NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
Sunrise Real Estate Group, Inc. (“
SRRE
”)
and its subsidiaries (collectively referred to as “the Company”, “our” or “us”) was incorporated
in Texas on October 10, 1996, under the name of Parallax Entertainment, Inc. (“
Parallax
”). On December 12, 2003,
Parallax changed its name to Sunrise Real Estate Development Group, Inc. On April 25, 2006, Sunrise Estate Development Group, Inc.
filed Articles of Amendment with the Texas Secretary of State, changing the name of Sunrise Real Estate Development Group, Inc.
to Sunrise Real Estate Group, Inc., effective from May 23, 2006.
As of December 31, 2014, 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 XinJi 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%
1
|
|
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
|
LinyiShangyang Real Estate Development Company Limited (“LYSY”)
|
|
October 13, 2011
|
|
PRC
|
|
24%
2
|
|
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 RuiJian Design Company Limited (“SHRJ”)
|
|
August 15, 2011
|
|
PRC
|
|
100%
|
|
Subsidiary
|
|
Property brokerage services
|
LinyiRui Lin Construction and Design Company Limited (“LYRL”)
|
|
March 6, 2012
|
|
PRC
|
|
100%
3
|
|
Subsidiary
|
|
Investment holding
|
PutianXinJi Yang Real Estate Consultation Company Limited (“PTXJY”)
|
|
June 5, 2012
|
|
PRC
|
|
55%
|
|
Subsidiary
|
|
Property brokerage services
|
Company Name
|
|
Date of
Incorporation
|
|
Place of
Incorporation
|
|
% of
Ownership
held by the
Company
|
|
Relationship
with the
Company
|
|
Principal activity
|
ShanghaiXinJi Yang Real Estate Brokerage Company Limited (“SHXJYB”)
|
|
January 28, 2013
|
|
PRC
|
|
75%
4
|
|
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
|
XinGuang Equity Investment Management (Shanghai) Company Limited (“XG”)
|
|
December 17, 2012
|
|
PRC
|
|
49%
|
|
Equity investment
|
|
Equity investment and consultancy
|
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
|
|
1.
|
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.
|
|
2.
|
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.
|
|
3.
|
The equity interest in LYRL is held by three Chinese individuals in trust for SHXJY.
|
|
4.
|
On January 28, 2013, CY-SRRE, SZXJY and an unrelated party established a subsidiary in the PRC,
SHXJYB, with CY-SRRE holding a 15% equity interest and SZXJY holding a 60% equity interest in SHXYJB.
|
CY-SRRE was established in the Cayman Islands on April 30, 2004
as a limited liability company. CY-SRRE was wholly owned by Ace Develop Properties Limited (“Ace Develop”), a corporation,
of which Lin Chi-Jung, an individual, is the principal and controlling shareholder. SHXJY was established in the People’s
Republic of China (“PRC”) on August 20, 2001 as a limited liability company. SHXJY was originally owned by a Taiwanese
company, of which the principal and controlling shareholder was Lin Chi-Jung. On June 8, 2004, all the fully paid up capital of
SHXJY was transferred to CY-SRRE. On June 25, 2004SHXJY and two individuals established a subsidiary, SZXJY in the PRC, at which
point in time, SHXJY held a 90% equity interest in SZXJY. On August 9,2005, SHXJY sold a 10% equity interest in SZXJY to a company
owned by a director of SZXJY, and transferred a 5% equity interest in SZXJY to CY-SRRE. Following the disposal and the transfer,
CY-SRRE effectively held an 80% equity interest in SZXJY.
LRY was established in the British Virgin Islands on November
13, 2003 as a limited liability company. LRY was owned by Ace Develop, Planet Technology Corporation (“Planet Tech”)
and Systems & Technology Corporation (“Systems Tech”). On February 5, 2004, LRY established a wholly owned subsidiary,
SHSY in the PRC as a limited liability company.
On August 31, 2004, SRRE, CY-SRRE and Lin Chi-Jung, an individual
and agent for the beneficial shareholder of CY-SRRE, i.e., Ace Develop, entered into an exchange agreement under which SRRE issued
5,000,000 shares of common stock to the beneficial shareholder or its designees, in exchange for all outstanding capital stock
of CY-SRRE. The transaction closed on October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the President
of CY-SRRE and the principal and controlling shareholder of Ace Develop.
Also on August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual
and agent for beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems Tech, entered into an exchange agreement
under which SRRE issued 10,000,000 shares of common stock to the beneficial shareholders, or their designees, in exchange for all
outstanding capital stock of LRY. The transaction was closed on October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors
of SRRE, the President of LRY and the principal and controlling shareholder of Ace Develop. Regarding the 10,000,000 shares of
common stock of SRRE issued in this transaction, SRRE issued 8,500,000 shares to Ace Develop, 750,000 shares to Planet Tech and
750,000 shares to Systems Tech.
As a result of the acquisition, the former owners of CY-SRRE
and LRY hold a majority interest in the combined entity. Generally accepted accounting principles require in certain circumstances
that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial
reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” arrangement whereby
CY-SRRE and LRY are deemed to have purchased SRRE. However, SRRE remains the legal entity and the Registrant for Securities and
Exchange Commission reporting purposes. All shares and per share data prior to the acquisition have been restated to reflect the
stock issuance as a recapitalization of CY-SRRE and LRY.
On January 10, 2005, LRY and a PRC third party established a
subsidiary, SZGFH, a limited liability company in the PRC, with LRY holding 80% of the equity interest in SZGFH. On May 8, 2006,
LRY acquired 20% of the equity interest in SZGFH from the third party. Following the acquisition, LRY effectively holds100% of
the equity interest in SZGFH.
On November 24, 2006, CY-SRRE, SHXJY, a shareholder of SZXJY
and a third party established a subsidiary, SZSY in the PRC, with CY-SRRE holding a12.5% equity interest, SHXJY holding a 26% equity
interest and the shareholder of SZXJY holding a 12.5% equity interest in SZSY. At the date of incorporation,
SRRE and the shareholder of SZXJY entered into a voting agreement that SRRE is entitled to exercise the voting right in
respect of its 12.5% equity interest in SZSY. Following that, SRRE effectively holds 51% voting rights in SZSY.
On September 24, 2007, CY-SRRE sold a 5% equity interest in
SZXJY to a company owned by a director of SZXJY. Following the disposal, CY-SRRE effectively holds 75% equity interest in SZXJY.
In January 2011, SYSY acquired 49% equity interest in a project
company in the PRC, WHYYL to expand its operations to real estate development business. WHYYL is developing a real estate project
in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with an estimated construction period of 3 years.
The Company accounts for this investment using the equity method.
On September 28, 2011, SRRE and four individual investors established
a company, SHXXY, in the PRC to provide real estate brokerage services. SRRE holds 40% equity interest in SHXXY.
On October 13, 2011, SHXJY, four individual investors and an
unrelated company established a project company in the PRC, namely LYSY to develop villa style residential housing buildings with
an estimated construction period of 4 years. SHXJY holds 24% equity interest in LYSY. At the date of its incorporation, SRRE and
an individual shareholder holding 51% equity interest in LYSY entered into a voting agreement that the Company is entitled to exercise
the voting right of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and considers LYSY
as a subsidiary of the Company.
On March 6, 2012, SHXJY established a subsidiary in the PRC,
LYRL. The equity interest in LYRL is held by three Chinese individuals in trust for SHXJY. At
the date its incorporation, SHXJY transferred its 24% equity interest in LYSY to LYRL.
On December 17, 2012, LRY together with two corporate investors
established a company, namely XG, in the PRC to provide investment management and
consulting services. LRY holds 49% equity interest XG. XG has not commenced its operations.
On June 6, 2013, SHSY and LYRL together with other 4 investors
established a company, namely Shanghai Daerwei, in the PRC focus on the business of trading on cosmetics. SHSY holds 19% and LYRL
holds 11% equity interest of Shanghai Daerwei.
On July 25, August 19 and October 15, 2014, the company established
three investment holding company separately, namely SHHT, SHSYTX and SZHT. These three company were 100% subsidiary of the Company
and have not commenced its operations.
The principal activities of the Company are property brokerage
services, including property marketing, leasing and management services; and real estate development in the PRC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Accounting and Principles of
Consolidation
The Company’s consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“
U.S.
GAAP
”).
The 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 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 December 31, 2014, the Company has a working capital deficiency, accumulated
deficit from recurring net losses for the current and prior years, 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. 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, the Company may be required
to suspend operations or cease business entirely.
The accompanying 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.
Use of Estimates
The preparation of financial statements
in accordance with U.S GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows the provisions of Accounting
Standards Codification (“
ASC
”) 820, Fair Value Measurements and Disclosures (“
ASC 820
”).
It clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy
to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The carrying amounts reported in the accompanying
consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, promissory deposits, amount due
from an unconsolidated affiliate, other receivables and deposits, deferred tax assets, bank loans, promissory notes payable, accounts
payable, customer deposits, amounts due to directors, other payables and accrued expenses, other taxes payable and income taxes
payable approximate their fair value based on the short-term maturity of these instruments. The fair value of the deposits received
from underwriting sales approximate their carrying amounts because the deposits were received in cash.
Concentrations of Credit Risk
Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable,
other receivables and deposits, and amount due from an unconsolidated affiliate. The Company places its cash and cash equivalents
with reputable financial institutions with high credit ratings.
The Company conducts credit evaluations
of customers and generally does not require collateral or other security from customers. The Company establishes an allowance for
doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific
customers. The amount of receivables ultimately not collected by the Company has generally been consistent with management's expectations
and the allowance established for doubtful accounts.
Major Customers
During the year ended December 31, 2014, there
were two customers that accounted for 21% and 12% of our net revenues separately, and there are $740,498 and $0 accounts receivable
from these two customers separately as of December 31, 2014.
During the year ended December 31, 2013, there
was one customer that accounted for 19% of our net revenues, and no accounts receivable from this customer as of December 31, 2013.
Cash and Cash Equivalents
Cash and cash equivalents include cash
on hand and all highly liquid investments with an original maturity of three months or less.
The
Company maintains cash and cash equivalents with various banks in the PRC which are not insured or otherwise protected. Should
any of these banks holding the Company’s cash deposits become insolvent, or if the Company is otherwise unable to withdraw
funds for any reason, the Company could lose the cash on deposit with that particular bank.
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
year 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 year-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, year-end exchange rates are applied to the 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 are included as a component of accumulated other comprehensive income in
shareholders’ equity.
The exchange rates as of December 31, 2014
and December 31, 2013 are $1: RMB6.1190
and $1: RMB6.0969,
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
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 years ended December 31, 2014 and
2013, the Company had recognized any impairment for real estate property under development.
Capitalization of Interest
Interest incurred during and directly related
to real estate development projects is capitalized to the related real estate property under development during the active
development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties
are substantially complete or the property becomes inactive. Interest is capitalized based on the interest rate applicable to specific
borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest capitalized to real
estate property under development is expensed as a component of cost of real estate sales when related units are sold. All
other interest is expensed as incurred.
Property and Equipment, Net
Property and equipment are stated at cost
less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method to allocate the
cost of depreciable assets over the estimated useful lives of the assets as follows:
|
|
Estimated
Useful Life
(in years)
|
|
|
|
Furniture and fixtures
|
|
5-10
|
Computer and office equipment
|
|
3-5
|
Motor vehicles
|
|
5
|
Properties
|
|
20
|
Maintenance, repairs and minor renewals
are charged directly to the statement of operations as incurred. Additions and improvements are capitalized. When assets are disposed
of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included
in the statement of operations.
Investment Properties, Net
Investment properties are stated at cost
less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method to allocate the
cost of depreciable assets over their respective estimated useful lives of 20 years.
Significant additions that extend property
lives are capitalized and are depreciated over their respective estimated useful lives. Routine maintenance and repair costs are
expensed as incurred.
Impairment of Long-lived Assets
In accordance with ASC 360, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (“
ASC 360
”), the Company is required to review its
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the
assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds
the fair value.
The Company tests long-lived assets, including
property and equipment, investment properties and other assets, for recoverability when events or circumstances indicate that the
net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable
cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance
and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the
future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated
expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the
asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash
flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections,
and other available information as considered necessary. There is no impairment of long-lived assets during the years ended December
31, 2014 and 2013.
Customer Deposits
Customer deposits consist of amounts received
from customers relating to the sale of residential units in the PRC. In the PRC, customers will generally obtain permanent financing
for the purchase of their residential unit prior to the completion of the project. The lending institution will provide the funding
to the Company upon the completion of the financing rather than the completion of the project. The Company receives these funds
and recognizes them as a liability until the revenue can be recognized.
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.
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.
Other Investments
Where the Company has no significant influence,
the investment is classified as other investments 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.
During the year ended December 31, 2014,
the Company provided an allowance for impairment loss on other investments of $Nil (2013: $Nil). As of December 31, 2014, the allowance
for impairment loss on other investments amounted to $78,444 (2013: $78,729).
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.
During the year of 2012, the Company received
no refundable government subsidy amount of $5,278,087 (RMB33,175,416). 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 is repayable if the
Company fails to complete the subsidized property development project before the agreed date. The Company recorded the subsidy
received as a deferred government subsidy. As of December 31, 2014, the Company’s deferred government subsidy amounted to
$5,421,706 (2013: $5,441,358).
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.
All revenues represent gross revenues less
sales and business tax.
Comprehensive Income (Loss)
In accordance with ASC 220-10-55, comprehensive
income (loss) is defined as all changes in equity except those resulting from investments by owners and distributions to owners.
The Company’s only components of comprehensive loss during the years ended December 31, 2014 and 2013 were net loss and foreign
currency translation adjustments.
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.
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 years ended December
31, 2014 and 2013.
New Accounting Pronouncements
In February 2013, the FASB issued ASU No.
2013-04,
Liabilities (Topic 405): 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
”). The objective of ASU 2013-04
is to provide 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 guidance) is fixed at the reporting date. Examples
of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations, and settled litigation
and judicial rulings. ASU 2013-04 is effective for the Group for interim reporting periods beginning July 1, 2014, however, early
adoption is permitted. We do not expect that the adoption of ASU 2013-04 will have a material impact on the Company’s consolidated
financial statements.
In March 2013, the FASB issued ASU No.
2013-05,
Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries
or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
(“
ASU 2013-05
”),,
which specifies that a cumulative translation adjustment (“
CTA
”) should be released into earnings when an entity
ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the
sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method
investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings when
the investment is sold. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA would
be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the foreign
entity. In addition, CTA should be recognized in earnings in a business combination achieved in stages. For public entities, ASU
2013-05 is effective for reporting periods beginning after December 15, 2013, with early adoption permitted. We do not expect that
the adoption of ASU 2013-05 will have a material impact on the Company’s consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11,
Income Taxes (Topic 740)
(“
ASU 2013-11
”) to provide guidance on the financial statement presentation
of an unrecognized tax benefit when a net operating loss carry forward, similar tax loss, or tax credit carry forward exists. This
ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements
as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward,
with certain exceptions. The modifications to ASC Topic 740 resulting from the issuance of ASU 2013-11 are effective for fiscal
years beginning after December 15, 2013 and interim periods within those years. Early adoption is permitted. We do not expect that
the adoption of ASU 2013-11 will have a material impact on the Company’s consolidated financial statements.
In August 2014,
the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
(“
ASU
2014-15
”). This update requires an entity's management to evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after
the date that the financial statements are issued (or within one year after the date that the financial statements are available
to be issued when applicable). When conditions or events raise substantial doubts about an entity’s ability to continue as
a going concern, management shall disclose: i) the principal conditions or events that raise substantial doubt about the entity's
ability to continue as a going concern; ii) management's evaluation of the significance of those conditions or events in relation
to the entity's ability to meet its obligations; and iii) management's plans that are intended to mitigate the conditions or events
- and whether or not those plans alleviate the substantial doubt about the entity's ability to continue as a going concern. ASU
2014-15 is effective for the annual period ending after December 15, 2016, and early application is permitted.
We are currently
evaluating the impact of adopting ASU 2014-15 on our results of operations or financial condition.
In February 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement Period Adjustments (“ASU 2015-16”). This update requires that an acquirer
recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which
the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s
financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result
of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments
in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion
of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the
adjustment to the provisional amounts had been recognized as of the acquisition date
In August 2015, the FASB issued ASU No.
2015-14 (“ASU 2015-15”), an update to ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“
ASU 2014-09
”). This update provides a comprehensive new revenue recognition model that requires a company
to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it
expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update is effective for annual
and interim periods beginning after December 15, 2016, which will require us to adopt these provisions in the first quarter
of fiscal 2018. Early application is not permitted. This update permits the use of either the retrospective or cumulative
effect transition method. We are evaluating the effect this guidance will have on our consolidated financial statements and
related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our
ongoing financial reporting.
The amendments in this Update defer
the effective date of Update 2014-09 for all
entities by one year.
Public business entities, certain not-for-profit entities, and
certain
employee benefit plans should apply the guidance in Update 2014-09 to
annual reporting periods beginning after December 15, 2017, including interim
reporting periods within that reporting period. Earlier application is permitted only
as of annual reporting periods beginning after December 15, 2016, including
interim reporting periods within that reporting period.
All other entities should apply the guidance
in Update 2014-09 to annual reporting
periods beginning after December
15, 2018, and interim reporting periods within
annual reporting
periods beginning after December 15, 2019. All other entities may
apply
the guidance in Update 2014-09 earlier as of an annual reporting period
beginning after December 15, 2016, including interim reporting periods within that
reporting period. All other entities also may apply the guidance in Update 2014-09earlier as of an annual reporting period
beginning after December 15, 2016, and
interim reporting periods
within annual reporting periods beginning one year after
the annual
reporting period in which the entity first applies the guidance in Update2014-09.
NOTE 3 - RESTRICTED CASH
The Company is required to maintain certain
deposits with the bank that provide mortgage loans to the Company. As of December 31, 2014, the Company held cash deposits of $1,426,471
(2013: $1,432,838) as security for its short term borrowings (see Note 11) and cash deposits of $109,422 (2013: $246,895) as guarantee
to the banks which provides mortgage loan to individual customers of ours construction products. These balances are subject to
withdrawal restrictions and are not covered by insurance.
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 are 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 Xiemen 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.
In March
13, 2014, the Company has signed a joint development agreement with ZhongjiPufa Real Estate Co.. According to this agreement, the
Company has got the right to develop the Guangxing LuProject,which located on 182 lane Guangxinglu, Putuo distirct, Shanghai, PRC.
This project covers a site area of approximately 2,502 square meters for the development of one building of apartme
nt.
As of December 31, 2014, the real estate
property under development totaled $71,377,187 (2013: $31,644,480).
NOTE 6 - OTHER RECEIVABLES AND DEPOSITS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Advances to staff
|
|
$
|
33,609
|
|
|
|
12,444
|
|
Rental deposits
|
|
|
40,800
|
|
|
|
4,773
|
|
Prepaid expense
|
|
|
319,774
|
|
|
|
|
|
Prepaid tax
|
|
|
1,066,574
|
|
|
|
17,435
|
|
Other receivables
|
|
|
353,964
|
|
|
|
98,166
|
|
|
|
$
|
1,814,721
|
|
|
$
|
132,818
|
|
Other receivables and deposits as of December
31, 2014 are stated net of allowance for doubtful accounts of $159,590 (2013: $147,626).
NOTE 7 - PROPERTY AND EQUIPMENT
,
NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
474,199
|
|
|
$
|
244,314
|
|
Computer and office equipment
|
|
|
298,055
|
|
|
|
196,267
|
|
Motor vehicles
|
|
|
762,963
|
|
|
|
922,367
|
|
Properties
|
|
|
9,623,547
|
|
|
|
9,889,772
|
|
|
|
|
11,158,764
|
|
|
|
11,252,720
|
|
Less: Accumulated depreciation
|
|
|
(2,688,684
|
)
|
|
|
(2,136,583
|
)
|
|
|
$
|
8,470,080
|
|
|
$
|
9,116,137
|
|
During the year ended December 31, 2014,
depreciation and amortization expense for property and equipment amounted to $679,695 (2013: $671,551).
All properties as of December 31, 2014 and
2013 were pledged as collateral for the Company’s bank loans (See Note 11).
NOTE 8 - INVESTMENT PROPERTIES, NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Investment properties
|
|
$
|
10,119,435
|
|
|
$
|
10,156,117
|
|
Less: Accumulated depreciation
|
|
|
(4,418,590
|
)
|
|
|
(4,047,594
|
)
|
|
|
$
|
5,700,845
|
|
|
$
|
6,108,523
|
|
During the year ended December
31, 2014, depreciation and amortization expense for investment properties amounted to $383,964 (2013:$ 484,140).
All investment properties as of December
31,2014and 2013were pledged as collateral for the Company’s
bank
loans
(See Note 11).
NOTE 9 - INVESTMENTS IN AND AMOUNT DUE
FROM UNCONSOLIDATED AFFILIATES
The investments in unconsolidated affiliates
primarily consist of WHYYL (49%), Shanghai Daerwei (30%), SHXXY and SHXG. As of December 31, 2014, the investment amount in WHYYL
and Shanghai Daerwei were $5,218,451 and $258,039 separately. The investments of SHXXY and SHXG have been impaired to $0 as of
December 31, 2014.
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.
Shanghai Daerwei 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.
As of December 31, 2014, the carrying amount
of the Company’s investment in WHYYL was $5,218,451 (2013: $5,642,909), which included its equity in loss of WHYYL, net of
income taxes, totaling $404,077
(2013: $574.254)
for the year. The following table sets forth the financial information of WHYYL.
|
|
Years Ended December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
821,118
|
|
|
$
|
1,155,647
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
55,563,441
|
|
|
$
|
53,013,965
|
|
Non-current assets
|
|
|
902,342
|
|
|
|
794,446
|
|
Total assets
|
|
|
56,465,783
|
|
|
|
53,808,411
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
45,815,315
|
|
|
|
42,291,701
|
|
Total equity
|
|
$
|
10,650,468
|
|
|
$
|
11,526,300
|
|
As of December 31, 2014, the Company has
a balance of $ 2,695,010(2013: $3,538,939) due from WHYYL, which bears interest at a rate of 15% per annum, is unsecured and has
no fixed term of repayment. During the year ended December 31, 2014, the Company recorded interest income of $744,909 (2013: $831,619)
from WHYYL.
During the year ended December 31, 2014,
the Company provided an allowance for impairment loss on investments in unconsolidated affiliates of $0 (2013: $143,732). As of
December 31, 2014, the allowance for impairment loss on investments in unconsolidated
affiliates amounted to $236,028 (2013: $236,028).
NOTE 10 - OTHER INVESTMENTS, NET
As of December 31, 2014 and 2013, investments
accounted using the cost method consist of various companies engaging in real estate agency or property related services.
During the years ended December 31, 2014
and 2013, the Company recorded no income from other investments.
The Company provided
an allowance of impairment loss on
other investments for the year ended December 31, 2014 of
$Nil
(2013: $Nil). As of December 31, 2014, the Company’s allowance for impairment loss on other investments amounted to $78,444
(2013: $78,729).
NOTE 11 - BANK LOANS
In January 2013, the Company obtained three
bank loans with an aggregate principal amount of $1,307,403 (RMB8,000,000) from Bank of China. The borrowings under these agreements
have 1-year term, bearing interest at a rate of 7.5% per annum, and are secured by the properties of two unrelated parties and
personally guaranteed by Lin Chi-Jung, the Company’s CEO, President and Chairman, and his wife. In January 2014, the Company
renewed and extended the maturity of these loans for a 1-year period by entering into two new loan agreements with Bank of China
under the same terms of the previous three loan agreements. As of December 31,2014 and December 31,2013, the total outstanding
balance of these loans was $1,307,403 and $1,312,143.
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 $5,850,629 (RMB35,800,000) as of
December 31
,
2014. The borrowings under this facility bear interest at a rate per annum equal to 125% 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 six months ended
September 30
, 2014 was 7.6875% per annum. The credit facility
is secured by all of the Company’s properties included in property and equipment (see Note 7), guaranteed by a director of
the Company, and matures on March 31, 2015. As of December 31, 2014 and December 31, 2013, the Company had outstanding loan balances
of $ 4,984,475 and $5,002,543, 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 $ 12,256,905 (RMB75,000,000) as of
December 31
,
2014. The borrowings under this facility bear interest at a rate per annum equal to 125% of the prevailing base lending rate for
periods ranging from 1 year to 3 years as announced by PBOC. The average interest rate December 31, 2014 was 7.6875% per annum.
The facility of credit is secured by all of the Company’s investment properties (see Note 8) and guaranteed by a director
of the Company, and matures on March 31, 2015. Borrowings under this facility are renewable for an additional period not longer
than 36 months and are due not later than March 31, 2015. As of
December 31
, 2014 and December
31, 2013, the Company had outstanding loan balances of $12,256,905 (RMB75,000,000) and $12,301,332 (RMB75,000,000), respectively,
under this facility line of credit.
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 $13,396,206
and $4,811,670 as of December 31, 2014 and December 31, 2013, respectively.
The promissory note with an outstanding
principal of $1,877,729 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 had no fixed term of repayment. As of December
31, 2014 and December 31, 2013, the outstanding principal in default and the unpaid interest related to this promissory note amounted
to $1,877,729 and $2,308,974, respectively. The Company is currently making payments towards this loan.
The promissory note with a principal as
of December 31, 2014 amounting to $817,127 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment.
As of December 31, 2014 and December 31, 2013, the outstanding principal and unpaid interest related to this promissory note amounted
to $817,127 and $869,294, respectively.
The promissory note with a principal as
of December 31, 2014 amounts to $817,127bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment.
As of December 31, 2014 and December 31, 2013, the outstanding principal and unpaid interest related to this promissory note amounted
to $817,127 and $820,089, respectively.
The promissory note with a principal as
of December 31, 2014 amounts to $163,425 bears interest at a rate of 15.75% per annum, is unsecured and has no fixed term of repayment.
As of December 31, 2014 and December 31, 2013, the outstanding principal and unpaid interest related to this promissory note amounted
to $175,223 and $167,247, respectively.
The
promissory note with a principal of $1,634,254 as of December 31, 2014 bears interest at the rate of 20% per annum, is
unsecured and has no fixed term of repayment. As of December 31, 2014, the outstanding principal and unp
aid interest
related to this promissory note amounted to $1,893,465.
The promissory
note with a principal of $4,902,762 as of
December
31, 2014 bears interest at the rate of
26.7% per annum, is unsecured and has no fixed term of repayment. As of December 31, 2014, the outstanding principal and unpaid
interest related to this promissory note amounted to $5,890,701.
The
promissory note with a principal of $163,425 as of
December
31, 2014 bears interest at
the rate of 20% per annum, is unsecured and has no fixed term of repayment. As of December 31, 2014, the outstanding
principal and unpaid interest related to this promissory note amounted to $188,212.
The promissory
note with a principal of $817,127 as of
December
31, 2014 bears interest at the rate of 15%
per annum, is unsecured and has no fixed term of repayment. As of December 31, 2014, the outstanding principal and unpaid interest
related to this promissory note amounted to $892,030.
The
promissory note with a principal of $457,591 as of
December
31, 2014 bears interest at
the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of December 31, 2014, the outstanding
principal and unpaid interest related to this promissory note amounted to $522,093.
The promissory note with a principal of
$300,000 as of December 31, 2014 bears interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment.
As of December 31, 2014
and December 31, 2013, the outstanding
principal and unpaid interest related to this promissory note amounted to $322,500 and $300,000, respectively..
At December 31, 2013, the outstanding principal
and unpaid interest related to this promissory note amounted to $346,066,
which has been paid in 2014.
During the year ended December 31, 2014,
the interest expense related to these promissory notes was $1,998,862 (2013: $813,626).
NOTE 13 – AMOUNTS DUE TO DIRECTORS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Lin Chi-Jung
|
|
$
|
10,073,426
|
|
|
$
|
10,866,943
|
|
Lin Chao-Chin
|
|
|
23,027
|
|
|
|
18,224
|
|
Lin Hsin-Hung
|
|
|
32,794
|
|
|
|
23,110
|
|
|
|
$
|
10,129,247
|
|
|
$
|
10,908,277
|
|
|
(a)
|
The balance due to Lin Chi-Jung, the Company’s CEO, President and Chairman, consists of a
balance of unpaid salaries and reimbursements totaling $44,416 (2013:$90,633) and advances together with unpaid interest totaling
$10,029,010 (2013: $10,776,310).
|
The balance of unpaid salaries
and reimbursements is unsecured, interest-free and has no fixed term of repayment.
The advances from Lin Chi-Jung
bear interest at rates ranging from 9.6% to 36.5% per annum. During the year ended December 31, 2014, the interest expense related
to these advances amounted to $1,763,546 (2013: $2,024,041). Included in the outstanding amounts with Lin Chi-Jung are advances
of $ 2,451,381 that are currently in default.
|
(b)
|
The balances due to Lin Chao-Chin and Lin Hsin-Hung are unsecured, interest-free and have no fixed
term of repayment.
|
NOTE 14 – ACCOUNTS PAYABLE
As of December 31, 2014 and 2013, the balances
of accounts payable were $10,531,908 and $5,665,811, respectively. The balance of accounts payable as of December 31, 2014 included
unpaid development fee of Linyi project of $7,270,855. The other balance was due to agents of operating business.
NOTE 15 - CUSTOMER DEPOSITS
Customer deposits consisted the sales from
real estate development project (Linyi project) which cannot recognized as revenue at the accounting period and deposits received
for rental.
Linyi project has started pre-sales in
November 2013, as of December 31, 2014, the pre-sales amounted to $12,306,707.
NOTE
16- AMOUNT DUE TO AN AFFILIATE
In August 2014, the company obtained a
entrusted bank loan of $16,342,540 (RMB100,000,000) from China Everbright Bank bearing interest at a rate of 14% per annum. The
loan is specific for the real estate development of Guxing Lu Project. The loan capital is come from Jiaxing Shangyang, a limited
partnership created by the Company and Chongqing Nongxin Investment Co., Ltd. The accrued interest expense of this entrusted loan
is $ 915,182 at the end of December 31, 2014.
There are other amount due to affiliates
include due to Jiaxing Shangyang, XG and SHXXY, with amount
of $114,398, $20,264 and $4,563, respectively.
NOTE 17- OTHER PAYABLES AND ACCRUED
EXPENSES
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Accrued staff commission and bonus
|
|
$
|
532,411
|
|
|
$
|
675,138
|
|
Rental deposits received
|
|
|
374,680
|
|
|
|
447,260
|
|
Other payables
|
|
|
217,777
|
|
|
|
287,606
|
)
|
Dividends payable to non-controlling interest
|
|
|
290,188
|
|
|
|
|
|
|
|
$
|
1,415,056
|
|
|
$
|
1,410,004
|
|
Other payables are advances from unrelated
parties are unsecured, interest-free and have no fixed term of repayment.
NOTE 18 - INCOME TAXES PAYABLE
SRRE, CY-SRRE and LRY do not generate any
income and therefore are not subject to income taxes in the U.S., the British Virgin Islands or the Cayman Islands. The Company
conducts substantially all of its business through its PRC operating subsidiaries and they are subject to PRC income taxes. The
Company’s subsidiaries in the PRC are subject to the standard 25% tax rate in the years ended December 31, 2014 and 2013.
Income tax benefit consists of
|
|
Years Ended December 31,
|
|
|
|
2014
|
|
|
2013
|
|
PRC
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
$
|
47,711
|
|
|
$
|
349,295
|
|
Deferred tax benefit
|
|
|
(17,129
|
)
|
|
|
0
|
|
Total income tax benefit
|
|
$
|
30,583
|
|
|
$
|
349,295
|
|
Income taxes represent current PRC income
taxes, which are calculated at the applicable statutory income tax rate on the assessable income for the years ended December 31,
2014 and 2013. A reconciliation of the provision for income taxes, with amounts determined by applying the PRC statutory income
tax rate to loss before income taxes, is as follows:
|
|
Years Ended December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Provision for income tax benefit at PRC statutory tax rate of 25%
|
|
$
|
44,194
|
|
|
$
|
(18,878
|
)
|
Permanent differences
|
|
|
(14,116
|
)
|
|
|
12,428
|
|
Under (Over)-provision for income taxes in prior years
|
|
|
505
|
|
|
|
206,343
|
|
Change in valuation allowance
|
|
|
|
|
|
|
149,403
|
|
Total income tax benefit
|
|
$
|
30,583
|
|
|
$
|
349,295
|
|
In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible or are utilized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon an
assessment of the level of historical taxable income and projections for future taxable income over the periods in which the deferred
tax assets are tested whether they are deductible or can be utilized, the Company recorded the deferred tax assets resulting from
net operating loss carryforwards of $17,129 as of December 31, 2014 (2013: $Nil).
The Company adopted ASC 740-10-25 Accounting
for Uncertainty in Income Taxes and such adoption did not have any material impact on the accompanying consolidated financial statements.
The Company is subject to income taxes in the PRC. Tax regulations are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely
than not ultimately settled at the full amount claimed. The Company’s tax filings are subject to the PRC tax bureau’s
examination for a period up to 5 years. The Company is not currently under any examination by the PRC tax bureau.
NOTE 19– 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 $11,439,778 (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
year ended December 31, 2014, total loan interest was approximately $2,372,564, 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 $45,030,368 as of December 31, 2014. 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, which will be made payments after application and approval procedure. As of December
31, 2014, the cash restricted in relation to the borrowings from China CITIC Bank was $Nil (2013: $246,895).On May 2014, the Company
paid $4,575,911 (RMB28,000,000) to the bank. As of December 31, 2014, the Company had outstanding loan balance of $6,863,866 (RMB42,000,000)
under this facility line of credit.
On December 16, 2014, the Company entered
into a project finance loan agreement with HUAXIA 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 $19,611,047(RMB120,000,000) at an interest rate of 7.025%
per annum. At the end of December 31, 2014, there are $8,171,270 (RMB50,000,000) draw down from this loan facility.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Outstanding borrowings
|
|
$
|
15,062,230
|
|
|
$
|
11,481,245
|
|
Less: Current portion of long term borrowings
|
|
|
6,890,960
|
|
|
|
4,592,498
|
|
|
|
$
|
8,171,270
|
|
|
$
|
6,888, 747
|
|
NOTE 20- DEFERRED GOVERNEMNET SUBSIDY
Deferred government subsidy consists of
the cash subsidy provided by the local government.
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 Company has received refundable government
subsidy of $5,421,706 as of December 31, 2014. 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.
NOTE 21- STATUTORY RESERVE
According to the relevant corporation laws
in the PRC, a PRC company is required to transfer at least 10% of its profit after taxes, as determined under accounting principles
generally accepted in the PRC, to the statutory reserve until the balance reaches 50% of its registered capital. The statutory
reserve can be used to make good on losses or to increase the capital of the relevant company.
According to the Law of the PRC on Enterprises
with Wholly-Owned Foreign Investment, the Company PRC’s subsidiaries are required to make appropriations from after-tax profits
as determined under accounting principles generally accepted in the PRC (“
PRC GAAP
”) 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 December 31, 2014, the
Company’s statutory reserve fund was $812,582 (2013: $812,467).
NOTE 22- 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 year ended December 31, 2014 were $50,265 (2013: $254,559).
As of December 31, 2014, the Company had
the following operating lease obligations falling due.
|
|
Amount
|
|
Year Ending
|
|
|
|
|
2015
|
|
$
|
11,299
|
|
2016
|
|
|
-
|
|
2017
|
|
|
-
|
|
|
|
$
|
11,299
|
|
NOTE 23- 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.
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:
|
|
Year Ended December 31, 2014
|
|
|
Property
|
|
|
|
|
|
|
|
|
Brokerage
|
|
Real Estate
|
|
|
|
|
|
|
Services
|
|
Development
|
|
Corporate
|
|
Total
|
Net revenues
|
|
$
|
8,611,639
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,611,639
|
|
Cost of revenues
|
|
|
(4,350,690
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,350,690
|
)
|
Gross income
|
|
|
4,260,949
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,260,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(1,221,856
|
)
|
|
|
(693,897
|
)
|
|
|
-
|
|
|
|
(1,915,753
|
)
|
General and administrative expenses
|
|
|
(2,845,692
|
)
|
|
|
(1,529,493
|
)
|
|
|
(212,343
|
)
|
|
|
(4,587,529
|
)
|
Operating income (loss)
|
|
|
193,400
|
|
|
|
(2,223,390
|
)
|
|
|
(212,343
|
)
|
|
|
(2,242,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
509,079
|
|
|
|
343,985
|
|
|
|
-
|
|
|
|
853,055
|
|
Interest expense
|
|
|
(3,356,238
|
)
|
|
|
-
|
|
|
|
(45,000
|
)
|
|
|
(3,401,238
|
)
|
Miscellaneous
|
|
|
51,712
|
|
|
|
,2,255
|
|
|
|
-
|
|
|
|
53,967
|
|
Equity in net loss of unconsolidated affiliates
|
|
|
(99,969
|
)
|
|
|
(402,348
|
)
|
|
|
57,037
|
|
|
|
(445,280
|
)
|
Total other (expenses) income
|
|
|
(2,895,425
|
)
|
|
|
(56,109
|
)
|
|
|
12,307
|
|
|
|
(2,939,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,702,025
|
)
|
|
|
(2,279,499
|
)
|
|
|
(200,305
|
)
|
|
|
(5,181,829
|
)
|
Income tax (expense) benefit
|
|
|
(40,518
|
)
|
|
|
15,639
|
|
|
|
(5,704
|
)
|
|
|
(30,583
|
)
|
Net income(loss)
|
|
$
|
(2,742,543
|
)
|
|
$
|
(2,263,860
|
)
|
|
$
|
(206,009
|
)
|
|
$
|
(5,212,412
|
)
|
|
|
Year ended December 31, 2013
|
|
|
Property
|
|
|
|
|
|
|
|
|
Brokerage
|
|
Real Estate
|
|
|
|
|
|
|
Services
|
|
Development
|
|
Corporate
|
|
Total
|
Net revenues
|
|
$
|
11,240,190
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,240,190
|
|
Cost of revenues
|
|
|
(4,412,118
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,412,118
|
)
|
Gross income
|
|
|
6,828,072
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,828,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(1,343,398
|
)
|
|
|
(1,049,597
|
)
|
|
|
-
|
|
|
|
(2,392,995
|
)
|
General and administrative expenses
|
|
|
(2,725,323
|
)
|
|
|
(4,341,357
|
)
|
|
|
(545,012
|
)
|
|
|
(7,611,693
|
)
|
Operating loss
|
|
|
2,759,350
|
|
|
|
(5,390,954
|
)
|
|
|
(545,012
|
)
|
|
|
(3,176,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
882,584
|
|
|
|
232,307
|
|
|
|
16
|
|
|
|
1,114,907
|
|
Interest expense
|
|
|
(3,808,133
|
)
|
|
|
-
|
|
|
|
(80,604
|
)
|
|
|
(3,888,737
|
)
|
Miscellaneous
|
|
|
305,944
|
|
|
|
(2,972
|
)
|
|
|
-
|
|
|
|
302,972
|
|
Equity in net loss of an unconsolidated affiliate
|
|
|
(3,751
|
)
|
|
|
(566,267
|
)
|
|
|
(143,732
|
)
|
|
|
(746,749
|
)
|
Total other (expenses) income
|
|
|
(2,656,356
|
)
|
|
|
(336,932
|
)
|
|
|
(224,320
|
)
|
|
|
(3,217,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net loss of an unconsolidated affiliate
|
|
|
(102,994
|
)
|
|
|
(5,727,886
|
)
|
|
|
(769,332
|
)
|
|
|
(6,394,223
|
)
|
Income tax (expense) benefit
|
|
|
(156,777
|
)
|
|
|
(192,518
|
)
|
|
|
-
|
|
|
|
(349,296
|
)
|
Net loss
|
|
$
|
(53,783
|
)
|
|
$
|
(5,920,404
|
)
|
|
$
|
(769,332
|
)
|
|
$
|
(6,743,519
|
)
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Corporate
|
|
|
Total
|
|
As of December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
71,377,187
|
|
|
$
|
-
|
|
|
$
|
77,377,187
|
|
Total assets
|
|
|
25,376,692
|
|
|
|
75,908,713
|
|
|
|
53,305
|
|
|
|
101,338,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
31,644,480
|
|
|
$
|
-
|
|
|
$
|
31,644,480
|
|
Total assets
|
|
|
24,122,374
|
|
|
|
38,260,574
|
|
|
|
13,090
|
|
|
|
62,396,039
|
|
NOTE 24- ERROR CORRECTION
There were error corrections made in the
2013 financial statements. These corrections were made from updated information and impairments made for the year ended December
31, 2013.
The following summarizes the above error
corrections.
|
|
Previously
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
61,698,318
|
|
|
|
697,721
|
|
|
|
62,396,039
|
|
Total Liabilities
|
|
|
58,095,126
|
|
|
|
5,412,573
|
|
|
|
63,507,699
|
|
Total liabilities and shareholders’ deficit
|
|
|
(8,856,248
|
)
|
|
|
(1,372,896
|
)
|
|
|
(10,229,144
|
)
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
|
12,763,447
|
|
|
|
(1,523,257
|
)
|
|
|
11,240,190
|
|
Net Loss
|
|
|
(1,931,311
|
)
|
|
|
(5,357,281
|
)
|
|
|
(7,288,592
|
)
|
Loss Per Share – Basic and Fully Diluted
|
|
|
(0.04
|
)
|
|
|
(0.06
|
)
|
|
|
(0.1
|
)
|
Weighted average common shares outstanding – Basic and Fully Diluted
|
|
|
28,691,925
|
|
|
|
|
|
|
|
28,691,925
|
|
NOTE 25 –SUBSEQUENT EVENTS
On March 13, 2015, our Board
of Directors engaged Kenne Ruan, CPA, P.C. (“Kenne Ruan”) as the Registrant’s certifying accountant to audit
the registrant's financial statements, replacing its former certifying accountant, Finesse CPA, P.C. (“Finesse”).
Upon receipt of the notice that the Registrant’s acceptance of the proposal from Kenne Ruan to audit its consolidated financial
statements for the fiscal year ending December 31, 2014, Finesse resigned as the Registrant’s certifying accountant on March
13, 2015.