE
9 – DEFERRED TAX ASSET
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. As of December 31, 2007 and September 30, 2008, the tax effect of
the temporary differences mainly represent the deferred tax assets arising from
the deferred gain of the underwriting sale using the deposit
method.
NOTE
10 - BANK LOANS
Bank
loans at September 30, 2008 included two bank loans, as listed
below:
First,
the balance includes a bank loan of $5,854,014. 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 properties as mentioned in Note 7 above. The
repayment schedule of this bank loan is as follows:
February
1, 2010
|
|
$
|
1,466,641
|
|
August
2, 2010
|
|
$
|
4,387,373
|
|
Pursuant
to the relevant loan agreement, the using of the bank loan is restricted to pay
for deposits and expenditures incurred in performing any real estate marketing
projects of the Company, and approval from the lending bank is required for any
transactions in excess of RMB1 million from the remaining balance. This balance
is recorded as restricted cash on the balance sheet.
Second,
the remaining bank loan of $461,992 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 5 above.
NOTE
11 – PROMISSORY NOTES PAYABLE
There are
four promissory notes, as listed below:
First,
the balance includes a promissory note of $155,554 and accrued interest of
$1,668 thereon. This promissory note of $155,554 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 $75,000 and accrued interest of $9,792
thereon. This promissory note of $75,000 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.
Fourth,
the balance includes a promissory note of $439,992. This promissory note of
$439,992 bears interest at a rate of 18% per annum. This promissory note is
secured by the promissory deposit of $733,321 as mentioned in Note 3 above and
one floor of the investment properties as mentioned in Note 7 above and will be
repayable before February 11, 2009.
NOTE
12 – AMOUNTS WITH RELATED PARTIES AND DIRECTORS
A related
party is an entity that can control or significantly influence the management or
operating policies of another entity to the extent one of the entities may be
prevented from pursuing its own interests. A related party may also be any party
the entity deals with that can exercise that control.
Amount due from related
party
The
amount represents an advance to SZBFND which is unsecured, interest free and has
no fixed term of repayment.
Amount due to
director
The amount due to one of the directors
bears interest at a rate of 9.6% per annum. As of September 30, 2008, the
balance includes principal of $62,742 and accrued interest of $10,245 thereon.
The principal is unsecured and the term of repayment is not specifically
defined
.
Amount due to related
party
The
amount includes a rental deposit received from SZBFND. Rental income of $458,456
is generated from leasing the investment properties to SZBFND during the period.
This amount is unsecured, interest free and repayable on demand.
NOTE
13 - OTHER PAYABLES AND ACCRUED EXPENSES
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Accrued
staff commission & bonus
|
|
$
|
484,902
|
|
|
$
|
1,013,650
|
|
Rental
deposits received
|
|
|
665,930
|
|
|
|
519,352
|
|
Accrual
for onerous contracts
|
|
|
487,380
|
|
|
|
535,811
|
|
Other
payables
|
|
|
482,885
|
|
|
|
384,020
|
|
|
|
$
|
2,121,097
|
|
|
$
|
2,452,833
|
|
NOTE
14 – OTHER TAX PAYABLE
Other tax
payable mainly represents PRC business tax which is charged at a rate of 5% on
the revenue from services rendered. The amount of PRC business tax charged for
the period ended September 30, 2008 was $369,901.
NOTE 15- COMMITMENTS AND
CONTINGENCIES
Operating Lease
Commitments
During
the nine months ended September 30, 2008 and 2007, the Company incurred lease
expenses amounting to $318,413 and $178,693, respectively. As of September 30,
2008, the Company had commitments under operating leases, requiring annual
minimum rentals as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Within
one year
|
|
$
|
173,555
|
|
|
$
|
132,628
|
|
Two
to five years
|
|
|
74,029
|
|
|
|
133,847
|
|
Operating
lease commitments
|
|
$
|
247,584
|
|
|
$
|
266,475
|
|
During
the year of 2005 and 2006, SZGFH entered into leasing agreements with certain
buyers of the Sovereign Building underwriting project to lease the properties
for them. These leasing agreements on these properties are for 62% of the floor
space that was sold to third party buyers. In accordance with the leasing
agreements, the owners of the properties can have 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 September 30, 2008,
121 sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 92% of total area with these lease
commitments.
As of
September 30, 2008, the lease commitments are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Within
one year
|
|
$
|
3,264,552
|
|
|
$
|
3,047,216
|
|
Two
to five years
|
|
|
6,755,192
|
|
|
|
8,412,157
|
|
Over
five years
|
|
|
2,445,160
|
|
|
|
2,181,446
|
|
Operating
lease commitments arising from the promotional package
|
|
$
|
12,464,904
|
|
|
$
|
13,640,819
|
|
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 was $535,811 as of December 31, 2007 and $487,380 as of September 30,
2008.
According
to the leasing agreements, the Company has an option to terminate any agreement
by paying a predetermined compensation. As of September 30, 2008, the
compensation to terminate all leasing agreements is $3,018,375. According to the
sub-leasing agreements that have been signed through September 30, 2008, the
rental income from these sub-leasing agreements will be $2,250,166 within one
year and $1,492,396 within two to five years. However, no assurance can be given
that we can collect all of the rental income.
NOTE
16 –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
17 – STATUTORY RESERVE
According
to the relevant corporation laws in the PRC, a PRC company is required to
transfer at least 10% of its profit after taxes, as determined under accounting
principles generally accepted in the PRC, to the statutory reserve until the
balance reaches 50% of its registered capital. The statutory reserve can be used
to make good on losses or to increase the capital of the relevant
company.
NOTE
18 – ACCUMULATED OTHER COMPREHENSIVE INCOME
As of
September 30, 2008, the only component of accumulated other comprehensive income
was translation reserve.
NOTE
19 – CONCENTRATION OF CUSTOMERS
During
the three months and nine months ended September 30, 2008 and 2007, the
following customers accounted for more than 10% of total net
revenue:
|
|
Percentage
of
Net
Sales
Three
Months
Ended
September 30,
|
|
|
Percentage
of
Net
Sales
Nine
Months
Ended
September 30,
|
|
|
Percentage
of
Accounts
Receivable
as
of September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
23
|
%
|
|
|
*
|
|
|
|
15
|
%
|
|
|
*
|
|
|
|
23
|
%
|
|
|
*
|
|
Customer
B
|
|
|
*
|
|
|
|
*
|
|
|
|
10
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer
C
|
|
|
*
|
|
|
|
10
|
%
|
|
|
*
|
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
*
|
|
Customer
D
|
|
|
*
|
|
|
|
13
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer
E
|
|
|
*
|
|
|
|
10
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
39
|
%
|
* less
than 10%
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY
STATEMENT
The
following Management’s Discussion and Analysis (“MD&A”) is intended to help
the reader understand Sunrise Real Estate Group, Inc. (“SRRE”). The MD&A is
provided as a supplement to, and should be read in conjunction with, our
financial statements and the accompanying notes. The information contained in
this quarterly report on Form 10-Q is not a complete description of our business
or the risks associated with an investment in our common stock. We urge you to
carefully review and consider the various disclosures made by us in this report
and in our other reports filed with the Securities and Exchange Commission, or
SEC, including but not limited to our annual report on Form 10-KSB for the year
ended December 31, 2007, which discusses our business in greater
detail.
In this
report we make, and from time to time we otherwise make, written and oral
statements regarding our business and prospects, such as projections of future
performance, statements of management’s plans and objectives, forecasts of
market trends, and other matters that are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements containing the words or phrases
“will likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimates,” “projects,” “seeks”, “believes,” “expects,” “anticipates,”
“intends,” “target,” “goal,” “plans,” “objective,” “should” or similar
expressions identify forward-looking statements, which may appear in documents,
reports, filings with the Securities and Exchange Commission, news releases,
written or oral presentations made by officers or other representatives made by
us to analysts, stockholders, current or potential investors, news organizations
and others, and discussions with management and other of our representatives,
customer and suppliers. For such statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Our
future results, including results related to forward-looking statements, involve
a number of risks and uncertainties. No assurance can be given that the results
reflected in any forward-looking statements will be achieved. Any
forward-looking statement speaks only as of the date on which such statement is
made. Our forward-looking statements are based upon assumptions that are
sometimes based upon estimates, data, communications and other information from
suppliers, government agencies and other sources that may be subject to
revision. Except as required by law, we do not undertake any obligation to
update or keep current either (i) any forward-looking statement to reflect
events or circumstances arising after the date of such statement, or (ii) the
important factors that could cause our future results to differ materially from
historical results or trends, results anticipated or planned by us, or which are
reflected from time to time in any forward-looking statement.
In
addition to other matters identified or described by us from time to time in
filings with the SEC, there are several important factors that could cause our
future results to differ materially from historical results or trends, results
anticipated or planned by us, or results that are reflected from time to time in
any forward-looking statement. Some of these important factors, but not
necessarily all important factors, include 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. Please also refer to the section
entitled “Risk Factors” in our Annual Report on Form 10-KSB for the year ended
December 31, 2007.
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”), Suzhou Xin Ji Yang Real Estate Brokerage Company
Limited(“SZXJYB”), Kunshan Shang Yang Real Estate Brokerage Company Limited
(“KSSY”) and San Ya Shang Yang Real Estate Consultation Company Limited (“SYSY”)
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
Our major
business was agency sales, whereby our Chinese subsidiaries 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. We have focused our sales on the whole China
market, especially in secondary cities. To expand our agency business, we have
established subsidiaries in Shanghai, Suzhou, Beijing, Kunshan and Hainan, and
branches in NanChang, YangZhou, NanJing and ChongQing.
During
the year of 2005 and 2006, SZGFH entered into leasing agreements with certain
buyers of the Sovereign Building underwriting project to lease the properties
for them. These leasing agreements on these properties are for 62% of the floor
space that was sold to third party buyers. In accordance with the leasing
agreements, the owners of the properties can have 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 November 10, 2008, 116
sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 90% of total area with these lease
commitments.
RECENTLY
ISSUED ACCOUNTING STANDARDS
In
October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active.” This
FSP clarifies the application of SFAS No. 157 in a market for that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. This FSP was effective for the Company upon issuance, including prior
periods for which financial statements have not been issued; and, therefore was
effective for the Company’s financial statements as of and for the three and
nine month periods ended September 30, 2008. There was no impact of adoption of
FAS 157 as the Company has no financial assets or liabilities which were not
classified as level I.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles (“GAAP”) for
nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. Management does not anticipate that the
provisions of SFAS No. 162 will have an impact on the Company’s consolidated
results of operations or consolidated financial position.
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 business
combinations for which the acquisition date is in on or after the beginning of
the first annual reporting period beginning on or after December 15,
2008. The impact of adopting SFAS 141R will depend on the nature and
size of the future business combinations the Company consummates after the
effective date.
FASB
statement No. 160 “Noncontrolling Interests in Consolidated Financial
Statements- an amendment of ARB No. 51” was issued December of 2007. This
Statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. The Company believes that this new pronouncement
will have an immaterial impact on the Company’s financial statements in future
periods.
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 revenue
recognition, net earnings per common share, income taxes and segment
information.
Revenue
Recognition
Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer grants confirmation to us to be able to invoice them accordingly. The
time when we receive the commission is normally at the time when the property
developer receives from the buyer a portion of the sales proceeds in accordance
with the terms of the relevant property sales agreement, or the balance of the
bank loan to the buyer has been funded, or recognized under the sales schedule
or other specific items of agency sales agreement with developer. At no point
does the Company handle any monetary transactions nor act as an escrow
intermediary between the developer and the buyer.
Revenue
from marketing consultancy services is recognized when services are provided to
clients.
Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.
The
Company accounts for 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.
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 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.
Segment
Information
The
Company believes that it operates in one business segment. Management views the
business as consisting of several revenue streams; however it is not possible to
attribute assets or indirect costs to the individual streams other than direct
expenses.
RESULTS OF OPERATIONS
We
provide the discussion and analysis of our changes in financial condition and
results of operations for the three and nine months ended September 30, 2008,
with comparisons to the historical three and nine months ended September 30,
2007.
Revenue
The
following table shows the net revenue detail by line of business:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
1,561,122
|
|
|
|
63
|
|
|
|
1,432,271
|
|
|
|
79
|
|
|
|
9
|
|
|
|
4,069,064
|
|
|
|
63
|
|
|
|
3,432,808
|
|
|
|
77
|
|
|
|
19
|
|
Underwriting
sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
216,085
|
|
|
|
5
|
|
|
|
(100
|
)
|
Property
Management
|
|
|
914,799
|
|
|
|
37
|
|
|
|
385,319
|
|
|
|
21
|
|
|
|
137
|
|
|
|
2,368,083
|
|
|
|
37
|
|
|
|
823,899
|
|
|
|
18
|
|
|
|
187
|
|
Net
revenue
|
|
|
2,475,921
|
|
|
|
100
|
|
|
|
1,817,590
|
|
|
|
100
|
|
|
|
36
|
|
|
|
6,437,147
|
|
|
|
100
|
|
|
|
4,472,792
|
|
|
|
100
|
|
|
|
44
|
|
The net
revenue of the third quarter, 2008 was $2,475,921, which increased 36% from
$1,817,590 of the third quarter, 2007. The total net revenue of the first three
quarters of 2008 was $6,437,147, which increased 44% from $4,472,792 of the
first three quarters of 2007. In the third quarter of 2008, agency sales
represented 63% of the total net revenue and property management represented
37%. In the first three quarters of 2008, agency sales represented 63% of the
total net revenue and property management represented 37%. The increase in net
revenue in the third quarter and first three quarters, 2008 was primarily due to
the increase in property management.
Agency
sales
In the
third quarter and first three quarters of 2008, 63% of our net revenue was due
to agency sales. As compared with the same period in 2007, agency sales’ net
revenue in the third quarter and first three quarters of 2008 increased 9% and
19% respectively. The primary reason for the increase in revenue was the two
projects that contributed a net revenue of $1.56 million to our agency sales in
the first three quarters of 2008, and there were no such projects in the same
period in 2007.
Because
of our diverse market locations, the current macro economic policies had little
impact on our agency sales business, 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
As the
Sovereign Building Project was closed in 2007, there was no net revenue of
underwriting sales in 2008.
Property
Management
During
the year of 2005 and 2006, SZGFH entered into leasing agreements with certain
buyers of the Sovereign Building underwriting project to lease the properties
for them. These leasing agreements on these properties are for 62% of the floor
space that was sold to third party buyers. The leasing period started in the
second quarter, 2006, and the Company has the right to sublease the leased
properties to cover these lease commitments in the leasing period. As
of September 30, 2008, 121 sub-leasing agreements have been signed, the area of
these sub-leasing agreements represented 92% of total area with 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
Revenue
The
following table shows the cost of revenue detail by line of
business:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
828,553
|
|
|
|
49
|
|
|
|
685,932
|
|
|
|
46
|
|
|
|
21
|
|
|
|
2,366,146
|
|
|
|
49
|
|
|
|
1,709,911
|
|
|
|
40
|
|
|
|
38
|
|
Underwriting
sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,906
|
|
|
|
2
|
|
|
|
(100
|
)
|
Property
Management
|
|
|
868,753
|
|
|
|
51
|
|
|
|
820,645
|
|
|
|
54
|
|
|
|
16
|
|
|
|
2,431,633
|
|
|
|
51
|
|
|
|
2,501,094
|
|
|
|
58
|
|
|
|
3
|
|
Cost
of revenue
|
|
|
1,697,306
|
|
|
|
100
|
|
|
|
1,506,577
|
|
|
|
100
|
|
|
|
11
|
|
|
|
4,797,779
|
|
|
|
100
|
|
|
|
4,286,991
|
|
|
|
100
|
|
|
|
12
|
|
The cost
of revenue of the third quarter of 2008 was $1,697,306, which increased 11% from
$1,506,577 of the third quarter of 2007. The total cost of revenue of the first
three quarters of 2008 was $4,797,779, which increased 12% from $4,286,991 of
the first three quarters of 2007. In the third quarter of 2008, agency sales
represented 49% of the total cost of revenue and property management represented
51%. In the first three quarters of 2008, agency sales represented 49% of the
total cost of revenue and property management represented 51%. The increase in
cost of revenue in the third quarter and first three quarters of 2008 was mainly
due to the increase in agency sales.
Agency
sales
As
compared with same period in 2007, cost of revenue of agency sales in the third
quarter and first three quarters of 2008 increased 21% and 38% respectively. The
primary reason for the change was that as compared to the same period in 2007,
the staff cost and designing fees increased $231,139 and $365,099 respectively
in the first three quarters of 2008.
Underwriting
sales
As the
Sovereign Building Project was closed in 2007, there was no cost of underwriting
sales in 2008.
Property
management
During
the year of 2005 and 2006, SZGFH entered into leasing agreements with certain
buyers of the Sovereign Building underwriting project to lease the properties
for them. These leasing agreements on these properties are for 62% of the floor
space that was sold to third party buyers. In accordance with the leasing
agreements, the owners of the properties can have 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 we recognized the rental
return under these leasing agreements as our cost.
Operating
Expenses
The
following table shows operating expenses detail by line of
business:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
|
2008
|
|
|
%
to total
|
|
|
2007
|
|
|
%
to total
|
|
|
%
change
|
|
Agency
sales
|
|
|
183,318
|
|
|
|
51
|
|
|
|
228,787
|
|
|
|
73
|
|
|
|
(20
|
)
|
|
|
759,892
|
|
|
|
76
|
|
|
|
598,299
|
|
|
|
74
|
|
|
|
27
|
|
Underwriting
sales
|
|
|
-
|
|
|
|
-
|
|
|
|
25,451
|
|
|
|
8
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
80,208
|
|
|
|
10
|
|
|
|
(100
|
)
|
Property
Management
|
|
|
178,146
|
|
|
|
49
|
|
|
|
57,718
|
|
|
|
19
|
|
|
|
209
|
|
|
|
240,687
|
|
|
|
24
|
|
|
|
128,370
|
|
|
|
16
|
|
|
|
87
|
|
Operating
expenses
|
|
|
361,464
|
|
|
|
100
|
|
|
|
311,956
|
|
|
|
100
|
|
|
|
16
|
|
|
|
1,000,579
|
|
|
|
100
|
|
|
|
806,877
|
|
|
|
100
|
|
|
|
24
|
|
The
operating expenses of the third quarter of 2008 were $361,464, which increased
16% from $311,956 of the third quarter of 2007. The total operating expenses of
the first three quarters of 2008 were $1,000,579, which increased 24% from
$806,877 of the first three quarters of 2007. In the third quarter of 2008,
agency sales represented 51% of the total operating expenses and property
management represented 49%. In the first three quarters of 2008, agency sales
represented 76% of the total operating expenses and property management
represented 24%. This increase was mainly due to the increase in property
management.
Agency
sales
When
compared to 2007, the operating expenses for agency sales in the third quarter
and first three quarters of 2008 decreased 20% and increased 27% respectively.
The primary reason for the decrease in the third quarter of 2008 was that as
compared to the same period in 2007, the staff cost, office expenses and
transportation expenses decreased $21,208, $4,696 and $8,984 respectively in the
third quarter of 2008. The primary reason for the increase in the first three
quarters of 2008 was that as compared to the same period in 2007, the staff cost
and business traveling expenses increased $83,698 and $33,169 respectively in
the first three quarters of 2008.
Underwriting
sales
As the
Sovereign Building Project was closed in 2007, there was no operating expense of
underwriting sales in 2008.
Property
management
When
compared to 2007, the operating expenses for property management in the third
quarter and first three quarters of 2008 increased 209% and 87% respectively.
The main reason for the increase was the staff cost increased $84,652 in the
first three quarters of 2008 with comparing to the same period in
2007.
General and Administrative
Expenses
When
compared to 2007, the general and administrative expenses in the third quarter
and first three quarters of 2008 decreased 31% and 6% respectively. The primary
reason for the change was
i)
|
The
decrease in our legal fees. In the first three quarters of 2008, our legal
fees decreased $68,715, compared to the same period in 2007. The legal
fees are mainly for the maintenance of the Company’s listing
status.
|
|
|
ii)
|
The
decrease in our business traveling expenses. In the first three quarters
of 2008, our business traveling expenses decreased $81,004, compared to
the same period in 2007.
|
|
|
iii)
|
A
US$349,195 allowance for other receivables was required in the third
quarter of 2007, and there was no such expense in the first quarters of
2008.
|
Interest
Expenses
When
compared to 2007, the interest expenses in the third quarter and first three
quarters of 2008 decreased 40% and 34% respectively. The interest expense
relates to bank loans and promissory notes payable.
LIQUIDITY AND CAPITAL RESOURCES
In the
first three quarters of 2008, our principal sources of cash were revenues from
our agency sales business. 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,
the maintenance of regional offices and promissory deposits, and the repayments
of our bank loans and promissory notes.
We ended
the period with a cash position of $841,236 (including cash and cash equivalents
of $733,600 and restricted cash of $107,636). The Company’s operating activities
used cash in the amount of $1,035,128 in the first three quarters of 2008, which
was primarily attributable to the Company’s net loss and payment of promissory
deposits.
The
Company’s investing activities generated cash in the amount of $1,810,085 in the
first three quarters of 2008, which was primarily attributable to the decreased
in restricted cash balance.
The
Company’s financing activities generated cash in the amount of $10,648 in the
first three quarters of 2008, which was primarily attributable to the obtain of
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 our agency sales
and property management, and proceeds from our investment properties will be
sufficient to meet our anticipated needs for working capital expenditures,
business expansion and the potential cash needs during 2008.
If our
business grows more rapidly than we currently predicted, 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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
Applicable.
ITEM
4. CONTROLS AND PROCEDURES
Our Chief
Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of September 30,
2008. Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were not effective as of September 30, 2008, to ensure that information required
to be disclosed in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.
Changes
in internal control over financial reporting
As of
June 30, 2008, we had identified the significant deficiencies related to the
failure to correctly apply accounting principle in underwriting revenue
recognition and to recognize the minority interest. Our management was in the
process to remediate these significant deficiencies by taking the following
actions.
a. our
Chief Financial Officer and our chief accounting officer have been required to
review the application of accounting principles and clearly define the
accounting method adopted in revenue recognition and accounting for minority
interests;
b.
management has been reviewed and approved these accounting methods before they
have been adopted.
Except
for the above, there were no changes in our internal controls over financial
reporting during the quarter ended September 30, 2008, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The
Company is not a party to any legal proceedings of a material
nature.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
Exhibit
|
|
|
Number
|
|
Description
|
31.1
|
|
Section
302 Certification by the Corporation's Chief Executive
Officer.
|
|
|
|
31.2
|
|
Section
302 Certification by the Corporation's Chief Financial
Officer.
|
|
|
|
32.1
|
|
Section
1350 Certification by the Corporation's Chief Executive Officer and
Corporation's Chief Financial
Officer.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
SUNRISE REAL
ESTATE GROUP, INC.
|
|
|
|
|
|
Date:
May 14, 2009
|
By:
|
/s/ Lin,
Chi-Jung
|
|
|
|
Lin,
Chi-Jung, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 14, 2009
|
By:
|
/s/
Wang, Wen-Yan
|
|
|
|
Wang,
Wen-Yan, Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
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