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EX-32.1 - EXHIBIT 32.1 - SUNRISE REAL ESTATE GROUP INCv476276_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - SUNRISE REAL ESTATE GROUP INCv476276_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - SUNRISE REAL ESTATE GROUP INCv476276_ex31-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

 

Commission File Number 000-32585

 

SUNRISE REAL ESTATE GROUP, INC.

 

 (Exact name of registrant as specified in its charter)

 

Texas   75-2713701
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)

 

No. 638, Hengfeng Road 25th Fl, Building A

Shanghai, PRC 200070

(Address of Principal Executive Offices) (Zip Code)

 

Issuer's telephone number: + 86-21-6167-2800

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
Emerging growth company ¨  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ¨

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: September 26, 2017 –68,691,925 shares of Common Stock

 

 

 

 

  

FORM 10-Q

 

For the Quarter Ended September 30, 2015

 

INDEX

 

  Page
PART I. FINANCIAL INFORMATION 3
     
Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 3
  Condensed Consolidated Statements of Operations for The Nine Months Ended September 30, 2015 and 2014 4
  Condensed Consolidated Statements of Comprehensive Loss for The Nine Months Ended September 30, 2015 and 2014 5
  Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2015 and 2014 6
  Notes to Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 27
   
PART II. OTHER INFORMATION 28
     
Item 1. Legal Proceedings 28
Item 1A Risk Factors 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Mine Safety Disclosures 28
Item 5. Other Information 28
Item 6. Exhibits 29
   
SIGNATURES 29

 

 2 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   September 30,   December 31, 
   2015   2014 
ASSETS          
           
Current assets          
Cash and cash equivalents  $930,102   $1,626,583 
Restricted cash (Note 3)   121,870    1,535,894 
Accounts receivable   1,596,466    1,270,299 
Promissory deposits (Note 4)   1,221,065    1,190,972 
Real estate property under development (Note 5)   77,460,346    71,377,187 
Amount due from an unconsolidated affiliate (Note 9)   2,549,811    2,695,010 
Other receivables and deposits, net (Note 6)   1,799,210    1,814,721 
Total current assets   85,678,870    81,510,666 
           
Property and equipment, net (Note 7)   7,846,660    8,470,080 
Investment properties, net (Note8)   5,205,507    5,700,845 
Deferred tax assets (Note 15)   129,729    17,202 
Investment in an unconsolidated affiliate (Note 9)   4,966,328    5,476,491 
Other investments   157,201    163,426 
Total assets  $103,984,295   $101,338,710 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)          
           
Current liabilities          
Bank loans (Note 10)  $14,536,306   $18,548,782 
Current portion of long term borrowings (Note 11)   5,344,819    6,890,960 
Promissory notes payable (Note 12)   11,914,511    13,396,206 
Accounts payable   8,128,631    10,531,908 
Amounts due to directors (Note 13)   8,825,845    10,129,247 
Amount due to an affiliate   23,405,908    17,396,948 
Customer deposits   15,641,010    12,306,708 
Other payables and accrued expenses (Note 14)   1,543,453    1,415,056 
Other taxes payable   353,128    301,775 
Dividends payables   -    - 
Income taxes payable   112,691    120,497 
Total current liabilities   89,806,302    91,038,087 
           
Long term bank loan (Note 11)   18,864,069    8,171,270 
Deferred government subsidy (Note 15)   5,215,194    5,421,706 
Total liabilities   113,885,565    104,631,063 
           
Commitments and contingencies (Note 16)          
           
Shareholders’ equity          
Common stock, par value $0.01 per share; 200,000,000 shares   686,919    686,919 
Authorized; 68,691,925 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively          
Additional paid-in capital   7,570,008    7,570,008 
Statutory reserve (Note 17)   851,729    812,582 
Accumulated losses   (25,148,466)   (19,780,232)
Accumulated other comprehensive income   681,663    259,173 
           
Total deficit of Sunrise Real Estate Group, Inc.   (15,358,147)   (10,451,550)
Non-controlling interests   5,456,877    7,159,197 
           
Total shareholders’ equity   (9,901,270)   (3,292,353)
           
Total liabilities and shareholders’ equity  $103,984,295   $101,338,710 

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   Three Months Ended September 30   Nine Months Ended September 30, 
   2015   2014   2015   2014 
                 
Net revenues  $1,365,006   $2,257,204   $3,713,715   $7,150,496 
Cost of revenues   (802,410)   (905,745)   (2,154,475)   (3,398,204)
Gross profit   562,597    1,351,459    1,559,240    3,752,292 
                     
Operating expenses   (481,179)   (575,810)   (1,545,650)   (1,362,040)
General and administrative expenses   (870,672)   (859,658)   (2,814,616)   (2,522,566)
Operating loss   (789,254)   (84,009)   (2,801,026)   (132,314)
                     
Other income (expenses)                    
Interest income   37,053    213,206    95,721    639,030 
Interest expense   (1,283,377)   (894,888)   (2,593,168)   (2,638,583)
Other income, net   1,235    15,820    (245,879)   3,107 
Equity in net gain (loss) of an unconsolidated affiliate, net   (839,737)   (128,325)   (1,377,838)   (395,451)
Total Other Expenses   (2,084,826    (794,187)   (4,121,164)   (2,391,897)
                    
Loss before income taxes and equity in net loss of an unconsolidated affiliate   (2,874,080)   (878,197)   (6,922,190)   (2,524,211)
                     
Income tax benefit (expense)   21,512    (95,722)   118,444    (58,026)
Net loss   (2,852,568)   (973,918)   (6,803,746)   (2,582,237)
Less: Net loss attributable to non-controlling Interests        142,348    1,435,512    609,684 
Net loss attributable to shareholders of Sunrise Real Estate Group, Inc.  $499,846    (831,570)  $(5,368,234)  $(1,972,553)
                     
Loss per share – basic and fully diluted   (2,352,721)   (0.02)  $(0.07)  $(0.04)
                    
Weighted average common shares outstanding - Basic and fully diluted   68,691,925    36,518,012    68,691,925    31,329,288 

 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

  

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(UNAUDITED)

(Expressed in U.S. Dollars)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
                 
Net Loss  $(2,852,568)  $(973,918)  $(6,803,746)  $(2,582,237)
                     
Other comprehensive income (loss)                    
- Foreign currency translation adjustment   285,980    (33,899)   155,681    (10,894)
                     
Total comprehensive loss   (2,566,588)   (1,007,817)   (6,648,065)   (2,593,131)
Less: Comprehensive loss (income) attributable to  non-controlling interests   680,639    142,582)   1,702,320    690,481 
                     
Total comprehensive loss attributable to stockholders of Sunrise Real Estate Group, Inc.  $(1,885,949)  $(865,235)  $(4,945,745)  $(1,902,650)

 

See accompanying notes to consolidated financial statements.

 

 5 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   Nine Months Ended September 30, 
   2015   2014 
Cash flows from operating activities          
Net loss  $(6,803,746)  $(2,582,237)
           
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization   779,652    795,297 
Bad debts   190,510    - 
Impairment loss on equity investments   1,014,169      
Loss (Gain) on disposal of property, plant and equipment   573    14,309 
Equity in net loss of an unconsolidated affiliate   363,668    395,451 
Changes in assets and liabilities          
Accounts receivable   (575,901)   86,030 
Promissory deposits   (77,640)   (73,926)
Real estate property under development   (9,056,595)   (8,921,808)
Customer Deposits   3,913,109    7,495,811 
Amount due from unconsolidated affiliates   208,735    861,097 
Other receivables and deposits   (55,163)   (20,766,204)
Deferred tax assets   (116,457)   - 
Accounts payable   (2,060,055)   2,648,347 
Impairment loss on equity investments   -    - 
Other payables and accrued expenses   187,571    26,549 
Deposits received from underwriting sales   -    (1,359,226)
Interest payable on promissory notes   2,056,804    1,120,102 
Interest payable on amounts due to directors   852,478    844,778 
Other taxes payable   64,666    (58,047)
Income taxes payable   (3,311)   (8,300)
Net cash used in operating activities   (9,116,933)   (19,481,977 
           
Cash flows from investing activities          
Purchases of property and equipment   (184,600)   (51,933)
Capital injection to unconsolidated affiliates   (781,250)   (162,760)
Advances to unconsolidated affiliates, net   (392,393)   (9,199)
Repayment of advances to unconsolidated affiliate   226,449    - 
Net cash used in investing activities   (1,131,794)   (223,892)
           
Cash flows from financing activities          
Restricted cash   1,394,747    209,596 
Bank loan repayments   (6,152,308)   (8,498,391)
Capital injection from non-controlling interests of new consolidated subsidiaries   40,437    - 
Funds received from capital increase   -    1,700,000 
New bank loans   12,898,327    5,080,422 
Advances from directors   2,642,041    1,470,210 
Repayments of advances from directors   (4,571,617)   (3,092,453)
Advances from an affiliate   7,305,512    16,737,109 
Repayments from an affiliate   (2,066,935)   - 
Proceeds from new promissory notes   294,989    15,895,297 
Repayments of promissory notes   (2,540,561)   (7,583,189)
Dividend paid to non-controlling interests   -    (358,726)
Net cash provided by financing activities   9,244,632    21,559,875 
          
Effect of exchange rate changes on cash and cash equivalents   307,613    245,160 
           
Net decrease in cash and cash equivalents   (696,482)   2,099,166 
Cash and cash equivalents at beginning of year   1,626,583    2,055,251 
Cash and cash equivalents at end of year  $930,101   $4,154,416 
           
Supplemental disclosure of cash flow information          
Income taxes paid  $71,568   $54,313 
Interest paid   3,741,960    5,349,991 

 

See accompanying notes to consolidated financial statements.

 

 6 

 

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Sunrise Real Estate Group, Inc. “SRRE” was incorporated in Texas on October 10, 1996 under the name of Parallax Entertainment, Inc. SRRE together with its subsidiaries and equity investments described below is collectively referred to as “the Company”, “our” or “us”. The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing and management services; and real estate development in the People’s Republic of China (the “PRC”).

 

As of September 30, 2015, the Company has the following major subsidiaries and equity investments. 

 

Company Name   Date of
Incorporation
  Place of
Incorporation
  % of
Ownership
held by the
Company
  Relationship
with the
Company
  Principal activity
Sunrise Real Estate Development Group, Inc. (CY-SRRE)   April 30, 2004   Cayman Islands   100%   Subsidiary   Investment holding
Lin Ray Yang Enterprise Limited (“LRY”)   November 13, 2003   British Virgin Islands   100%   Subsidiary   Investment holding
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)   August 20, 2001   PRC   100%   Subsidiary   Property brokerage services
Shanghai Shang Yang Real Estate consultation Company Limited (“SHSY”)   February 5, 2004   PRC   100%   Subsidiary   Property brokerage services
Suzhou Gao Feng Hui Property Management Company Limited (“SZGFH”)   January 10, 2005   PRC   100%   Subsidiary   Property management and leasing services
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”)   November 24, 2006   PRC   38.5%*   Subsidiary   Property brokerage and management services
Suzhou Xi Ji Yang Real Estate Consultation Company Limited (“SZXJY”)   June 25, 2004   PRC   75%   Subsidiary   Property brokerage services
Linyi Shangyang Real Estate Development Company Limited (“LYSY”)   October 13, 2011   PRC   24%**   Subsidiary   Real estate development
Shangqiu Shang Yang Real Estate Consultation Company Limited (“SQSY”)   October 20, 2010   PRC   100%   Subsidiary   Property brokerage services
Wuhan Gao Feng Hui Consultation Company Limited (“WHGFH”)   November 10, 2010   PRC   60%   Subsidiary   Property brokerage services
Sanya Shang Yang Real Estate Consultation Company Limited (“SYSY”)   September 18, 2008   PRC   100%   Subsidiary   Property brokerage services
Shanghai Rui Jian Design Company Limited (“SHRJ”)   August 15, 2011   PRC   100%   Subsidiary   Property brokerage services
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)   March 6, 2012   PRC   100%   Subsidiary   Investment holding
Putian Xin Ji Yang Real Estate Consultation Company Limited (“PTXJY”)   June 5, 2012   PRC   100%   Subsidiary   Property brokerage services
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)   December 28, 2009   PRC   49%   Equity investment   Real estate development
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”)   September 28, 2011   PRC   40%   Equity investment   Property brokerage services
Xin Guang Investment Management and Consulting Company Limited (“XG”)   December 17, 2012   PRC   49%   Equity investment   Investment management and consulting
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)   June 6, 2013   PRC   30%   Equity investment   Import and export trading
Shanghai Hui Tian (“SHHT”)   July 25, 2014   PRC   100%   Subsidiary   Investment holding
Shanghai Tian Xi (“SHSYTX”)   August 19, 2014   PRC   100%   Subsidiary   Investment holding
Shenzhen Hui Tian (“SZHT”)   October 15, 2014   PRC   100%   Subsidiary   Investment holding
Chongqing Nongxin Shangyang Equity Investment Fund Management Co., Ltd (“CQNXSY”)   January 14, 2015   PRC   65%   Subsidiary   Investment holding
Suzhou Shangyang Huitian Wealth Investment Management Co,. Ltd   January 14, 2015   PRC   75%   Subsidiary   Investment holding

   

*The Company and a shareholder of SZSY, which holds 12.5% equity interest in SZSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of the shareholder’s 12.5% equity interest in SZSY. The Company effectively holds 51% voting rights in SZSY and therefore considers SZSY as a subsidiary of the Company.

 

**The Company and a shareholder of LYSY, which holds 51% equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company.

 

 7 

 

  

The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

 

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of September 30, 2015 and the results of operations for the nine months ended September 30, 2015 and 2014, and the cash flows for the nine months ended September 30, 2015 and 2014. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2014. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company 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.  Actual results could differ from those estimates.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Principles of Consolidation

 

The condensed consolidated financial statements include the financial statements of Sunrise Real Estate Group, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated on consolidation.

 

Investments in business entities, in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method.

 

Going Concern

 

The Company’s condensed consolidated financial statements have been prepared on a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2015, the Company has a working capital deficiency, accumulated deficit from recurring net losses, and significant short-term debt obligations currently in default or maturing in less than one year. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

   

Management believes that the Company will generate sufficient cash flows to fund its operations and to meet its obligations on timely basis for the next twelve months by successful implementation of its business plans, obtaining continued support from its lenders to rollover debts when they became due, and securing additional financing as needed. There is no assurance that the Company will be able to obtain additional financing on acceptable terms and any financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations in the case of debt financing, or cause substantial dilution for our shareholders in the case of equity financing. If events or circumstances occur that the Company is unable to successfully implement its business plans, fails to obtain continued supports from its lenders or to secure additional financing, or incurs significant unplanned cash outlays, the Company may be required to suspend operations or cease business entirely.

 

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 8 

 

 

Foreign Currency Translation and Transactions

 

The functional currency of SRRE, CY-SRRE and LRY is U.S. dollars (“$”) and their financial records are maintained and the financial statements prepared in U.S. dollars. The functional currency of the Company’s subsidiaries and affiliates in China is Renminbi (“RMB”) and their financial records and statements are maintained and prepared in RMB.

 

Foreign currency transactions during the period are translated into each company’s denominated currency at the exchange rates ruling at the transaction dates. Gain and loss resulting from foreign currency transactions are included in the consolidated statement of operations. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into each company’s denominated currency at period-end exchange rates. All exchange differences are dealt with in the consolidated statements of operations.

 

The financial statements of the Company’s operations based outside of the United States have been translated into U.S. dollars in accordance with ASC830. Management has determined that the functional currency for each of the Company’s foreign operations is its applicable local currency. When translating functional currency financial statements into U.S. dollars, period-end exchange rates are applied to the condensed consolidated balance sheets, while average exchange rates as to revenues and expenses are applied to consolidated statements of operations. The effect of foreign currency translation adjustments is included as a component of accumulated other comprehensive income in shareholders’ equity.

 

The exchange rates as of September 30, 2015 and December 31, 2014 are $1: RMB6.3613 and $1: RMB6.1521, respectively.

 

The RMB is not freely convertible into foreign currency and all foreign exchange transaction must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rate used in translation.

 

Real Estate Property under Development

 

Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.

 

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.

 

Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.

 

In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.

 

For the nine months ended September 30, 2015 and 2014, the Company had not recognized any impairment for real estate property under development.

 

Long Term Investments

 

The Company accounts for long term investments in equities as follows.

 

Investments in Unconsolidated Affiliates

 

Affiliates are entities over which the Company has significant influence, but which it does not control. The Company generally considers an ownership interest of 20% or higher to represent significant influence. Investments in unconsolidated affiliates are accounted for by the equity method of accounting. Under this method, the Company’s share of the post-acquisition profits or losses of affiliates is recognized in the income statement and its shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. Unrealized gains on transactions between the Company and its affiliates are eliminated to the extent of the Company’s interest in the affiliates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

 

 9 

 

  

When the Company’s share of losses in an affiliate equals or exceeds its interest in the affiliate, the Company does not recognize further losses, unless the Company has incurred obligations or made payments on behalf of the affiliate.

 

The Company is required to perform an impairment assessment of its investments whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. An impairment loss is recorded when there has been a loss in value of the investment that is other than temporary. The Company recorded any impairment losses in any of the periods reported.

 

Other Investments

 

Where the Company has no significant influence, the investment is classified as other assets in the balance sheet and is carried under the cost method. Investment income is recognized by the Company when the investee declares a dividend and the Company believes it is collectible. The Company periodically evaluates the carrying value of its investment under the cost method and any decline in value is included in impairment of cost of the investment in the condensed consolidated balance sheets.

 

Government Subsidies

 

Government subsidies include cash subsidies received by the Company’s subsidiaries in the PRC from local governments.

 

In recognizing the benefit of government subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs are matched with those costs and recorded as a reduction in costs. Those benefits that are more general in nature or driven by business performance measures are classified as revenue.

 

Government subsidy was received in 2012 and the company recorded it as deferred government subsidy in balance sheets. As of September 30, 2015 and December 31, 2014, the balance of deferred government subsidy were $5,215,194 and $5,421,706, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete the subsidized property development project by the agreed date.

 

Revenue Recognition

 

Agency commission revenue from property brokerage is recognized when the property developer and the buyer complete a property sales transaction, and the property developer grants confirmation to us to be able to invoice them accordingly. The time when we receive the commission is normally at the time when the property developer receives from the buyer a portion of the sales proceeds in accordance with the terms of the relevant property sales agreement, or the balance of the bank loan to the buyer has been funded, or recognized under the sales schedule or other specific items of agency sales agreement with developer. At no point does the Company handle any monetary transactions nor act as an escrow intermediary between the developer and the buyer.

 

Revenue from marketing consultancy services is recognized when services are provided to clients, fees associated to services are fixed or determinable, and collection of the fees is assured.

 

Rental revenue from property management and rental business is recognized on a straight-line basis according to the time pattern of the leasing agreements.

 

The Company accounts for underwriting sales in accordance with ASC 976-605 “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66) (“ASC 976-605”). The commission revenue on underwriting sales is recognized when sales have been consummated, generally when title is transferred and the Company no longer has substantial continuing involvement with the real estate asset sold. If the Company provides certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, it defers the related commission income and expenses by applying the deposit method. In future periods, the commission income and related expenses are recognized when the remaining maximum exposure to loss is reduced below the amount of income deferred.

 

 10 

 

  

All revenues represent gross revenues less sales and business taxes.

 

Net Earnings (Loss) per Common Share

 

The Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share” (“ASC 260”). Under the provisions of ASC 260, basic net earnings (loss) per share is computed by dividing net earnings (loss) 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 (loss) per share recognizes common stock equivalents, however; potential common stock in the diluted EPS computation is excluded in net loss periods, as their effect is anti-dilutive.

 

Recently Adopted Accounting Standards

 

In December 2011, the FASB issued ASU No. 2011-11, Topic 210 - Balance Sheet: Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 became effective for fiscal years beginning on or after January 1, 2013, with retrospective application for all comparable periods presented. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

In February 2013, the FASB issued ASU 2013-12, Topic 220 - Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 changes the presentation requirements of significant reclassifications out of accumulated other comprehensive income in their entirety and their corresponding effect on net income. For other significant amounts that are not required to be reclassified in their entirety, the standard requires the company to cross-reference to related footnote disclosures. ASU 2013-02 became effective for the company on January 1, 2013. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

New Accounting Pronouncements

 

In March 2013, the FASB issued ASU 2013-05 Topic 830 – Foreign Currency Matters (“ASU 2013-05”). ASU 2013-05 resolves the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, ASU 2013-05 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. ASU 2013-02 became effective for the company prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material effect on the Company’s condensed consolidated financial statements.

 

The FASB has issued ASU 2013-04 Topic 405 - Liabilities: Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s condensed consolidated financial statements.

 

NOTE 3 – RESTRICTED CASH

 

The Company is required to maintain certain deposits with the bank that provides secured loans to the Company. As of September 30, 2015 and December 31, 2014, the Company held cash deposits of $121,870 and $1,535,894, respectively, as security for its bank loans (see Note 11). These balances were subject to withdrawal restrictions and were not covered by insurance.

 

 11 

 

 

NOTE 4 – PROMISSORY DEPOSITS

 

Promissory deposits are paid to property developers in respect of the real estate projects where the Company has been appointed as sales agent. The balances were unsecured, interest free and recoverable on completion of the respective projects.

 

NOTE 5 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

 

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The Company acquired the site and commenced construction of this project during the fiscal year of 2012.

 

On March 13, 2014, the Company has signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has obtained a right to develop the Guangxinglu Project, which located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartment.

 

As of September 30, 2015, land use rights included in real estate property under development totaled $77,460,346.

 

NOTE 6 – OTHER RECEIVABLES AND DEPOSITS, NET

 

   September 30,   December 31, 
   2015   2014 
         
Advances to staff  $63,184    33,609 
Rental deposits   35,967    40,800 
Prepaid expense   10,900    319,774 
Prepaid tax   1,317,317    1,066,574 
Other receivables   371,842    353,964 
   $1,799,210   $1,814,721 

 

Other receivables and deposits as of September 30, 2015 and December 31, 2014 are stated net of allowance for doubtful accounts of $350,100 and $159,590, respectively.

 

NOTE 7 – PROPERTY AND EQUIPMENT, NET

 

   September 30,   December 31, 
   2015   2014 
         
Furniture and fixtures  $370,125   $474,199 
Computer and office equipment   328,897    298,055 
Motor vehicles   732,940    762,963 
Properties   9,473,242    9,623,047 
    10,905,204    11,156,764 
Less: Accumulated depreciation   (3,058,544)   (2,686,684)
   $7,846,660   $8,470,080 

 

Depreciation and amortization expense for property and equipment amounted to$369,860 and $545,418 for the nine months ended September 30, 2015 and 2014, respectively.

 

All properties as of September 30, 2015 and December 31, 2014 were pledged as collateral for the Company’s bank loans (See Note 10).

 

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NOTE 8 – INVESTMENT PROPERTIES, NET

 

   September 30,   December 31, 
   2015   2014 
     
Investment properties  $9,733,989   $10,119,435 
Less: Accumulated depreciation   (4,528,482)   (4,418,590)
   $5,205,507   $5,700,845 

 

Depreciation and amortization expense for investment properties amounted to $286,244 and $288,034 for the nine months ended September 30, 2015 and 2014, respectively.

 

All investment properties as of September 30, 2015 and December 31, 2014 were pledged as collateral for the Company’s bank loans (See Note 10).

 

NOTE 9 – INVESTMENT IN AND AMOUNT DUE FROM AN UNCONSOLIDATED AFFILIATE

 

The investments in unconsolidated affiliates primarily consist of WHYYL (49%), SHDEW (30%). As of September 30, 2015, the investment amount in WHYYL and SHDEW were $4,342,243 and $649,016 separately.

 

WHYYL is primarily developing a real estate project in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period. SHDEW is a trading company with cosmetics. The Company has accounted for these investments using the equity method as the Company has the ability to exercise significant influence over their activities.

 

In 2011, the Company invested $4,697,686 for acquiring 49% equity interest in WHYYL to expand its operations to real estate development business. As of September 31, 2015 the investment in WHYYL was $4,860,621, which included its equity in net loss of WHYYL, net of income taxes, totaling $737,827 as of September 30, 2015. The following table sets forth the unaudited financial information of WHYYL.

 

   Nine Months ended September 30, 
   2015   2014 
         
Revenues  $-   $- 
           
Net loss  $1,422,534   $693,248 

 

   September 30,   December 31, 
   2015   2014 
         
Current assets  $67,702,480   $56,344,599 
Non-current assets   1,126,815    794,446 
Total assets   68,829,295    57,139,045 
           
Current liabilities   59,967,028    45,581,987 
Total equity  $8,862,267   $11,557,058 

 

As of September 30, 2015 and December 31, 2014, the Company has a balance of $2,549,811 and $4,316,031 due from WHYYL, which bears interest at a rate of 15% per annum, is unsecured and has no fixed term of repayment. During the nine months ended September, 2015 and 2014, the Company recorded interest income of $NIL and $132,063 from WHYYL, respectively.

 

SHDEW was established in June of 2013 with its business as a skincare and cosmetic company. The company has made progress in its operation. Its WeChat store has over a million members. It is developing its own skincare products as well as solidifying its position in the ecommerce platform. 

 

 13 

 

  

As of September 30, 2015, the net profit for SHDEW was $917,973 with total equity in the amount of $2,998,831.

 

   Nine Months ended September 30, 
   2015   2014 
         
Revenues  $12,052,258   $- 
           
Net loss  $1,111,244   $(186,288)

 

   September 30,   December 31, 
   2015   2014 
         
Current assets  $8,565,566   $799,046 
Non-current assets   18,034    99,535 
Total assets   8,583,601    898,581 
           
Current liabilities   5,584,769    19,955 
Total equity  $2,998,831   $878,626 

 

NOTE 10 – BANK LOANS

 

In January 2014, the Company obtained a bank loan of $1,300,369 (RMB8,000,000) from the Bank of China, bearing interest at a rate of per annum equal to 125% of the prevailing base lending rate for periods ranging from 1 to 5 years as announced by the People’s Bank of China (“PBOC”). The loan is secured by the properties of two unrelated parties and matured on March 1, 2015. In February and March 2015, the Company entering into two new loan for 1–year period with the amount of $1,226,773(RMB7,500,000) As of September 30, 2015 and December 31, 2014, the outstanding balance of this loan was $1,021,804 (RMB6,500,000) and $1,308,558 (RMB8,000,000).

 

In August 2012, the Company entered into a 3-year revolving facility line of credit agreement with First Sino Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $ 5,855,797 (RMB35, 800,000) as of September 30, 2015. The borrowings under this facility bear interest at a rate per annum equal to 150% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by the People’s Bank of China (“PBOC”). The average interest rate for the nine months ended September 30, 2015 was 7.5% per annum. The credit facility is secured by all of the Company’s properties included in property and equipment (See Note 8), guaranteed by a director of the Company, and matures on March 31, 2015. In March 2015, this facility was extended for 1-year period matured on March 31, 2016. As of September 30, 2015 and December 31, 2014, the Company had outstanding loan balances of $5,627,780 and $5,850,629, respectively, under this facility line of credit.

 

In April 2012, the Company entered into a 3-year non-revolving facility line of credit agreement with First Sino Bank. Under the terms of the agreement, the Company could borrow a maximum amount of $ 12,267,731 (RMB75,000,000) as of September 30, 2015. The borrowings under this facility bear interest at a rate per annum equal to 150% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by PBOC. The average interest rate for the nine months ended September 30, 2015 was 7.5% per annum. The facility of credit is secured by all of the Company’s investment properties (See Note 7) and guaranteed by a director of the Company, and matures on March 31, 2015. In March 2015, this facility was extended for 1-year period matured on March 31,2016. As of September 30, 2015 and December 31, 2014, the Company had outstanding loan balances of $7,886,722 (RMB50,169,802) and $11,390,750 (RMB69,700,000), respectively, under this facility line of credit.

 

NOTE 11 – LONG TERM BORROWINGS

 

On May 16, 2013, the Company entered into a project finance loan agreement with China CITIC Bank to finance the development of the Company’s Linyi Project. The loan has a 2-year term in the principal amount of $10,779,845 (RMB70,000,000) at an interest rate of 14.21% per annum, which is 8.06% over the benchmark lending rate from PBOC. For the period ended June 30, 2015, total loan interest was approximately $2,872,196, which was capitalized in the development cost of the Linyi project.

 

The Company pledged its real estate properties in the Linyi project with carrying value of $41,595,049 as of September 30, 2015. The loan is also subject to certain covenants including floating mortgage ratio not more than 50%. Floating mortgage rate is calculated as the outstanding principal and unpaid interest after deduction of guaranteed funds kept in the stipulated bank account divided by the value of pledged properties. In addition, the Company is required to maintain all monies received from sales of any properties relating to the Linyi project in a stipulated bank account as guaranteed funds. As of September 2015, the Company had paid $5,659,221 (RMB36,000,000) to the bank. As of September 30, 2015, the Company had outstanding loan balance of $5,344,819 (RMB34,000,000) under this facility line of credit.

 

 14 

 

  

On December 16, 2014, the Company entered into a project finance loan agreement with Hua Xia Bank to finance the development of the Company’s Guxinglu Project in Shanghai. The loan has a 3-year term in the principal amount of $18,864,069 (RMB120,000,000) at an interest rate of 7.025% per annum. At the end of September 30, 2015, there are $18,864,069 (RMB120,000,000) draw down from this loan facility.

 

   September 30,   December 31, 
   2015   2014 
     
Outstanding borrowings  $24,208,888   $15,062,960 
Less: Current portion of long term borrowings   5,344,819    6,890,960 
    18,864,069    8,171,270 

 

For the period ended September 30, 2015, total loan interest was approximately $1,096,798, which was capitalized in the development cost of the Linyi project.

 

NOTE 12 – PROMISSORY NOTES PAYABLE

 

The promissory notes payable consist of the following unsecured notes to unrelated parties. Included in the balances are promissory notes with outstanding principal and unpaid interest of an aggregate of $11,914,511 and $13,396,206 as of September 30, 2015 and December 31, 2014, respectively.

 

The promissory note with an outstanding principal of $1,662,802 bears interest at a rate of 12% per annum, is unsecured and has a maturity date of January 31, 2013 and the new terms of repayment had not been determined with the debtor and therefore has no fixed term of repayment. As of September 30, 2015 and December 31, 2014, the outstanding principal in default and the unpaid interest related to this promissory note amounted to $1,662,802 and $1,877,729, respectively. The Company is currently making payments towards this loan.

 

The promissory note with a principal as of September 30, 2015 amounting to $786,003 bears an interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted to $786,003 and $817,127, respectively.

 

The promissory note with a principal as of September 30, 2015 amounting to $786,003 bears an interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted to $786,003 and $817,127, respectively.

 

The promissory note with a principal as of September 30, 2015 amounting to $157,201 bears an interest at a rate of 15.75% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted to $157,201 and $175,223, respectively.

 

The promissory note with a principal of $1,634,253 as of December 31, 2014 bears an interest at the rate of 20% per annum, is unsecured and has no fixed term of repayment. As of September 2015, the promissory note along with the interest has been paid off.

 

The promissory note with a principal of $4,716,017 as of September 30, 2015 bears an interest at the rate of 26.7% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015, the outstanding principal and unpaid interest related to this promissory note amounted to $6,607,063.

 

The promissory note with a principal of $163,570 as of September 30, 2015 bears an interest at the rate of 20% per annum, is unsecured and has no fixed term of repayment. As of September 2015, the promissory note along with the interest has been paid off.

 

The promissory note with a principal of $786,003 as of September 30, 2015 bears an interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015, the outstanding principal and unpaid interest related to this promissory note amounted to $945,913.

 

 15 

 

 

The promissory note with a principal of $440,162 as of September 30, 2015 bears an interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015, the outstanding principal and unpaid interest related to this promissory note amounted to $551,589.

 

The promissory note with a principal of $300,000 as of September 30, 2015 bears an interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted to $344,187 and $322,500, respectively.

 

For the nine months ended September 30, 2015, the interest expense related to these promissory notes was $1,637,684.

 

NOTE 13 – AMOUNTS DUE TO DIRECTORS

 

   September 30,   December 31, 
   2015   2014 
         
Lin Chi-Jung  $8,581,060   $10,073,426 
Lin Hsin-Hung   67,253    32,794 
Lin Chao-Chin   -    23,027 
   $8,648,313   $10,129,246 

 

(a)The balance due to Lin Chi-Jung consists of unpaid salaries and reimbursements and advances together with unpaid interest.

 

The balances are unsecured, interest-free and have no fixed term of repayment.

 

The advances together with unpaid interest as of September 30, 2015 and December 31, 2014 were $8,506,845 and $10,073,426, respectively. The balances are unsecured and interest bearing at rates ranging from 18% to 30% per annum.

 

(b)The balances due to Lin Hsin-Hung are unsecured, interest-free and have no fixed term of repayment.

 

NOTE 14 – OTHER PAYABLES AND ACCRUED EXPENSES

 

   September 30,   December 31, 
   2015   2014 
         
Accrued staff commission and bonus  $605,828   $532,411 
Rental deposits received   261,760    374,680 
Customer security deposits   28,951    - 
Other payables   367,779    217,777 
Dividends payable to non-controlling interest   279,135    290,188 
   $1,543,453   $1,415,056 

 

NOTE 15 – GOVERNMENT SUBSIDY

 

Deferred government subsidy consists of the cash subsidy provided by the local government.

 

Government subsidy was received in 2012, and as of September 30, 2015 and December 31, 2014, the Company received $5,215,194 and $5,421,706, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete the subsidized property development project according to the agreed schedules. The Company recorded the subsidy received as a deferred government subsidy.

 

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NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases certain of its office properties under non-cancellable operating lease arrangements. Payments under operating leases are expensed on a straight-line basis over the periods of their respective terms, and the terms of the leases do not contain rent escalation, or contingent rent, renewal, or purchase options. There are no restrictions placed upon the Company by entering into these leases. Rental expenses under operating leases for the six months ended June 30, 2015 and 2014 were $298,825 and $179,014, respectively.

 

As of September 30, 2014, the Company had the following operating lease obligations.

 

   Amount 
     
Within one year  $203,100 
Two to five years   63,493 
   $266,593 

 

NOTE 17 – NOTE STATUTORY RESERVES

 

According to the relevant corporation laws in the PRC, a PRC company is required to transfer at least 10% of its profit after taxes, as determined under accounting principles generally accepted in the PRC, to the statutory reserve until the balance reaches 50% of its registered capital. The statutory reserve can be used to make good on losses or to increase the capital of the relevant company.

 

According to the Law of the PRC on Enterprises with Wholly-Owned Foreign Investment, the Company PRCn the PRC, to the statutory reserve until the balance reaches 50% of its registered capital. The statutory reserve can be used to make good on losses or to P”) to non-distributable reserves. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion reserve and (iii) a staff bonus and welfare fund. A wholly-owned PRC subsidiary is not required to make appropriations to the enterprise expansion reserve but annual appropriations to the general reserve are required to be made at 10% of the profit after tax as determined under PRC GAAP at each year-end, until such fund has reached 50% of its respective registered capital. The staff welfare and bonus reserve is determined by the board of directors. The general reserve is used to offset future losses. The subsidiary may, upon a resolution passed by the stockholders, convert the general reserve into capital. The staff welfare and bonus reserve are used for the collective welfare of the employees of the subsidiary. The enterprise expansion reserve is for the expansion of the subsidiary operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law.

 

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of September 30, 2015 and December 31, 2014, the Company’s statutory reserve was $851,729 and $812,582, respectively.

 

NOTE 18 – SEGMENT INFORMATION

 

The Company's chief executive officer and chief operating officer have been identified as the chief operating decision makers. The Company's chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

 

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The Company evaluates performance based on several factors, including net revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company's operating segments:

 

   Nine Months Ended September 30, 2015 
   Property             
   Brokerage   Real Estate         
   Services   Development   Corporate   Total 
Net revenues  $3,713,715   $-   $-   $3,713,715 
Cost of revenues   (2,112,217)   -    (42,258)   (2,154,475)
Gross profit   1,601,498    -    (42,218)   1,559,240 
                     
Operating expenses   (673,702)   (822,993)   (48,956)   (1,545,650)
General and administrative expenses   (1,920,717)   (711,586)   (182,313)   (2,814,616)
Operating loss   (992,921)   (1,534,578)   (273,526)   (2,801,026)
                     
Other income (expenses)                    
Interest income   94,558    1,105    58    95,721 
Interest expense   (2,542,730)   -    (50,439)   (2,593,168)
Other income, Net   (241,200)   (4,598)   (81)   (245,879)
Equity in net loss of unconsolidated affiliates   -    (697,042)   (680,796)   (1,377,838)
Total other (expenses) income   (2,689,372)   (700,535)   (731,2)   (4,121,164)
                     
Loss before income taxes and equity in net loss of an unconsolidated affiliate   (3,682,293)   (2,235,113)   (1,004,784)   (6,922,190)
                     
Income tax   1,987    116,457    -    118,444 
Net loss  $(3,680,307)  $(2,118,656)  $(1,004,784)  $(6,803,746)

  

   Nine Months ended September 30, 2014 
   Property             
   Brokerage   Real Estate         
   Services   Development   Corporate   Total 
Net revenues  $7,150,496   $-   $-   $7,150,496 
Cost of revenues   (3,398,204)   -    -    (3,398,204)
Gross profit   3,752,292    -    -    3,752,292 
                     
Operating expenses   (844,138)   (517,902)   -    (1,362,040)
General and administrative expenses   (1,930,093)   (391,884)   (200,589)   (2,522,566)
Operating loss   978,061    (909,787)   (200,588)   (132,314)
                     
Other income (expenses)                    
Interest income   381,261    257,769    -    639,030 
Interest expense   (2,604,833)   -    (33,750)   (2,638,583)
Other income, Net   845    2,262    -    3,107 
Total other (expenses) income   (2,222,727)   260,030    (33,750)   (1,996,446)
                     
Loss before income taxes   (1,244,666)   (649,756)   (234,338)   (2,128,760)
                     
Income tax benefit   (52,322)   -    (5,704)   (58,028)
Equity in net loss of an unconsolidated affiliate, net of income taxes   (395,450)             (395,450)
    -    -    -    - 
Net loss  $(1,692,438)  $(649,756)  $(240,042)  $(2,582,237)

 

 18 

 

 

   Property             
   Brokerage   Real Estate         
   Services   Development   Corporate   Total 
As of September 30, 2015                
Real estate property under development  $-   $76,680,860   $-   $76,680,860 
Total assets   9,440,202    82,424,974    11,363,125    103,228,301 
                     
As of September 30, 2014                    
Real estate property under development  $-   $40,267,991   $-   $40,267,991 
Total assets   41,126,806    50,513,655    85,156    91,725,617 

  

NOTE 19 – ERROR CORRECTION

 

There were adjustments made in the 2014 Q3 financial statements. These adjustments were made from updated information and impairments made for the period ended September 30, 2014.

 

The following summarizes the above restatements. 

   Previously Reported   Adjustment   As Restated 
Balance Sheets               
Total Assets   89,059,611    2,666,006    91,725,617 
Total Liabilities   87,180,397    6,908,624    94,089,021 
Shareholders’ deficit   (9,690,618)   (741,062)   (10,431,680)
Statement of Operations               
Net Revenues   6,771,137    379,359    7,150,496 
Net Loss   (2,737,796)   155,423    (2,582,373)
Loss Per Share – Basic and Fully Diluted   (0.07)   0.01    (0.06)
Weighted average common shares outstanding – Basic and Fully Diluted   31,329,288    -    31,329,288 

  

NOTE 20 – SUBSEQUENT EVENTS

 

On July 31, 2017, our Board of Directors engaged RH. CPA, as the Registrant’s certifying accountant to audit the registrant's financial statements, replacing its former certifying accountant, Kenne Ruan CPA, P.C. (“Kenne Ruan”). Upon receipt of the notice that the Registrant’s acceptance of the proposal from RH, CPA to audit its consolidated financial statements for the fiscal year ending December 31, 2015, Kenne Ruan resigned as the Registrant’s certifying accountant on July 31, 2017.

 

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS

 

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q

 

In addition to historical information, this Form 10-Q contains forward-looking statements. Forward-looking statements are based on our current beliefs and expectations, 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, the investor should not place undue reliance on these forward-looking statements. They only reflect our view and expectations as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement in light of new information, future events, or other occurrences.

 

 19 

 

  

There are several risks and uncertainties, including those relating to our ability to raise money and grow our business and potential difficulties in integrating new acquisitions with our current operations, especially as they pertain to foreign markets and market conditions. These risks and uncertainties can materially affect the results predicted. The Company’s future operating results over both the short and long term will be subject to annual and quarterly fluctuations due to several factors, some of which are outside our control. These factors include but are not limited to fluctuating market demand for our services, and general economic conditions.

 

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand Sunrise Real Estate Group, Inc. (“SRRE”). MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

 

OVERVIEW

 

In October 2004, the former shareholders of Sunrise Real Estate Development Group, Inc. (Cayman Islands) Sunrise Real Estate Group, YANG Enterprise Ltd. (“LRY”) acquired a majority of our voting interests in share exchange. Before the completion of the share exchange, SRRE had no continuing operations, and its historical results would not be meaningful if combined with the historical results of CY-SRRE, LRY and their subsidiaries.

 

As a result of the acquisition, the former owners of CY-SRRE and LRY hold a majority interest in the combined entity. Generally accepted accounting principles (“GAAP”) require in certain circumstances that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to have purchased SRRE. However, SRRE remains the legal entity and the Registrant for Securities and Exchange Commission reporting purposes. The historical financial statements prior to October 5, 2004 are those of CY-SRRE and LRY and their subsidiaries. All equity information and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of CY-SRRE and LRY.

 

SRRE and its subsidiaries, namely, CY-SRRE, LRY, Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”), Shanghai Shang Yang Real Estate Consultation Company, Ltd. (“SHSY”), Suzhou Gao Feng Hui Property Management Company, Ltd, (“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company (“SZSY”), Suzhou Xin Ji Yang Real Estate Consultation Company, Ltd. (“SZXJY”), Linyi Shang Yang Real Estate Development Company Ltd (“LYSY”), Shangqiu Shang Yang Real Estate Consultation Company, Ltd., (“SQSY”), Wuhan Gao Feng Hui Consultation Company Ltd.(WHGFH), Sanya Shang Yang Real Estate Consultation Company, Ltd. (“SYSH”), Shanghai Rui Jian Design Company, Ltd., (“SHRJ”), and Wuhan Yuan Yu Long Real Estate Development Company, Ltd. (“WHYYL”) are sometimes hereinafter collectively referred to as “the Company,” “our,” or “us”.

 

The principal activities of the Company are real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC.

 

RECENT DEVELOPMENTS

 

Our major business was agency sales, whereby our Chinese subsidiaries contracted with property developers to market and sell their newly developed property units. For these services we earned a commission fee calculated as a percentage of the sales prices. We have focused our sales on the whole China market, especially in secondary cities. To expand our agency business, we have established subsidiaries and branches in Shanghai, Suzhou, Yangzhou, Chongqing, Quanjiao, Hainan, Shangqiu, Chengdu, Wuhan, Kunshan and Linyi.

 

In mid-2011, we established a project company in Wuhan in which we have a 49% ownership. . The Wuhan project was supposed to have its handover from the construction contractor, Hubei Fifth Constructions Co. (calculated September 30, 2015, but because of a dispute between the Company and HFCC, the handover was delayed and is currently under court review.

 

In January 2012, we established Linyi Shang Yang Real Estate Development (“LYSY”) in which we have a 24% ownership. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. We began construction in mid-2012 and to date have constructed 98 units which encompasses approximately one-third of the gross sales area. Proceeds from sales will be used to finance the construction of the subsequent phases of the project. We are applying for bank loans and other forms of funding, however, there are no assurances we will be able to obtain future financings.

 

 20 

 

  

In March 13, 2014, the Company has signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has the right to develop the Guangxing lu Project, located in the Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one apartment building.

 

SHDEW was established in June of 2013 with its business as a skincare and cosmetic company. It is developing its own skincare products as well as solidifying its position in the ecommerce platform. Its main products include the TST line. The company’s business strategy is to target different consumer base using online and offline sales platform with effective and innovative products to be an established brand in China. The company has made progress in its operation. Its WeChat store has over a million members.

 

RECENTLY ADOPTED ACCOUNTING STANDARDS

 

In December 2011, the FASB issued ASU No. 2011-11, Topic 210 - Balance Sheet: Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 became effective for fiscal years beginning on or after January 1, 2013, with retrospective application for all comparable periods presented. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

In February 2013, the FASB issued ASU 2013-12, Topic 220 - Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 changes the presentation requirements of significant reclassifications out of accumulated other comprehensive income in their entirety and their corresponding effect on net income. For other significant amounts that are not required to be reclassified in their entirety, the standard requires the company to cross-reference to related footnote disclosures. ASU 2013-02 became effective for the company on January 1, 2013. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

In March 2013, the FASB issued ASU 2013-05 Topic 830 – Foreign Currency Matters (“ASU 2013-05”). ASU 2013-05 resolves the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, ASU 2013-05 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. ASU 2013-02 became effective for the company prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material effect on the Company’s condensed consolidated financial statements.

 

The FASB has issued ASU 2013-04 Topic 405 - Liabilities: Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s condensed consolidated financial statements.

 

 21 

 

  

APPLICATION OF CRITICAL ACCOUNTING POLICIES

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. The most significant estimates and assumptions include revenue recognition, and the useful lives and impairment of property and equipment, and investment properties, the valuation of real estate property under development, the recognition of government subsidies, and the provisions for income taxes. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this Form 10-Q reflect the more significant judgments and estimates used in preparation of our consolidated financial statements. We believe there have been no material changes to our critical accounting policies and estimates.

 

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our condensed consolidated financial statements.

 

Revenue Recognition

 

Agency commission revenue from property brokerage is recognized when the property developer and the buyer complete a property sales transaction, and the property developer grants confirmation to us to be able to invoice them accordingly. The time when we receive the commission is normally at the time when the property developer receives from the buyer a portion of the sales proceeds in accordance with the terms of the relevant property sales agreement, or the balance of the bank loan to the buyer has been funded, or recognized under the sales schedule or other specific items of agency sales agreement with developer. At no point does the Company handle any monetary transactions nor act as an escrow intermediary between the developer and the buyer.

 

Revenue from marketing consultancy services is recognized when services are provided to clients, fees associated to services are fixed or determinable, and collection of the fees is assured.

 

Rental revenue from property management and rental business is recognized on a straight-line basis according to the time pattern of the leasing agreements.

 

The Company accounts for underwriting sales in accordance with ASC 976-605 “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66) (“ASC 976-605”). The commission revenue on underwriting sales is recognized when the sales have been consummated, generally when title is transferred and the Company no longer has substantial continuing involvement with the real estate asset sold. If the Company provides certain rent guarantees or other forms of support where the maximum exposure to loss exceeds the gain, it defers the related commission income and expenses by applying the deposit method. In future periods, the commission income and related expenses are recognized when the remaining maximum exposure to loss is reduced below the amount of income deferred.

 

All revenues represent gross revenues less sales and business taxes.

 

Real Estate Property under Development

 

Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.

 

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.

 

Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.

 

 22 

 

  

In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.

 

Government Subsidies

 

Government subsidies include cash subsidies received by the Company’s subsidiaries in the PRC from local governments.

 

In recognizing the benefit of government subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs are matched with those costs and recorded as a reduction in costs. Those benefits that are more general in nature or driven by business performance measures are classified as revenue.

 

The government subsidy received by the Company is given to reimburse the land acquisition costs and certain construction costs incurred for its property development project in Linyi. The subsidy is repayable if the Company fails to complete the subsidized property development project by the agreed date. The Company recorded the subsidy received as a deferred government subsidy in consolidated balance sheets.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company recognizes tax benefits that satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for such tax benefits. The Company did not incur any interest or penalties related to potential underpaid income tax expenses during the nine months ended September 30, 2015 and 2014

 

RESULTS OF OPERATIONS

 

We provide the following discussion and analyses of our changes in financial condition and results of operations for the period ended September 30, 2015 with comparisons to the period ended September 30, 2014.

 

Revenue

 

The following table shows the net revenue detail by line of business:

 

   Three months ended September 30   Nine months ended September 30, 
   2015   % to
total
   2014   % to 
total
   %
change
   2015   % to 
total
   2014   % to 
total
  
change
 
Agency sales   530,076    39    1,751,882    78    (70)   1,974,920    53    3,734,348    52    (47)
Property management   422,179    31    447,426    20    (6)   1,298,342    35    1,653,161    23    (21)
Underwriting sales   -    0    57,896    2    (100)   0    0    1,762,988    25    (100)
Service sales   412,751    30    -    0    -    440,453    12%   -    -    - 
Net revenue   1,365,006    100    2,257,204    100    (65)   3,713,715    100    7,150,496    100    (48)

 

The net revenue in the first three quarter of 2015 was $3,713,718, which was decreased by 47% from $7,150,496 in the first three quarter of 2014. In the first three quarter of 2015, agency sales represented 53% of net revenue, underwriting sales represented 0%, service sales represented 12% and property management represented 35%. The decrease in net revenue in the first three quarter of 2015 was mainly due to the decrease in our underwriting sales, agency sales and property management

 

 23 

 

  

Agency Sales

 

Agency sales represented 53% of our net revenue in the first three quarter of 2015 and revenue from agency sales decreased by 47% compared with same period in 2014. The decrease in agency sales was due to taking in less projects.

 

Because of our diverse market locations, the risk of market fluctuations has been decreased on our business operations in agency sales in 2015, and we are continually seeking stable growth in our agency sales business in 2015. However, there can be no assurance that we will be able to do so.

 

Underwriting Sales

 

In February 2004, SHSY entered into an agreement to underwrite an office building in Suzhou, known as Suzhou Sovereign Building. Being the sole distribution agent for this office building, SHSY committed to a sales target of $56.53 million. Property underwriting sales are comparatively a higher risk business model compared to our pure commission based agency business. Under this higher risk business model, the Underwriting Model, our commission is not calculated as a percentage of the selling price; instead, our commission revenue is equivalent to the price difference between the final selling price and underwriting price. We negotiated with a developer for an underwriting price that is as low as possible, with the guarantee that all or a majority of the units will be sold by a specific date. In return, we are given the flexibility to establish the final selling price and earn the price difference between the final selling price and the underwriting price. The risk of this kind of arrangement is that if there is any unsold unit on the expiration date of the agreement, we may have to absorb the unsold property units from developers at the underwriting price and hold them in our inventory or as investments.

 

We started selling units in the Sovereign Building in January 2005. As of March 1, 2007, we had sold or acquired all of the units in the building, and we achieved the sales target by selling 47,093 square meters with a total sales price of $75.96 million.

 

The Company accounts for its underwriting sales revenue with underwriting rent guarantees in accordance with SFAS No. 66 “Accounting for Sales of Real Estate” (SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from the sales of floor space with underwriting rent guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers. Based on this accounting principle, a significant portion of underwriting revenue was deferred. As of September 30, 2015, our entire underwriting obligation has been completed.

 

Service Sales

 

The service sales is our new business line which comes from providing service about financial consulting activity.

 

Property Management

 

During 2005 and 2006, SZGFH entered into leasing agreements with certain buyers of the Sovereign Building underwriting project to lease the properties for them. These leasing agreements on these properties are for 62% of the floor space that was sold to third party buyers. In accordance with the leasing agreements, the owners of the properties can have a rental return of 8.5% and 8.8% per annum for a period of 5 years and 8 years, respectively. In regards to the leasing agreements, we have negotiated with the buyers and have lowered the annual rental return rate for the remaining leasing period from 8.5% for 5 years to 5.8%, and from 8.8% for have a rental As of March 31, 2014, 55% of the buyers agreed upon the lowered rate, 3% of the buyers did not agree to a lowered rate and 42% of the buyers agreed to cancel the leasing agreements. The leasing period started in the second quarter, 2006, and the Company has the right to sublease the leased properties to cover these lease commitments in the leasing period. As of September 30, 2015, there were no lease commitments.

 

 24 

 

  

Cost of Revenue

 

The following table shows the cost of revenue detail by line of business:

 

   Three months ended September 30   Nine months ended September 30, 
   2015   % to
total
   2014   % to
total
   %
change
   2015   % to
total
   2014   % to
total
   %
change
 
Agency sales   376,153    47    418,377    46    (10)   1,000,337    46    1,644,503    48    (39)
Property management   293,352    37    474,108    52    (38)   884,972    41    1,349,940    40    (34)
Underwriting sales   -    0    13,259    2    (100)   0    0    403,761    12    (100)
Service Sales   132,905    16    0    0    -    269,165    13%               
Cost of revenue   802,410    100    905,745    100    (11)   2,154,475    100    3,398,204    100    (36)

  

The cost of revenue in the first three quarter of 2015 was $2,154,475, a decrease of 39% from $3,398,204 in the same period in 2014. In the first three quarter of 2015, cost of agency sales represented 46% of cost of revenue, cost of underwriting sales represented 0%, service sales represented 13% and cost of property management represented 41%. The decrease in cost of revenue in first three quarter of 2015 was mainly due to the decrease in our agency sales, property management and underwriting sales.

 

Agency Sales

 

The cost of revenue for agency sales in the first three quarter, 2015 was $1,000,337, a decrease of 39% from $1,644,503 in the same period in 2014. This decrease was mainly due to the decrease in our commissions from the decrease in sales of agency sales in the first three quarter of 2015.

 

Underwriting Sales

 

There is no underwriting sales business in the first three quarter of 2015; also there are no costs of underwriting sales either.

 

Property management

 

The cost of revenue for property management in the first three quarter of 2015 was $884,972, decreased by 34 from $1,349,940 in the same period in 2014. This was mainly due to lower business for the property management as a whole.

 

Operating Expenses

 

The following table shows operating expenses detail by line of business:

 

   Three months ended September 30   Nine months ended September 30, 
   2015   % to
total
   2014   % to total   % change   2015   % to total   2014   % to total   % change 
Agency sales   61,712    13    329,928    57    (81)   262,714    17    782,126    57    (66)
Property management   23,105    5    17,976    3    29    67,585    4    62,012    5    9 
Property development   215,856    45    227,905    40    (5)   822,993    53    517,902    38    59 
Service sales   180,506    37    -    0    -    392,358    25                
Operating expenses   481,179    100    314,201    100    (16)   1,545,650    100    1,362,040    100    13 

 

 

 25 

 

  

The operating expenses in the first three quarter of 2015 were $1,545,650, an increase of 13% from $1,362,040 in the same period of 2014. This was mainly due to the expense increase of real estate development and service sales. In the first three quarter of 2015, agency sales represented 17% of operating expenses, property management represented 4%, service sales represented 25% and property development represented 53% of operating expenses.

 

Agency sales

 

The operating expenses for agency sales in the first three quarter of 2015 were $262,714 which decreased by 66% from $782,126 in the same period in 2014.

 

Property management

 

The operating expenses for property management in the first three quarter of 2015 were $67,585 which increased 9% from $62,012 in the same period in 2014.

 

Real estate development

 

The operating expenses for real estate development in the first three quarter of 2015 were $822,993 which increased 59% from $517,902 in the same period in 2014.

 

General and Administrative Expenses

 

The general and administrative expenses in the first three quarter of 2015 were $2,814,616, increased by 12% from $2,522,566 in the same period in 2014. This increase was mainly due to a decrease in staff cost, professional service fee and so on.

 

Interest Expenses

 

Interest expenses in the first three quarter of 2015 were $2,593,168 decreased by 2% from $2,638,583 in the same period in 2014. The interest expenses were mainly incurred for bank loans, promissory notes payable and amount due to directors. This decrease was mainly due to repayment of bank loans and promissory notes.

 

Major Related Party Transaction

 

A related party is an entity that can control or significantly influence the management or operating policies of another entity to the extent one of the entities may be prevented from pursuing its own interests. A related party may also be any party the entity deals with that can exercise that control.

 

Amount due to directors

 

The total amount due to directors for September 30, 2015 was $8,648,313. The amounts due are as follows:

 

Amount due to Lin Chi-Jung

 

The balances are unsecured, interest-free and have no fixed term of repayment.

 

The advances together with unpaid interest as of September 30, 2015 and December 31, 2014 were $8,581,060 and $10,073,426, respectively. The balances are unsecured and interest bearing at rates ranging from 18% to 30% per annum.

 

Amount due to Lin Hsin Hung

 

The amount of $67,253 represents the salary payable to Lin Hsin Hung.

 

Amount due from affiliates

 

The amount of $2,549,811 is due from WHYYL, our Wuhan project development company.

 

Amount due to affiliate

 

A balance of $23,405,908 is due to JXSY of $18,361,027, SHDEW of $5,016,884, SHXG of $19,493 and $8,505 due to SHXXY. 

 

 26 

 

  

LIQUIDITY AND CAPITAL RESOURCES

 

In the first three quarter of 2015, our principal sources of cash were revenues from our agency sales and property management business. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.

 

We ended the period with a cash position of $930,101.

 

The Company’s operating activities used cash in the amount of $9,116,933, which was primarily attributable to the real estate property development.

 

The Company’s investing activities used cash resources of $1,131,794, which was primarily attributable to the acquisition of property, plant and equipment and long-term investments.

 

The Company’s financing activities obtained cash resources of $9,431,362, which was primarily attributable to new bank loan received and advance from an affiliate.

 

The potential cash needs for 2015 will be the repayments of our bank loans and promissory notes, the rental guarantee payments and promissory deposits for various property projects as well as our development projects in Wuhan, GXL project and Linyi.

 

Capital Resources

 

We currently have five bank loans payable, including an $1,021,804 (RMB6,500,000) loan, an $18,864,069 (RMB120,000,000) loan and $5,344,819 (RMB34,000,000) loan. The RMB6,500,000 loan have been extended to March 2016, and the RMB34,000,000 loan have been extended to May 2016. The RMB120,000,000 loan is the current drawdown of a bank facility of RMB120,000,000 loan, which has three years period matured in December 2017. Another two loan (RMB35,800,000) and (RMB75,000,000), both were due on March 11, 2015 and have been extended for another year to March 2016.

 

As of September 30, 2015, promissory notes in the principal amount of $1,662,802 were in default compared to promissory notes in the principal amount of $1,877,729 that were in default as of December 31, 2014.

 

Taking into account of our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months. If our business otherwise grows more rapidly than we currently predict, we plan to raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings. We will also consider raising funds through credit facilities obtained with lending institutions. There can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity or obtain funds that are with terms satisfactory to management and our board of directors.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

A.Material weaknesses

 

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2014, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we have begun to undertake the following remediation initiatives:

 

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·hiring additional personnel with sufficient knowledge and experience in U.S. GAAP; and
·providing ongoing training course in U.S. GAAP to existing personnel, including our Chief Financial Officer and Financial Controller.

 

B.Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation and solely due to the unremediated material weakness  described above, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were ineffective for the purpose for which they were designed as of the end of such period. As a result of this conclusion, the financial statements for the period covered by this report were prepared with particular attention to the unremediated material weakness previously disclosed. Accordingly, management believes that the condensed consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented, in accordance with generally accepted accounting principles, notwithstanding the unremediated weaknesses.

  

C.Changes in Internal Control over Financial Reporting

 

Since the first quarter of 2015, we have put into place additional qualified accounting personnel to address the aforementioned material weakness. This action strengthened our internal controls over financial reporting.

 

Except for the above, there was no change in the Company’s internal control over financial reporting that was identified in connection with such evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There have been no material developments in any legal proceedings since the disclosures contained in the Registrantified in connection with ended December 31, 2014.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit Description
Number  
   
31.1* Section 302 Certification by the Corporation's Chief Executive Officer.
   
31.2* Section 302 Certification by the Corporation's Chief Financial Officer.
   
32.1* Section 1350 Certification by the Corporation's Chief Executive Officer and Corporation's Chief Financial Officer.
   
101 XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

 

* Filed herewith

  

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SUNRISE REAL ESTATE GROUP, INC.

 

  Date: October 23, 2017  
  By: /s/ Lin, Chi-Jung  
    Lin, Chi-Jung, Chief Executive Officer  
     
  Date: October 23, 2017  
  By: /s/ Mi, Yong Jun  
    Mi, Yong Jun, Chief Financial Officer  
   

 

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