SUNRISE REAL ESTATE GROUP INC - 10KSB - 20050408 - PART_II
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.
According to the transfer agent's records, at March 1, 2005, approximately
10,471 holders, including beneficial holders, held our common stock. On March
30, 2005, the closing price of our common stock was $5.00.
No cash dividends were paid to common stockholders in 2004 and 2003. Major
reason being we are still a growing company and we would require sufficient
liquidity to fund our aggressive business activities. The Company would consider
paying dividends in the future when cash surplus allowed so.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Please read this discussion along with the Consolidated Financial Statements and
Notes found at ITEM 7. "FINANCIAL STATEMENTS."
OVERVIEW
As a result of the completion of merger exercise on October 5 2004, the holding
companies of the 2 businesses i.e., LIN RAY YANG Enterprise Ltd., a British
Virgin Island company ("LRY"), and Sunrise Real Estate Development Group, Inc.,
a Cayman Islands company ("CY-SRRE") became our wholly-owned subsidiaries, and
their respective subsidiaries (SHSY & SHXJY) businesses became our only
business.
Since the former stockholders of LRY and CY-SRRE acquired a majority of our
voting interests in the merger, the transaction was treated as a reverse
acquisition, with LRY and CY-SRRE treated as the acquirer for accounting
purposes. Accordingly, the pre-merger financial statements of LRY and CY-SRRE
are our historical financial statements. Before the completion of the merger
exercise, SRRE had no continuing operations and its historical results would not
be meaningful if combined with the historical results of SHXJY.
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 stockholders
retain the majority voting interest in the combined business to 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 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, BJXJY and SHSY
are collectively referred to as "the Company" hereafter. The principal
activities of the Company are the provision of property brokerage services and
real estate marketing services in Mainland China.
RECENT DEVELOPMENTS
Before 2004, our major business is agency business, whereby our only subsidiary
then, SHXJY was contracted by property developers to market and sell their newly
developed property units; in return we earn a commission fee calculated as a
percentage of the selling price. Our business operation in SHXJY continues to
demonstrate growth in revenue.
In 2004, through another subsidiary, SHSY, we venture into a higher risk
business model whereby our commission was not calculated as a percentage of
selling price anymore; instead, our commission revenue is equivalent to the
price difference between the final selling price and underwriting price. In this
higher risk model named "Underwriting Model", we negotiated with the developer
for an underwriting price as low as possible, with the condition that we
guarantee to acquire all unsold units within certain period. In return, we were
given the flexibility to price 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 upon the expiry
period, we may have to absorb the unsold units from developers at the
underwriting price and hold them as our stock or investment. As per the terms of
underwriting agreement, there are 2 expiry periods: the first is in the mid of
2005 whereby we committed to sell 60% of the contracted value; the second is by
the end 2005, whereby we committed to the remaining 40% of the contracted value.
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While we expect revenue to stem from these two subsidiaries businesses, we can
provide no assurance that this will result in any increase in profitability.
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 expressions of our current beliefs
and expectations, based on information currently available to us; estimates, and
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, you 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
otherwise.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation 46R (FIN 46R), a revision to Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46R clarifies some of the
provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R
is effective at the end of the first interim period ending after March 15, 2004.
Entities that have adopted FIN 46 prior to this effective date can continue to
apply the provisions of FIN 46 until the effective date of FIN 46R or elect
early adoption of FIN 46R. The adoption of FIN 46 and FIN 46R did not have a
material impact on our financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued a
revision of FASB Statement No. 123, (FASB 123R) Accounting for Stock-Based
Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. FASB 123R
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity, equity instruments or
that may be settled by the issuance of those equity instruments. FASB 123R
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. FASB 123R does not change
the accounting guidance for share-based payment transactions with parties other
than employees provided in FASB 123 as originally issued and EITF Issue No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services. FASB 123R does
not address the accounting for employee share ownership plans, which are subject
to AICPA Statement of Position 93-6, Employers Accounting for Employee Stock
Ownership Plans. We do not believe the adoption of FASB 123R will have a
material impact on our 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 revenue
recognition, impairment of goodwill, and accounting for income taxes.
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Goodwill
SFAS 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 the Company. Application of the goodwill
impairment test requires judgment, including the identification of the Company,
assignment of assets and liabilities to Company, assignment of goodwill to the
Company, and determination of the fair value of the Company. The fair value of
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
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 the Company
Income Taxes
SFAS 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 our results of operations.
Revenue Recognition
Agency commission revenue from property broking is recognised when the property
developer and the buyer complete a property sales transactions, 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.
Revenue from marketing consultancy services is recognized when services are
provided to clients.
RESULTS OF OPERATIONS
We provide the discussion and analysis of our changes in financial condition and
results of operations with comparison to that of last fiscal year only. There
will be no comparison for last fiscal year vis-a-vis the period before as there
was no pro-forma consolidated financial statement prior to the "reverse
acquisition" exercise.
Revenue
Our net revenues after sales tax are mainly agency commission fee derived from
SHXJY. Net revenue was $7.7 million in 2004 compared to $5.3 million in 2003. In
2004, we were contracted to sell property value worth $283 million, which was a
134% increase from last year contracted value of $121 million. We expect we will
experience the similar if not better revenue growth rate in 2005 for our
commissioned agency business.
In 2004, another operating subsidiary, SHSY is contributing minimal gross
revenue of $122,380 as it is still in the early stage of development; in
February 2004, SHSY has won a project to underwrite an office building in
Suzhou. Property Sales Underwriting is comparatively a higher risk business
model compared to our pure commission based agency business, whereby our
commission was not calculated as a percentage of selling price anymore; instead,
our commission revenue is equivalent to the price difference between the final
selling price and underwriting price. In this relatively high risk model,
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namely, "Underwriting Model", we negotiated with developer for an underwriting
price as low as possible, with the condition that we guarantee to acquire all
unsold units within certain period. In return, we were given the flexibility to
price 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 upon the expiry period, we may have to
absorb the unsold property units from developers at the underwriting price and
hold it as our stock or investment.
This underwriting project launched in January 2005 after the property develop
obtained the necessary permit for sale. Since then, we have sold almost a
quarter of the underwritten floor areas as of March 23, 2005; this will generate
potential revenue of $3.8 million. The total revenue to be generated from this
project is $15 million. We expect with the inclusion of this underwriting
income, the composition of our group revenue will change tremendously in 2005,
with both agency commission and underwriting income each representing
approximately half of the revenue.
Cost of Revenue
Cost of revenue increased to $4.2 million when compared with that of last
corresponding period. The increase is primarily in tandem with the increase in
sales. Besides, there were other elements for the significant increase in cost
of revenue in 2004;
1. Advertising costs: For most of the projects handled by the Company,
advertising costs are borne by corresponding property developers. For
certain projects in 2004, we committed to bear all advertising costs on our
own in exchange for a higher agency commission rate. All advertising costs
incurred in the promotion of the Company's property projects are expensed
as incurred. Total advertising costs for 2004 was $1.3 million while just
$17,000 was incurred in 2003. Due to the cyclical nature of our business,
we have no guarantee to match the advertising costs to the related revenue;
however, we are confident that advertising costs expensed in 2004 will be
recovered when the related revenue is generated in 2005. Advertising costs
are usually incurred according to the timeline specified in project
budgeting. It is budgeted according to a percentage of our expected sales
amount. Due to the nature of property marketing and sales cycle,
advertising costs are usually incurred two to three months prior to the
formal sales launch activities; in some cases, advertising costs and
activities may take place before year-end, while sales launch activities
were take place after year-end. As advertising costs are expended off as
incurred, there is possibility that advertising costs incurred in current
year are not exactly matching with the related revenue earned.
2. Operating Incentives: Operating Incentive is awarded to the management and
operation team for achieving and exceeding certain preset performance
targets for the year, operating incentive of $165,000 was incurred in this
year.
General and Administrative Expenses
The Company's general & administrative expenses increased by 229% over 2003. The
increase in general and administrative expenses was mainly due to the following
reasons:
1. Regionalized Management Initiative Program: The increase in management
member and sales personnel resulting from the introduction of Regionalized
Management Initiative Program caused the increase in staff costs during the
year. In addition, the rental and other office expenses arising from the
set-up of SHSY, SZXJY and SHXJY's two branches located in Nanchong and
Yangzhou in 2004 also caused the increase in general and administrative
expenses.
2. Establishment of SHSY: The setting up of SHSY in March 2004 is to undertake
higher risk business arrangement with developer, i.e.; underwriting case
and any other property investment project in the future. The running cost
of this subsidiary is amounted to $487,940 in 2004.
3. Business Development Incentive: This incentive was attributed to the
initial management team members for their valuable contribution to the
Company. It was calculated at 0.2% of the total value of properties sold in
2004. During the year, business development incentive of $565,456 was
declared to the initial management team.
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In addition to the general and administration expenses associated with the new
subsidiaries and branches, the expenses also included housing allowance of
$138,000 given to the top management who are Taiwanese expatriate. As being a
social committed enterprise, we also made contribution to the community by
donating to local schools and providing education subsidies in rural areas. In
2004, the total contribution for the above was $48,000.
LIQUIDITY AND CAPITAL RESOURCES
Source of Cash:
|X| Our principal sources of cash are commission revenue from our agency
business. As agency business will remain the core of our operation, it will
continue to be our primary source of cash. On top of that, we are expecting
another source of operating cash from our newly set-up investment division
as well. We believe these sources will continue to meet our cash
requirements, including debt service, operating expenses and promissory
deposits for various property projects. Although we expect these sources of
cash to be sufficient to fund our planned uses of cash, we can make no
assurance that the expected property sales will be completed as planned.
|X| Another major source of cash is from the injection of capital amounting to
$2 million by LIN RAY YANG Enterprise Ltd., a British Virgin Island company
("BVI LRY").
|X| Proceeds from borrowings were also a key source of cash for SRRE. We have
obtained $1 million under a commercial promissory note. The commercial
promissory note bears interest at a rate of 5% per annum. All outstanding
principal and interest are due at maturity as of December 31, 2004. In
January 2005 the line of maturity of the Note was extended for a year to
December 31, 2005. Interest is due on demand and all outstanding principal
are due at maturity.
|X| We have also entered in a mortgage loan agreement with Suzhou Commercial
Bank. This is a 5- year term loan amounting to $1.48 million. The
arrangement of this term loan is mainly to finance the acquisitions of two
floors of an office building under development in Suzhou, the PRC. The term
loan bears 0.4875% monthly interest with a monthly repayment installment of
$28,510. We may face difficulty in paying back the loan if the
property-underwriting project in Suzhou does not provide the cash source as
planned.
|X| We have also profit sharing partners whom committed to share part of our
investment risk in the property underwriting project spearheading by our
subsidiary, SHSY. The total proceeds from these profit sharing partners are
$972,633. Profit distributable to these profit sharing partners will be
allotted to them respectively after deducting all the costs involved in the
project.
Uses of Cash
|X| Most of our cash resources were used to fund the operating expenses and
personnel related expenses, such as salary and commission paid to sales
forces, advertising cost, maintenance of regional offices and etc.
|X| We also committed in placing performance guarantee deposits to certain
property developers in order to secure the relevant projects.
We expect that moving forward we may utilize more available cash sources to fund
for Performance Guarantee in order to secure higher quality projects and to
allow us to negotiate for better agency commission structure.
Potential Cash Pressure for 2005
|X| Sales Underwriting Agreement
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Our subsidiary, SHSY has underwritten the sale of Suzhou Hui Long Project
(the building name is called Sovereign Building), a property developed by
an independent developer. Under this underwriting agreement, we negotiated
with developer for an underwriting price, with the condition that we
guarantee to acquire all unsold units within certain period. In return, we
were given the flexibility to price the final selling price and earn the
price difference between the final selling price and the underwriting
price. We are optimistic that we would be able to sell off the committed
units by the date agreed by both parties.
The total sum of the underwriting value is $49 million. We have committed
to sell 60% of the total underwriting value by May 25, 2005. As of March 9,
2005, we have managed to sell off 35% of the committed value since the
launch the sales on January 8, 2005. The management is confident to achieve
the 60% target by May 25, 2005. If we do not meet the 60% target by May 25,
2005, we have to acquire from the independent developer the remaining
unsold units. The requirement to pay the unsold units will partly be funded
by mortgage loans from banks and partly be funded by the proceeds earned
from the sold units.
This report contains certain forward-looking statements and information relating
to us that are based on the beliefs and assumptions made by our management as
well as information currently available to the management. When used in this
document, the words "anticipate", "believe", "estimate", and "expect" and
similar expressions, are intended to identify forward-looking statements. Such
statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected.
RISK FACTORS
SRRE has identified a number of risk factors faced by the Company. These
factors, among others, may cause actual result, events or performance to differ
materially from those expressed in any forward-looking statements made in this
Form 10-KSB or in press releases or other public disclosures. Investors should
be aware of the existence of these factors.
Risk relating to the Group
Risk relating to Property Underwriting Agreement
Shanghai Shangyang Real Estate Consultation Company Limited ("SHSY"), one of our
subsidiaries, has entered into a Property Underwriting Agreement with an
independent property developer to underwrite the Sovereign Building Project, a
commercial building developed by the developer at a fixed underwriting price.
When an unit is sold, the price difference between the ultimate selling price
and the fixed underwriting price will be attributable to SHSY According to the
Property Underwriting Agreement, we have committed to distribute all the units
within a certain period of time. If we fail to sell all the units, we have to
acquire all the unsold units from the developer. Hence, we are bearing a
potential risk of liability, and our future cash flow and liquidity would be
adversely affected.
We may be unable to recognize our income
Generally, we recognize our income after the contracts signed with developers
are fulfilled and confirmations are received from the developers. But, sometimes
we cannot recognize income even we have rendered our services because of the
following reasons:
|X| The developers have not received payments from potential property buyers
who promise to pay the outstanding sum by cash,
|X| The property owners are unable to obtain the mortgage financing from bank,
in the case where property buyer is paying the outstanding sum via mortgage
financing
|X| Even if the property owners obtain the mortgage loan, because the
developers' credit is relatively low, the banks are unwilling to grant the
bridging loan to developer in time,
|X| The developers intend to be in arrears with the sales commission, hence not
granting confirmation to the Company to invoice them according.
Development of new business may stretch our cash flow and strain our operation
efficiency
In end of 2004, We have established a joint venture with SIP Hi-Dragon Real
Estate Development Co., Ltd. - Suzhou Gao Feng Hui Property Management Co., Ltd
to expand our business; our proportion of investment is 80%. The business scope
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of the new company is to conduct renting service, building management service
and buildings maintenance management service of office buildings, hotel-style
flat, some activities we have little experience of. Such 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 an increase need in our financing requirements.
Risk associated with a Guaranteed Return Promotion
In order to sell out the underwritten property of Sovereign Building as
scheduled, we have launched a Promotional Package in end of November 2004. This
promotional package allow buyers and investors to enjoy a 5 or 8 years
guaranteed investment return of 8.5% and 8.8% per annum respectively. The return
is guaranteed by the Suzhou Gao Feng Hui Property Management Co., Ltd ("SZGFH"),
an independent company that we have 80% stake in, whereby SZGFH's principal
activities are the provisions of real estate leasing service and property
management service. However, we may not successfully lease out the targeted
properties at prices higher than that we committed as per the promotional
package. Our failure to do so could adversely affect our financial condition. In
addition, one of our subsidiaries, Shanghai Shang Yang Real Estate Consultation
Co., Ltd., must bear joint liability for the guarantee return agreement that
Suzhou Gao Feng Hui Property Management Co., Ltd enters into with several
property owners. If Gao Feng Hui fails to fulfill the agreement, Shang Yang's
financial condition may be affected adversely.
Our acquisition of new property may involve risks
We acquired two floors of the Sovereign Building this year and financed 50% of
the property acquisition sum via a 5-year term loan with the remainder 50% due
in November 2005. This acquisition involves several risks, including but not
limited to the following:
|X| Acquired property may not perform as well as we expected or ever become
profitable.
|X| Improvements to the properties may ultimately cost significantly more than
we had estimated.
|X| The mentioned loan is a floating rate debt. Accordingly, increases in
interest rates could materially increase our interest expense.
|X| If we are unable to generate sufficient cash flow from operation, when the
remainder 50% of the property acquisition sum is due, our operation would
be adversely affected.
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 successfully manage our growth
or in integrating and assimilating 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.
Dependence on the performance of the property sector in specific geographical
area
The properties we resell and intend to invest are mainly based in Yangtze Delta,
especially in Shanghai. 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 the other markets of ours will
continue at this level in the future or that we will be able to benefit from the
future growth of the property market in Yangtze Delta or any of these other
property markets.
Financing considerations
Property sector is a capital-intensive business. Adequate financing is one of
the major factors, which can affect our ability to executive our plan in this
regard. We finance our business mainly from internal funds and bank borrowings,
and currently we are preparing for our listing exercise and raising equity fund.
There is no guarantee that we will always have internal funds available for
future developments or we will not experience difficulties in obtaining
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financing and renewing credit facilities granted by financial institutions in
the future. And there may be a delay in listing and equity fund raising
activities. Our access to debt or equity financing depends on 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.
Any rise in interest rate would increase our interest cost
An increase in interest rates will increase the interest expense associated with
our floating-rate debt and the refinancing of any fixed-rate debt originally
financed at a lower rate.
Dependence on qualified personnel
As a small company, our success depends on the service of our executive officers
and other skilled managerial and technical personnel. The loss of the services
of one or more of such employees could have material adverse effect on us. In
addition, as our business continues to grow, we will need to recruit, train and
retain additional qualified employees. If we fail to attract and retain
qualified personnel, our business and prospects would be adversely affected.
Risk relating to partnering developers
We have been recording enormous growth rate this year. Currently, Xin Ji Yang is
our major contributor in term of both revenue and net income. As a service-based
company, Xin Ji Yang depends much on the working relationship and the agency
contracts with its partnering developers. We are exposed to the risk that the
developers may experience financial or other difficulties, which may affect
their ability or will to carry out the development projects and the reselling
contracts, thus delaying or canceling the fulfillment of the agency contracts.
Any of these factors could adversely affect our revenues.
Our controlling shareholders may take actions that are not in public
shareholders' best interests
The Ace Develop Properties Limited directly controls 62% of our outstanding
common stock and Lin Chi-jung, our Chairman, indirectly controls 62% of our
outstanding common stock. Accordingly, under and subject to the Articles of
Incorporation and the Company Law, the Ace Develop Properties Limited and Lin
Chi-Jung, by virtue of their controlling ownership of share interests, will be
able to exercise substantial control 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: |X| Election of directors and supervisors; |X| The amount and
timing of dividends and other distributions; |X| Acquisition of or merger with
another company; and |X| Amendment of the Articles of Incorporation.
Risk 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
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 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.
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We face Increasing competition which may adversely affect our profitability
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 which may have better track record 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
changes of the market conditions more swiftly or effectively than our
competitors do, our business and financial position will be adversely affected.
Interest rate and mortgage financing risks
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 requirement and imposed certain other conditions
which make mortgage financing unavailable or unattractive to the potential
property purchasers. There is no assurance that the down payment requirement and
other condition will not be further revised upward. If the availability or
attractiveness of mortgage financing is 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.
Risks relating to the PRC
All of our current deal sources are located in China and all of our revenues are
derived from our operations in China. Accordingly, our business, financial
condition, results of operations and prospects are subject, to a significant
extent, to economic, political and legal developments in China.
PRC economic, political policies and social conditions could affect our business
The economy of PRC differs from the economies of most developed countries in a
number ofiirespects, including 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
remit dividends and 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 Shares in foreign currency term
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 US dollars
has generally been stable. However, we cannot give any assurance that the value
of the Renminbi will continue to remain stable against the US dollar or any
20
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
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
precedent value. 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 25 years has significantly enhanced
the protections afforded to various forms of foreign investment in Mainland
China. Our PRC operating subsidiaries, Xing Ji Yang and Shang Yang, both wholly
foreign-owned enterprises (WFOE) are subject to laws and regulations applicable
to foreign investment in mainland China in general and laws and regulations
applicable to WFOE 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.
21
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Reports of Independent Public Accountants..................... F-1
Consolidated Balance Sheets -
December 31, 2004 and 2003 ................................. F-2
Consolidated Statements of Operations -
December 31, 2004 and 2003 ................................. F-3
Consolidated Statements of Stockholders' Equity -
December 31, 2004 and 2003 ................................. F-4
Consolidated Statements of Cash Flows -
December 31, 2004 and 2003 ................................. F-5
Notes to Consolidated Financial Statements.................... F-6 - F-16
22
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Sunrise Real Estate Development Group, Inc.
We have audited the accompanying consolidated balance sheets of Sunrise Real
Estate Development Group, Inc. as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2004 and 2003. 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. The 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sunrise Real
Estate Development Group, Inc. as of December 31, 2004 and 2003 and the results
of its consolidated operations and cash flows for the years ended December 31,
2004 and 2003, in conformity with generally accepted accounting principles in
the United States of America.
BDO McCabe Lo & Company
Certified Public Accountants
Hong Kong, March 21, 2005
F-1
Sunrise Real Estate Development Group, Inc.
Consolidated Balance Sheets
(Expressed in US Dollars)
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 969,913 $ 1,279,759
Accounts receivable (Note 3) 2,280,172 348,528
Promissory deposits (Note 4) 2,784,994 36,247
Other receivables and deposits (Note 5) 362,586 102,549
------------ ------------
Total current assets 6,397,665 1,767,083
Plant and equipment - net (Note 6) 596,685 200,241
Deposits for acquisitions of properties (Note 7) 1,480,036 --
Goodwill (Note 8) 183,029 --
------------ ------------
Total assets $ 8,657,415 $ 1,967,324
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan (Note 9) $ 276,084 $ --
Promissory note payable (Note 10) 1,000,000 --
Accounts payable 193,762 120,632
Venture deposits (Note 11) 972,633 --
Customer deposits -- 22,451
Amount due to director (Note 12) 59,167 --
Other payables and accrued expenses (Note 13) 1,620,980 154,238
Other tax payable (Note 14) 114,747 17,698
Income tax payable (Note 15) 56,575 117,184
Dividends payable -- 543,708
------------ ------------
Total current liabilities 4,293,948 975,911
------------ ------------
Commitments and contingencies (Note 16) -- --
Long-term bank loan (Note 9) 1,203,952 --
Minority interest 3,948 --
Stockholders' equity
Common stock, par value $0.01 per share;
200,000,000 shares authorized; 21,636,614 and
15,000,000 shares issued and outstanding, respectively 216,366 150,000
Additional paid-in capital 2,233,844 200,000
Statutory reserve (Note 17) 175,004 143,163
Retained earnings 530,353 498,250
------------ ------------
Total stockholders' equity 3,155,567 991,413
------------ ------------
Total liabilities and stockholders' equity $ 8,657,415 $ 1,967,324
============ ============
See accompanying notes to financial statements.
F-2
Sunrise Real Estate Development Group, Inc.
Consolidated Statements of Operations
(Expressed in US Dollars)
Years Ended December 31,
2004 2003
------------ ------------
Net revenue $ 7,723,641 $ 5,297,422
Cost of revenue (4,162,762) (2,331,320)
------------ ------------
Gross profit 3,560,879 2,966,102
Operating expenses (1,048,574) (755,313)
General and administrative expenses (2,335,714) (709,988)
------------ ------------
Operating profit 176,591 1,500,801
Interest income 7,887 2,859
Other income, net 54,891 12,393
Finance expenses (23,333) --
------------ ------------
Profit before income tax and minority interest 216,036 1,516,053
Income tax (Note 15) (164,174) (239,138)
------------ ------------
Profit before minority interest 51,862 1,276,915
Minority interest 12,082 --
------------ ------------
Net profit $ 63,944 $ 1,276,915
============ ============
Earnings per share - basic and diluted $ 0.004 $ 0.085
============ ============
Weighted average common shares outstanding
- basic 16,600,060 15,000,000
============ ============
See accompanying notes to financial statements.
F-3
Sunrise Real Estate Development Group, Inc.
Consolidated Statements of Stockholders' Equity
(Expressed in US Dollars)
Common Stock
--------------------------- Retained
Number Additional earnings/ Total
of share paid-in Statutory (accumulated stockholders'
issued Amount capital reserve losses) equity
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002
(Recapitalization of CY-SRRE and
LRY) (Note 1) 15,000,000 $ 150,000 $ 200,000 $ 13,340 $ (105,134) $ 258,206
Net profit for the year -- -- -- -- 1,276,915 1,276,915
Transfer between reserves -- -- -- 129,823 (129,823) --
Dividends -- -- -- -- (543,708) (543,708)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 15,000,000 $ 150,000 $ 200,000 $ 143,163 $ 498,250 $ 991,413
Issuance of common stock in respect
of reverse acquisition 6,636,614 66,366 33,844 -- -- 100,210
Recapitalization of LRY (Note 1) -- -- 2,000,000 -- -- 2,000,000
Net profit for the year -- -- -- -- 63,944 63,944
Transfer between reserves -- -- -- 31,841 (31,841) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 21,636,614 $ 216,366 $ 2,233,844 $ 175,004 $ 530,353 $ 3,155,567
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
Sunrise Real Estate Development Group, Inc.
Consolidated Statements of Cash Flows
Increase/(Decrease) in Cash and Cash Equivalents
(Expressed in US Dollars)
Years Ended December 31,
2004 2003
----------- -----------
Cash flows from operating activities
Net income $ 63,944 $ 1,276,915
Adjustments to reconcile net income to
net cash /provided by operating activities
Depreciation of plant and equipment 81,602 29,193
Minority interest (12,082) --
Change in:
Accounts receivable (1,931,644) (256,338)
Promissory deposits (2,748,747) --
Other receivables and deposits (256,935) (47,214)
Amount due from related party -- 8,272
Accounts payable 59,075 117,611
Venture deposits 972,633 --
Customer deposits (22,451) --
Other payables and accrued expenses 1,451,144 137,049
Other tax payable 97,049 13,073
Income tax payable (60,609) 89,096
----------- -----------
Net cash (used in)/provided by operating activities (2,307,021) 1,367,657
----------- -----------
Cash flows from investing activities
Acquisition of plant and equipment (451,451) (108,099)
Deposits for acquisition of properties (1,480,036) --
Cash increase due to reverse acquisition by CY-SRRE & LRY 118,797 --
Acquisition of interest in subsidiary (Note 18) (193,180) --
----------- -----------
Net cash used in investing activities (2,005,870) (108,099)
----------- -----------
Cash flows from financing activities
New bank loan obtained 1,480,036 --
Increase in promissory note payable 1,000,000 --
Recapitalization of LRY 2,000,000 --
Capital contribution from minority interest 12,082 --
Dividends paid (543,708) --
Advances from/(repayments to) directors 54,635 (233,011)
----------- -----------
Net cash provided by/(used in) financing activities 4,003,045 (233,011)
----------- -----------
Net (decrease)/increase in cash and cash equivalents (309,846) 1,026,547
Cash and cash equivalents at beginning of year 1,279,759 253,212
----------- -----------
Cash and cash equivalents at end of year $ 969,913 $ 1,279,759
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year:
Income tax paid 224,783 150,042
Non-cash activities:
Accrued dividends -- 543,708
See accompanying notes to financial statements.
F-5
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 ("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. SHXJY holds 90%
of 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.
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 People's Republic of China (the "PRC") as a limited
liability company.
SHXJY, SZXJY, BJXJY and SHSY commenced operations in November 2001, June 2004,
January 2004 and February 2004 respectively. Each of SXJY, SZXJY, BJXJY and SHSY
has been granted a twenty years operation period which can be extended with
approvals from relevant PRC authorities.
On August 31, 2004, Sunrise Real Estate Development 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 that SRRE issue
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 was
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.
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 that SRRE issue 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, 8,500,000
shares were issued to Ace Develop, 750,000 shares were issued to Planet Tech and
750,000 shares were issued 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 stockholders
retain the majority voting interest in the combined business to 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 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.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
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.
SRRE and its subsidiaries, namely, CY-SRRE, LRY, SHXJY, SZXJY, BJXJY and SHSY
are collectively referred to as "the Company" hereafter.
The principal activities of the Company are the provision of property broking
services and real estate marketing services in Mainland China.
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 principals in the United States of America and present the
financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
BJXJY and SHSY. All significant inter-company transactions and balances have
been eliminated.
Foreign Currency Translation and Transactions
The functional currency of SRRE, CY-SRRE and LRY is US$ and the financial
records are maintained and the financial statements prepared in US$. The
functional currency of SHXJY, SZXJY, BJXJY and SHSY 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.
For the purpose of preparing the Company's consolidated financial statements,
the financial statements in RMB have been translated into United States Dollars
at US$1.00 = RMB8.28, translation adjustments would be included as a component
of stockholders' equity.
Exchange rate between US$ and RMB is fairly stable during the years presented.
The rates ruling as of December 31, 2004 and 2003 are US$1: RMB8.28 and US$1:
RMB8.28, respectively. Due to the stability of the exchange rates, there were no
net adjustments in stockholders' equity.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
Plant, Equipment and Depreciation
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
Maintenance, repairs and minor renewals are charged directly to the statement of
operations as incurred. Additions and betterments 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.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be
recoverable. The Company does not perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company measures
fair value based on quoted market prices or based on discounted estimates of
future cash flows.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires 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.
Fair Values of Financial Instruments
The carrying amounts of certain financial instruments approximate their fair
values as of December 31, 2004 and 2003 because of the relatively short-term
maturity of these instruments.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based on specifically
identified amounts that the Company believes to be uncollectible. The Company
has a limited number of customers with individually large amounts due at any
given balance sheet date. Any unanticipated change in one of those customers'
credit worthiness or other matters affecting the collectibility of amounts due
from such customers could have a material affect on the results of operations in
the period in which such changes or events occur. After all attempts to collect
a receivable have failed, the receivable is written off against the allowance.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Advertising Costs
All advertising costs incurred in the promotion of the Company's real estate
projects are expensed as incurred. Advertising expenses were $1,067,712 and
$17,467 for 2004 and 2003 respectively.
Revenue Recognition
Agency commission revenue from property brokerage and marketing services is
recognised when the property developer and the buyer complete a property sales
transactions, 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.
Revenue from marketing consultancy services is recognized when services are
provided to clients.
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 effect to common stock equivalents, however, potential common stock
in the diluted EPS computation are 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.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 3 - ACCOUNTS RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms. The
Company performs continuing credit evaluations of the customers' financial
condition and the Company generally does not require collateral.
Senior management reviews accounts receivable from time to time to determine if
any receivables will potentially be uncollectible. The Company includes any
account receivable balances that are determined to be uncollectible in the
allowance for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Based on the
information available to the Company, for the year ended December 31, 2004
account receivable balances of $Nil (2003: $26,714) were written off against the
allowance. As of December 31, 2004 and 2003, there was no balance of allowance
for doubtful accounts.
NOTE 4 - PROMISSORY DEPOSITS
The balance includes a promissory deposit of US$2,416,480 related to a property
underwriting agreement (the "Property Underwriting Agreement") entered into by
the Company with a property developer in Suzhou, the PRC. According to the
Property Underwriting Agreement, the Company acts as its sole distribution agent
for a commercial building under development in Suzhou (the "Suzhou Property
Underwriting Project"); and has placed the foregoing promissory deposit to the
property developer until all the properties are sold within the underwriting
period from September 26, 2004 to November 25, 2005.
NOTE 5 - OTHER RECEIVABLES AND DEPOSITS
December 31, December 31,
2004 2003
------------ ------------
Other receivables $ 291,199 $ 53,668
Advances to staff 21,699 24,342
Rental deposits 49,688 24,539
------------ ------------
$ 362,586 $ 102,549
============ ============
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 6 - PLANT AND EQUIPMENT, NET
December 31, December 31,
2004 2003
------------ ------------
Furniture and fixtures $ 50,924 $ 30,996
Computer and office equipment 143,683 56,752
Motor vehicles 519,645 146,296
------------ ------------
714,252 234,044
Less: Accumulated depreciation (117,567) (33,803)
------------ ------------
$ 596,685 $ 200,241
============ ============
NOTE 7 - DEPOSITS FOR ACQUISITIONS OF PROPERTIES
On November 18, 2004, the Company entered into sales and purchase agreements to
acquire two floors of the Suzhou Property Underwriting Project mentioned in Note
4 above at a total consideration of $2.96 million for long-term retention. A
5-year mortgage loan (Note 9) of $1.48 million has been borrowed from a bank to
pay for the deposits in December 2004. The remaining balance of $1.48 million
will be payable in November 2005. In accordance with the sales and purchase
agreements, the properties under development will be completed on or before
March 31, 2006.
NOTE 8 - 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 24 December 2004. The
portion of the purchase price allocated to goodwill was $183,029.
No amortization of goodwill was necessary in accordance with SFAS No. 142
"Goodwill and other Intangible Assets".
The Company test 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, 2004, 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, 2004. 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 tests.
NOTE 9 - BANK LOAN
The bank loan is a 5-year loan bears interest at a rate of 0.4875% per month.
The bank loan is guaranteed by the developer as mentioned in Note 4 above; and
will then be secured by the properties once the title of the properties is
transferred to the Company.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 10 - PROMISSORY NOTE PAYABLE
The amount is unsecured and bears interest at a rate of 5% per annum. The
promissory note will be repayable on December 31, 2005.
NOTE 11 - VENTURE DEPOSITS
The Company has entered into co-operation agreements with two venturers, one of
them is an independent third party; the other one is one of the Company's
directors, Chang Shu-Ching, to jointly carry out the Suzhou Property
Underwriting Project mentioned in Note 4 above. According to the co-operation
agreements, the Company, Chang Shu-Ching and the other venturer are entitled to
share 65%, 10% and 25% of the net results of the Suzhou Property Underwriting
Project, respectively. Venture deposits have been received from the venturers
and will not be repayable until the completion of the Suzhou Property
Underwriting Project in November 2005.
NOTE 12 - RELATED PARTY
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.
Amounts due to director
The Company, from time to time, receives from and repays to the director. The
amount due to director does not bear any interest, unsecured, and does not have
clearly defined terms of repayment.
NOTE 13 - OTHER PAYABLES AND ACCRUED EXPENSES
December 31, December 31,
2004 2003
------------ ------------
Accrued staff commission & bonus $ 1,167,283 $ 59,336
Other payables 223,573 56,967
Accrued commission 192,279 --
Other accrued expenses 37,845 37,935
------------ ------------
$ 1,620,980 $ 154,238
============ ============
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 14 - OTHER TAX PAYABLE
Other tax payable represents business tax which is charged at a rate of 5% on
the revenue from services.
NOTE 15 - INCOME TAX
Enterprise Income Tax ("EIT") in the PRC 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 and BJXJY are subject to
EIT rate of 33%.
Income tax represents current PRC income tax, which is calculated at the
statutory income tax rate on the assessable income for the year ended December
31, 2004 and 2003.
The provision for income tax consisted of:
Years Ended December 31,
2004 2003
------------ ------------
Current PRC corporate income tax $ 164,174 $ 239,138
Deferred tax -- --
------------ ------------
Provision for income tax $ 164,174 $ 239,138
============ ============
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,
2004 2003
------------ ------------
Provision for income taxes at statutory tax rate $ 71,291 $ 500,297
Tax concessions (94,870) (272,889)
Permanent difference (8,645) 11,730
Increase in valuation allowances 196,398 --
------------ ------------
Effective tax $ 164,174 $ 239,138
============ ============
The components of deferred tax assets are as follows:
December 31, December 31,
2004 2003
------------ ------------
Net operating loss carried forwards $ 267,456 --
Less: Valuation allowances (267,456) --
------------ ------------
$ -- $ --
============ ============
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitment
During the years ended December 31, 2004 and 2003, the Company incurred lease
expenses amounting to $342,067 and $186,030 respectively. As of December 31,
2004, the Company had commitments under operating leases, requiring annual
minimum rentals as follows:
December 31,
2004
------------
January 1, 2005 to December 31, 2005 $ 230,703
January 1, 2006 to December 31, 2007 55,572
------------
$ 286,275
============
Property Underwriting Commitment
As of December 31, 2004, the Company had commitment under the Property
Underwriting Agreement mentioned in Note 4 above as follows:
December 31, December 31,
2004 2003
------------ ------------
Property underwriting commitment $ 47,457,254 $ --
============ ============
The management of the Company believes that all the properties will be sold
within the underwriting period.
Capital Commitments
As of December 31, 2004, the Company had capital commitments for the acquisition
of properties as follows:
December 31, December 31,
2004 2003
------------ ------------
Commitments for the acquisition of properties $ 1,480,036 $ --
============ ============
The Company is not aware of any liability relating to federal, state, and local
environmental laws, ordinances, and regulations that would have a material
adverse effect on its business, financial position, or results of operations.
The Company is also party to various claims and routine litigation arising in
the ordinary course of business. We do not believe that the results of such
claims and litigation, individually or in the aggregate, will have a material
adverse effect on our business, financial position, or results of operations.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 17 - STATUTORY RESERVE
According to the relevant enterprises regulations in the PRC, a PRC company is
required to transfer a least 10% of its profit after taxation, 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 losses or to increase the capital of the
relevant company.
NOTE 18 - ACQUISITION OF INTEREST IN SUBSIDIARY
In early 2004, BJXJY won an agency contract regarding the distribution of a real
estate project, namely, De Paris, in Beijing. Thereafter, the management of
BJXJY invited the Company to participate in the project by investing in BJXJY.
The management of the Company decided to acquire 85% equity interest in BJXJY
because of the following reasons:
a) to participate in the De Paris project which is considered to be profitable;
and b) to develop the Company's property broking business in Beijing.
Net assets acquired:
Cash and bank balances $ 12,220
Other receivables, deposits and prepayments 3,102
Plant and equipment 26,595
Other payables and accrued expenses (15,598)
Minority interest (3,948)
------------
22,371
Goodwill on acquisition 183,029
------------
$ 205,400
------------
Satisfied by:
Cash consideration $ 205,400
============
Analysis of the net outflow of cash and cash equivalents in respect of the
acquisition of interest in subsidiary:
Cash consideration $ (205,400)
Cash and bank balances acquired 12,220
------------
$ (193,180)
============
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars)
Pro-forma information:
The following table reflects the results of operations on a pro-forma basis as
if the acquisition of BJXJY had occurred at the beginning of the respective
periods shown.
Years Ended December 31,
2004 2003
----------- -----------
(Unaudited) (Unaudited)
Net revenue $ 7,723,641 $ 5,297,422
----------- -----------
Net (loss)/income $ (99,234) $ 1,276,915
----------- -----------
(Loss)/earnings per share - basic and diluted $ (0.005) $ 0.059
=========== ===========
The pro-forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been consummated
as of the dates indicated, nor are they necessarily indicative of the future
operating results.
NOTE 19 - CONCENTRATION OF CUSTOMERS
During the years ended December 31, 2004 and 2003, the following customers
accounted for more than 10% of total net revenue:
Percentage of
Percentage of Net Sales Accounts Receivable
Years Ended December 31, Years Ended December 31,
2004 2003 2004 2003
-------- -------- -------- --------
Customer A 30% * 85% *
Customer B 10% 18% * *
Customer C * 15% * 31%
Customer D * 14% * *
Customer E * 10% * 44%
* less than 10%
NOTE 20 - SUBSEQUENT EVENT
On January 10, 2005, the Company established a new subsidiary, namely, Suzhou
Gao Feng Hui Property Management Co., Ltd. ("SZGFH"), with a PRC third party.
The registered capital of SZGFH is $300,000. The Company's equity interest in
SZGFH is 80%. The principal activities of SZGFH are the provision of property
leasing service and property management service. SZGFH commenced operations in
January 2005.
F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 3, 2004, the registrant's Board of Directors engaged BDO McCabe Lo &
Company, Certified Public Accountants, 8th Floor Wing On Centre,111 Connaught
Road Central, Hong Kong, PRC as the Registered Public Accounting Firm to audit
the registrant's financial statements, replacing its former accountant, John J.
Geib, Chartered Accountant, Southcentre Executive Tower 405, 11012 Macloed Trail
South, Calgary, Alberta T2J 6A5, Canada. As reported in its Current Report on
Form 8-K dated October 5, 2004, the registrant acquired the outstanding capital
stock of (i) Lin Ray Yang Enterprise Ltd., a British Virgin Islands company
("LRY") and (ii) Sunrise Real Estate Development Group, Inc., a Cayman Islands
company, ("CY-SRRE") on October 5, 2004. Prior to these acquisitions, the
registrant did not have any business or operations. Because the principal
offices of LRY and CY-SRRE are located in Shanghai, PRC, the registrant's Board
of Directors determined that the registrant's best interests would be served by
retaining a principal accountant with offices in the Peoples Republic of China.
The report of John J. Geib, Chartered Accountant, on the financial statements of
the registrant for its fiscal year ended December 31, 2003 did not contain an
adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty,
audit scope or accounting principles. However, in a comment to his report, John
J. Geib referred to Note 2 to the registrant's financial statements that
indicate that the financial statements are affected by conditions and events
that cast substantial doubt on the company's ability to continue as a going
concern. The registrant did not have any disagreement with John J. Geib,
Chartered Accountant, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to John J. Geib's satisfaction, would have
caused him to make reference to the subject matter of the disagreement in
connection with his report.
ITEM 8A. CONTROLS AND PROCEDURES
Based on the most recent evaluation, which was completed as of the end of the
period covered by this Form 10-KSB, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures were effective at December 31, 2004, to ensure that information
required to be disclosed in reports that the Company files or submits 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. There were no changes in the Company's internal controls over
financial reporting during the quarter ended December 31, 2004, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
ITEM 8B. Other Information
None
23
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Position with Company and
Date of Appointment Name of Individual Age Subsidiaries
October 28, 2003 LIN, CHI-JUNG 45 Chief Executive Officer,
President and Director
October 28, 2003 LO, YI-YUN 33 Chief Financial Officer/
Secretary
October 28, 2003 CHIU, CHI-YUAN 39 Director
November 23, 2004 LI XIAO GANG 47 Director
November 23, 2004 CHANG, SHU-CHING 34 Director
November 23, 2004 CHEN REN 57 Director
November 23, 2004 FU XUAN-JIE 54 Director
On November 23, 2004, Lo, Yi-Yun resigned as a member of Sunrise's Board of
Directors. She remains the principal financial officer of SRRE.
Also on November 23, 2004, the Board of Directors elected to the Board four new
Directors: Miss Chang Shu-Ching, Mr. Fu Xuan-Jie, Mr. Chen Ren and Mr. Li
Xiao-Gang.
Following is biographical information for each of the 6 directors consisting of
the age, principal occupation, and other relevant information. There are no
family relationships among any of the directors or executive officers of
Sunrise. The designation of "Affiliated" noted beside the director name
indicates that the director is an officer or employee of Sunrise.
Lin Chi-Jung, CEO, Chairman, and President (Affiliated)
Mr. Lin Chi-Jung, age 45, is the Chairman of the Board of Director of SRRE and
at the same time, assuming the President/CEO role SRRE, he is also the Chairman
of all the operating subsidiaries under the SRRE Group. Mr. Lin start serving as
the Director of SRRE since October 28, 2003. Mr. Lin Chi-Jung is the founding
director of XJY when it was established in end 2002. Prior to that, he started
his career and business in entertainment industry and became a famous actor in
Taiwan before turning to be a film director, producer, distributor and investor
in mid 90's before venturing into real estate business in 2002.
Chiu Chi-Yuan, Director
Mr. Chiu Chi-Yuan, age 39, is the Director of SRRE. He was appointed since
October 28, 2003 and has been held servicing as Director since then. Mr. Chiu,
Chi-Yuan is the Managing Director of TransCapital Asset Management Ltd. where he
has served since 2002. During the period 2001 - 2003, he was vice president
international business, Waterland Securities Co., Ltd., Taipei, Taiwan. From
1998 - 2000, he was vice president, Powerlink Technology Development Co., Ltd,
Taipei, Taiwan.
24
Chang, Shu-Ching, Director
Miss Chang, age 35, was appointed as director on November 23, 2004. She has been
involved in the entertainment and performing arts for over 10 years is a famous
Taiwanese actress and has lately been involved in property investment in China.
Li Xiao-Gang, Director (Independent)
Mr. Li Xiao-Gang, age 47, was appointed independent director on November 23,
2004. Mr. Li served as a director and deputy secretary-general of the Shanghai
Consultation Association since 1992. In 1992, he was also the deputy director of
the Economics Law Consultation Center of the Shanghai Academy. In 2000, he was
the director and Professor for Foreign Investment Research Center of Shanghai
Academy of Social Sciences.
Fu Xuan-Jie, Director (Independent)
Mr. Fu Xuan-Jie, age 54, was appointed as independent director on November 23,
2004. Mr. Fu is an attorney and currently practices law in his co-founded firm,
Fu Xuan-Jie & Associates Law Office. Prior to establishing his own law firm, Mr.
Fu was associated with several other law offices. Mr. Fu specializes in
corporate and international law, especially in the areas of international
compensation and financial legality cases.
Chen Ren, Director (Independent)
Mr. Chen, age 57, was appointed as independent director on November 23, 2004.
Mr. Chen is currently the general manager of Shanghai Housing Developing Center,
a subsidiary 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.
Conflicts of Interest
We believe that our officers and directors will be subject to conflicts of
interest. The conflicts of interest arise from their time spent on other
businesses unrelated to ours.
Family Relationships
There is no family relationship among directors, executive officers, or person
nominated or chosen to become the directors or executive officers.
Involvement in Certain Legal Proceedings
To our knowledge, during the past five years, our officer and director has: (1)
not filed a petition under the federal bankruptcy laws or any state insolvency
law, nor had a receiver, fiscal agent or similar officer appointed by a court
for the business or present of such a person, or any partnership in which he was
a general partner at or within two yeas before the time of such filing, or any
corporation or business association of which he was an executive officer within
two years before the time of such filing; (2) were convicted in a criminal
proceeding or named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) were the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him from
or otherwise limiting the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant, associated person of
any of the foregoing, or as an investment advisor, underwriter, broker or dealer
in securities, or as an affiliated person, director of any investment company,
or engaging in or continuing any conduct or practice in connection with such
activity; (ii) engaging in any type of business practice; (iii) engaging in any
activity in connection with the purchase or sale of any security or commodity or
in connection with any violation of federal or state securities laws or federal
commodity laws; (4) were the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described above under this Item, or to be
associated with persons engaged in any such activity; (5) were found by a court
of competent jurisdiction in a civil action or by the Securities and Exchange
Commission to have violated any federal or state securities law and the judgment
in subsequently reversed, suspended or vacate; (6) were found by a court of
competent jurisdiction in a civil action or by the Commodity Futures Trading
Commission to have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading Commission has not
been subsequently reversed, suspended or vacated.
25
Executive Officers
Lin, Chi-Jung Lin Chi-Jung is a Taiwanese businessman. He is the
President of SunRise Real Estate controlling shareholder and CEO of Sunrise. He founded
Development Group, Inc. Sunrise's main subsidiaries, Shanghai Xin Ji Yang Estate
President of Shanghai Xin Ji Yang Consultation Co. Ltd., in late 2001 and Shanghai Shang Yang
Real-Estate Consultation Co, Ltd. Real Estate Consultation Co. Ltd., in 2004. Prior to
President of Shanghai Shang Yang Real establishing the property business, Mr. Lin invested in the
Estate Consultation Company Limited. filmmaking and publishing business. Mr. Lin is a famous actor
in Chinese communities around the world, including Mainland
China, Taiwan, North America and South East Asia.
Lin, Chao Chin, Lin Chao Chin is one of the co-founders of Shanghai Xin Ji
Managing Director, Shanghai Xin Ji Yang Real Estate Consultation Co. Ltd. He brings with him 28
YanG Real Estate Consultation Co. years of real estate industry experience, particularly in the
Ltd. 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 back in the early 80's, which grew to have contracted
sales of NTD 120 Billion (approx. USD 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 Shanghai Xin Ji
Yang Real Estate Consultation Co. Ltd. Lin Chao Chin
graduated from Taiwan Chung Yuan University
Liu, Huan Zhang, Liu, Huan Zhang is currently head of operations of Shanghai
Chief Operating Officer, Shanghai Shang Yang Real Estate Consultation Co. Ltd. He works with
Shang Yang Real Estate Consultation the rest of Sunrise's nationwide team to identify and source
Co. Ltd. development projects. Prior to joining Sunrise, Mr. Liu had
15 years of well-rounded professional experience in real
estate investment and management. Some of the well-known
companies that he served are: Tai Yi Construction Management
Co. Ltd. Taiwan, and Pan Asia Estate Evaluation &
Certification Ltd. Taiwan. Mr. Liu earned both his Bachelors
Degree in Civil Engineering and Masters Degree in City
Planning from Zhong Xing University, Taiwan.
Lo, Yi-Yun Ms. Lo has worked principally in the financial and accounting
Chief Financial Officer related field. During her previous employment, she was the
chief accountant for Renaissance Science Co. Ltd. and was
lead accountant for Jih-Sun Security Co., Ltd. and Taiwan
Sire Ltd.
26
Lan, Pei-Cheng In the real estate business for 18 years, Mr. Lan has shocked
Vice President the Shanghai, Taiwan, and Hong Kong industry by selling 80%
of Kang Hong Garden Estates in Shanghai in only two months.
Mr. Lan was responsible with bringing of new sales method
into Mainland China.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table reflects the compensation paid to our Chief Executive
Officer and each of our compensated executive officers whose compensations
exceeded $100,000 in fiscal years 2002, 2003 and 2004 for services rendered to
SRRE and its subsidiaries.
Long Term Compensation
Annual Compensation Awards Payouts
------------------- -------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Compensation Stock Underlying Payouts Compensation
Award(s) Options/SARs
Name and Principal ($) ($) ($) ($) (#) ($) ($)
Position [1]
Lin, Chi-Jung, CEO, 2004 86,509 282,728 134,115 0 0 0 0
President & Chairman
(appointed on Oct 11,
2004)
Executive Officer of 2003 44,468 0 14,499 0 0 0 0
a subsidiary 2002 17,640 0 0 0 0 0 0
Chiu, Chi-Yuan, CEO, 2004 0 0 0 0 0 0 0
President & Chairman 2003 0 0 0 0 0 0 0
(appointed on Oct 28
2003 and resigned on
Oct 11, 2004)
Lin, Chao-Chin, 2004 55,096 282,728 108,742 0 0 0 0
Executive Officer of 2003 41,080 0 14,499 0 0 0 0
a subsidiary. 2002 34,519 0 0 0 0 0 0
Yarek Bartosz 2003 0 0 0 0 0 0 0
President, Secretary
(resigned on Oct 28, 2002 0 0 0 0 0 0 0
2003
Gust Kepler 2002 0 0 0 0 0 0 0
President & Director
(resigned July 2002)
[1] All compensation received by our officers and directors has been disclosed.
There are no stock option, retirement, pension, or profit sharing plans for the
benefit of our officers and directors. Ms. Chang Shu-Ching is entitled to share
10% of the net results of the Suzhou Property Underwriting Project in proportion
to the venture deposit contributed by her.
(d) Lin Chi-Jung and Lin Chao-Chin each received discretionary bonus of $282,728
in 2004. This incentive was attributed to the initial management team members
for their valuable contribution to the Company. It was calculated at 0.2% of the
total value of properties sold in 2004.
(e) Lin, Chi-Jung received housing allowance of $115,991 and promotional fee of
$18,124 during the year 2004.
27
Option/SAR Grants
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 our inception, accordingly, no stock
options have been exercised by our officers or directors in any fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following tables set forth information concerning the holdings of each
person known to the Company to be the beneficial owner of more than five percent
of our common stock, of each director and named executive officer, and of all of
the Company's directors and executive officers as a group. The respective
director, officer, or stockholder furnished all information with respect to
beneficial ownership to the Company.
Security Ownership of Certain Beneficial Owners
--------------- ------------------------------------- ---------------------- ----------
(1) (2) (3) (4)
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percent
Beneficial Ownership of
Class
--------------- ------------------------------------- ---------------------- ----------
Common Share Lin Chi-Jung 15,000,000 69.32%
11F, No. 249, Sec 1, Fushing S Rd.,
Da-an District, Taipei City 106,
Taiwan R.O.C
--------------- ------------------------------------- ---------------------- ----------
(1) Percentage is based upon 21,636,614 shares of common stock outstanding as at
March 30, 2005.
(2) Includes 13,500,000 shares owned by Ace Develop Properties Limited, of which
Mr. Lin Chi-Jung is the sole owner
(3) Includes 750,000 shares owned by Planet Technology Corporation of which Mr.
Lin Chi-Jung is the beneficiary sole owner
(4) Includes 750,000 shares owned by Systems and Technology Corp. of which Mr.
Lin Chi-Jung is the beneficiary sole owner
Security Ownership of Management
--------------------------------
--------------- ------------------------------------- ---------------------- ----------
(1) (2) (3) (4)
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percent
Beneficial Ownership of
Class
--------------- ------------------------------------- ---------------------- ----------
Common Share Lin Chi-Jung 15,000,000 69.32%
11F, No. 249, Sec 1, Fushing S Rd.,
Da-an District, Taipei City 106,
Taiwan R.O.C
--------------- ------------------------------------- ---------------------- ----------
(1) Percentage is based upon 21,636,614 shares of common stock outstanding as at
March 30, 2005.
28
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 our control of the Company.
29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chang, Shu-Ching, one of the directors has ventured $277,895 into a co-operation
agreement with the Company to jointly carry out Suzhou Hui Long Property
Underwriting Project mentioned in Note 4 of Item 7 above. This cash
participation was used as a portion of the $2,416,480 Performance Guarantee
Deposit paid to SIP HI-Dragon Real Estate Real Estate Development Co., Ltd. for
participation in Suzhou Property Underwriting Project. It represents an
investment risk sharing participation of the director into the project, whereby
the director will share the investment risk and profit of the project via a
proportionate profit sharing scheme agreed upon with the company. This cash
advance bears no interest rate and will be fully paid off upon the fulfillment
of the underwriting contract, however if the underwriting contract failed to
deliver its return, this amount will not be paid off.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
Exhibit Description
Number
31.1 Certification of Lin, Chi-Jung, pursuant to Rule 15d-14(a)
31.2 Certification of Lo, Yi-Yun, pursuant to Rule 15d-14(a)
32.1 Certifications of Lin, Chi-Jung, pursuant to 18 U.S.C. 1350.
32.2 Certifications of Lo, Yi-Yun, pursuant to 18 U.S.C. 1350.
30
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the 2003 fiscal year audit, we paid John Geib, CPA $2,700 Canadian for his
audit services. For the 2004 first and second quarter review, we paid John Geib,
CPA $2,338 Canadian for his review services.
As mentioned in Item 6, the reverse acquisition arrangement was completed on
October 5, 2004. We have disengaged our audit services with John Geib, CPA. We
appointed BDO McCabe Lo & Company ("BDO") on November 3, 2004 to be the
Company's Independent Auditor. The aggregate fees billed by BDO McCabe Lo &
Company for services rendered during the year ended December 31, 2004 is
described as follows:
Fees for audit and review services amounted to approximately $68,500 in 2004.
Fees for audit and review services include the annual audit of the consolidated
financial statements of the Company and its subsidiaries, review of the
Company's Quarterly Reports on Form 10-QSB, audits required in the Form 8-K and
review of related documents.
Audit-Related Fees, Tax Fees and All Other Fees billed by John Geib and BDO
None.
31
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 Development Group, Inc.
/s/ Lin, Chi-Jung
--------------------------------------------
BY: Lin, Chi-Jung
Principal Executive Officer and Director
DATE: March 31, 2005
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 March 31, 2005
Lin, Chi-Jung and Director
/s/ Lo, Yi-Yun
--------------------- Principal Financial Officer March 31, 2005
Lo, Yi-Yun and Principal Accounting Officer
/s/ Lin, Chao-Chin
--------------------- Managing Director March 31, 2005
Lin, Chao-Chin
/s/ Chiu, Chi-Yuan
--------------------- Director March 31, 2005
Chiu, Chi-Yuan
/s/ Li Xiao Gang
--------------------- Director March 31, 2005
Li Xiao Gang
/s/ Chang, Chu- Ching
--------------------- Director March 31, 2005
Chang, Chu-Ching
/s/ Chen Ren
--------------------- Director March 31, 2005
Chen Ren
/s/ Fu Xuan-Jie
--------------------- Director March 31, 2005
Fu Xuan-Jie
32
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a))
(Authorized By SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Lin, Chi-Jung, President and Chief Executive Officer (principal executive
officer) of Sunrise Real Estate Development Group, Inc. (the "Registrant"),
certifies that:
1. I have reviewed this annual report on Form 10-KSB of Sunrise Real Estate
Development Group, Inc..
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
/s/ Lin, Chi-Jung
--------------------------------------------
Name: Lin, Chi-Jung
Title: President and Chief Executive Officer
Date: March ___, 2005
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a))
(Authorized By SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Lo, Yi-Yun, Chief Financial Officer (principal financial officer) of Sunrise
Real Estate Development Group, Inc. (the "Registrant"), certifies that:
1. I have reviewed this annual report on Form 10-KSB of Sunrise Real Estate
Development Group, Inc..
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. ss. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Lin, Chi-Jung, President and Chief Executive Officer (principal executive
officer) of Sunrise Real Estate Development Group, Inc. (the "Registrant"),
certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that, based upon a review of the Annual Report on
Form 10-KSB for the period ended December 31, 2004 of the Registrant (the
"Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. ss. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I,Lo, Yi-Yun, Chief Financial Officer (principal financial officer) of Sunrise
Real Estate Development Group, Inc. (the "Registrant"), certify pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, based upon a review of the Annual Report on Form 10-KSB for the
period ended December 31, 2004 of the Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.
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