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, 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 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 GaoFengHui 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 GaoFengHui 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
|
%
|
|
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
|
Shanghai
XinJi Yang Real Estate Brokerage Company Limited (“SHXJYB”)
|
|
January 28, 2013
|
|
PRC
|
|
|
75
|
%
3
|
|
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 (“SHXG”)
|
|
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 HuiTian (“SHHT”)
|
|
July 25, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shanghai Tian Xi (“SHSYTX”)
|
|
August 19, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shenzhen HuiTian (“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 (SZSYHT)
|
|
January 14, 2015
|
|
PRC
|
|
|
75
|
%
|
|
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.
|
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 SystemsTech, 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 August 2014, the whole equity interest in LYRL was transferred to SHRJ.
On December 17, 2012, LRY together with two corporate investors
established a company, namely SHXG, in the PRC to provide investment management and consulting services. LRY holds 49% equity interest
SHXG. SHXG has not commenced its operations.
On June 6, 2013, SHSY and LYRL together with 4 investors established
a company, namely Shanghai Daerwei, in the PRC focusing on the cosmetics and skincare business. SHSY holds 19% and LYRL holds 11%
equity interest of Shanghai Daerwei. The business as of end of December 31, 2015 had a revenue of $23,121,492.
On July 25, August 19 and October 15, 2014, the Company established
three investment holding company separately, namely SHHT, SHSYTX and SZSYHT. These three company were 100% subsidiary to the Company
and have not commenced its operations.
On January 2015, SHHT together with another corporate investor
established a company, namely Suzhou Shangyang Huitian Wealth Investment Management Co,. Ltd (SZSYHT). SHHT holds 75% equity interest
of SZSYHT. The company is focused on wealth management.
On January 2015, SHSY and SHSYTX together with another corporate
investor established a company, namely Chongqing Nongxin Shangyang Equity Investment Fund Management Co., Ltd (CQNXSY). SHSY holds
33% and SHSYTX holds 32% equity interest of CQNXSY. The company is focused on fund management.
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, 2015, 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, 2015, there
were three customers that accounted for 18%, 11% and 11% of our net revenues separately, and there are $0, $611,438 and $0 accounts
receivable from these three customers separately as of December 31, 2015.
During the year ended December 31, 2014, there
was 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 customer as of December 31, 2014.
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, 2015
and December 31, 2014 are $1: RMB6.4936 and $1: RMB6.1190 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, and 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, 2015 and 2014,
the Company had not 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, .2015 and 2014
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.
During the year ended December 31, 2015, the
Company provided an allowance for impairment loss on investments in unconsolidated affiliates of $ 1,004,792 (2014: $0). As of
December 31, 2015, the allowance for impairment loss on investments in unconsolidated affiliates amounted to $ 1,240,819 (2014:
$236,028).
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, 2015, the
Company provided an allowance for impairment loss on other investments of $Nil (2014: $Nil). As of December 31, 2015, the allowance
for impairment loss on other investments amounted to $76,922 (2014: $78,444).
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 $5,108,941 (RMB33,175,416). The subsidy is given to reimburse the land acquisition
costs and certain construction cost 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, 2015, the Company’s deferred government subsidy amounted to
$5,108,941(2014: $5,421,706).
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.
The Company accounts for real estate development sales in accordance
with the ASC 976-605, “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No.
66) (“ASC 976-605”). A real estate development sale is recognized by the percentage-of-completion method on the sale
of individual units when the individual unit sites are being sold separately and all the following criteria are met as below:
a. Construction is beyond a preliminary stage.
b. The buyer is committed to the extent of being unable to require
a refund except for no delivery of the unit.
c. Sufficient units have already been sold to assure that the entire
property will not revert to rental property.
d. Sales prices are collectible.
e. Aggregate sales proceeds and costs can be reasonably estimated.
If any of the above criteria is not met, proceeds
shall be accounted for as deposits until the criteria are met.
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, 2015
and 2014 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, 2015 and 2014.
New Accounting Pronouncements
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
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 2014-09 earlier 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 Update 2014-09.
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, 2015, the Company held cash deposits of $NIL (2014:
$1,426,471) as security for its short term borrowings (see Note 11) and cash deposits of $143,590 (2014: $109,422) as guarantee
to the banks which provides mortgage loan to individual customers of ours construction products. . These balances are subject to
withdrawal restrictions and were not covered by insurance.
NOTE 4 - PROMISSORY DEPOSITS
Promissory deposits were 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 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 had signed a joint development agreement with ZhongjiPufa Real Estate Co. According to this agreement, the Company
has got the right to develop the GuangxingLu Project, 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, 2015, the real estate property
under development totaled $77,777,167 (2014: $71,377,187).
NOTE 6 - OTHER RECEIVABLES AND DEPOSITS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Advances to staff
|
|
$
|
13,274
|
|
|
|
33,609
|
|
Rental deposits
|
|
|
32,709
|
|
|
|
40,800
|
|
Prepaid expense
|
|
|
38,692
|
|
|
|
319,774
|
|
Prepaid tax
|
|
|
1,427,812
|
|
|
|
1,066,574
|
|
Other receivables
|
|
|
502,820
|
|
|
|
353,964
|
|
|
|
$
|
2,015,307
|
|
|
$
|
1,814,721
|
|
Other receivables and deposits as of December
31, 2015 are stated net of allowance for doubtful accounts of $283,505 (2014: $159,590).
NOTE 7 - PROPERTY AND EQUIPMENT
,
NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
362,584
|
|
|
$
|
474,199
|
|
Computer and office equipment
|
|
|
326,762
|
|
|
|
298,055
|
|
Motor vehicles
|
|
|
718,007
|
|
|
|
761,963
|
|
Properties
|
|
|
9,280,235
|
|
|
|
9,622,547
|
|
|
|
|
10,687,588
|
|
|
|
11,156,764
|
|
Less: Accumulated depreciation
|
|
|
3,151,430
|
|
|
|
2,688,684
|
|
|
|
$
|
7,536,158
|
|
|
$
|
8,470,080
|
|
During the year ended December 31, 2015, depreciation
and amortization expense for property and equipment amounted to $462,746
All properties as of December 31, 2015 and
2014 were pledged as collateral for the Company’s bank loans (See Note 11).
NOTE 8 - INVESTMENT PROPERTIES, NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Investment properties
|
|
$
|
9,535,669
|
|
|
$
|
10,119,435
|
|
Less: Accumulated depreciation
|
|
|
(4,527,060
|
)
|
|
|
(4,418,590
|
)
|
|
|
$
|
5,008,609
|
|
|
$
|
5,700,845
|
|
During the year ended December 31,
2015, depreciation and amortization expense for investment properties amounted to $378,131.
All investment properties as of December 31,
2015 and 2014 were 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%),
SHDEW (30%). As of December 31, 2015, the investment amount in WHYYL and SHDEW were $4,028,274 and $3,534,546 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 December 31, 2015 the
investment in WHYYL was $4,028,274, which included its equity in loss of WHYYL, net of income taxes, totaling $1,881,281 as of
December 31, 2015. The following table sets forth the financial information of WHYYL.
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(1,888,281
|
)
|
|
$
|
(821,118
|
)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Current assets
|
|
$
|
66,345,953
|
|
|
$
|
55,563,441
|
|
Non-current assets
|
|
|
1,208,224
|
|
|
|
902,342
|
|
Total assets
|
|
|
67,554,177
|
|
|
|
56,465,783
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
59,332,675
|
|
|
|
45,815,315
|
|
Total equity
|
|
$
|
8,221,503
|
|
|
$
|
10,650,468
|
|
As of December 31, 2015, the Company has a
balance of $2,508,251 (2014: $2,695,010) due from WHYYL, which bears interest at a rate of 15% per annum, is unsecured and has
no fixed term of repayment. According to the agreement with WHYYL, the balance was no longer charged interest from September 1,
2014. During the year ended December 31, 2015, the Company recorded interest income of $NIL (2014: $744,909) from WHYYL.
SHDEW was established in June, 2013 with its
business as a skincare and cosmetic company. The company has made progress in its operation. Its We chat store has a membership
of over a million members. It is developing its own skincare products as well as solidifying its position in the ecommerce platform.
As of December 31, 2015, the net profit for
SHDEW was $7,715,146 with total equity in the amount of $11,780,768.
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Revenues
|
|
$
|
30,559,569
|
|
|
$
|
2,062,232
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
7,715,146
|
|
|
$
|
(860,154
|
)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Current assets
|
|
$
|
20,580,634
|
|
|
$
|
4,889,362
|
|
Non-current assets
|
|
|
174,964
|
|
|
|
609,053
|
|
Total assets
|
|
|
20,755,599
|
|
|
|
5,498,415
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
8,974,831
|
|
|
|
122,103
|
|
Total equity
|
|
$
|
11,780,768
|
|
|
$
|
5,376,312
|
|
NOTE 10 - OTHER INVESTMENTS, NET
As of December 31, 2015 and 2014, 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, 2015 and
2014, 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, 2015 of $Nil (2014: $Nil). As of December 31, 2015, the Company’s allowance for impairment
loss on other investments amounted to $76,922 (2014: $78,444).
NOTE 11 - 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 December 31, 2015 and December 31, 2014, the outstanding balance of this loan was $923,987 (RMB6,000,000) 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 $ 5,850,629 (RMB35,800,000) as of December 31, 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 twelve months
ended December 31,, 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 7), 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. In December 2015, a repayment of $5,513,120
(RMB35,800,000) was made to finish this borrowing. As of December 31, 2015 and December 31, 2014, the Company had outstanding
loan balances of $NIL and $4,984,475, 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, 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 twelve months ended December 31, 2015 was 7. 5% 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. In March 2015, this facility was extended for 1-year period matured on March
31, 2016. As of December 31, 2015 and December 31, 2014, the Company had outstanding loan balances of $7,726,038
(RMB50,169,802) and $12,256,905 (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 $8,123,596 and $13,396,206 as of December
31, 2015 and December 31, 2014, respectively.
The
promissory note with an outstanding principal of $1,461,412 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 December 31, 2015 and December 31, 2014, the outstanding principal in default and the unpaid interest related to this promissory
note amounted to $1,461,412 and
$1,877,729,
respectively. The Company is currently making payments
towards this loan.
The
promissory note with a principal as of December 31, 2015 amounting to $769,989 bears interest at a rate of 0% per annum, is unsecured
and has no fixed term of repayment.
As of December 31, 2015
and
December 31, 2014
, the outstanding principal and unpaid interest related to this promissory note amounted to $769,989 and
$817,127
,
respectively.
The
promissory note with a principal as of December 31, 2015 amounts to $769,989 bears interest at a rate of 0% per annum, is
unsecured and has no fixed term of repayment. As of December 31, 2015 and December 31, 2014, the outstanding principal and
unpaid interest related to this promissory note amounted to $769,989 and $817,127
,
respectively.
The promissory note with a principal as of
December 31, 2015 amounts to $153,998 bears interest at a rate of 15.75% per annum, is unsecured and has no fixed term of repayment.
As of December 31, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted
to $167,136 and $175,223, respectively.
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. The promissory note has been paid with the principal of $2,309,967 in the year 2015. As of December 31, 2015, the
outstanding principal and unpaid interest related to this promissory note amounted to $3,900,442.
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. The promissory note has been paid in 2015 and another promissory note with the principal of $153,998 was made in
December 2015. As of December 31, 2015, the outstanding principal and unpaid interest related to this promissory note
amounted to $153,998.
The
promissory note with a principal of $431,194 as of Dec
ember
31, 2015 bears interest at
the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of December 31, 2015, the outstanding
principal and unpaid interest related to this promissory note amounted to $556,653.
The promissory note with a principal of $300,000
as of December 31, 2015 bears interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment. As of December
31, 2015 and December 31, 2014, the outstanding principal and unpaid interest related to this promissory note amounted to $343,976
and $322,500 respectively.
The promissory note with a principal of $1,539,978
as of December 31, 2014 bears interest at the rate of 20% per annum, which has been paid in 2015.
The promissory note with a principal of
$163,425 as of December 31, 2014 bears interest at the rate of 20% per annum, which has been paid in 2015.
During the year ended December 31, 2015, the
interest expense related to these promissory notes was $2,049,357 (2014: $1,998,862).
NOTE 13 – AMOUNTS DUE TO DIRECTORS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Lin Chi-Jung
|
|
$
|
10,908,905
|
|
|
$
|
10,073,426
|
|
Lin Chao-Chin
|
|
|
-
|
|
|
|
23,027
|
|
Lin Hsin-Hung
|
|
|
71,649
|
|
|
|
32,794
|
|
|
|
$
|
10,980,554
|
|
|
$
|
10,129,246
|
|
|
(a)
|
The balance due to Lin Chi-Jung, the Company’s CEO, President and Chairman, consisted of a balance
of unpaid salaries and reimbursements totaling $69,487
(2014:
$44,416) and advances together with unpaid interest totaling $10,839,418 (2014: $10,029,010).
|
The balance of unpaid salaries and
reimbursements was unsecured, interest-free and has no fixed term of repayment.
The advances from Lin Chi-Jung bear
interest at rates ranging from 18% to 30% per annum. During the year ended December 31, 2015, the interest expense related to these
advances amounted to $2,866,000 (2014: $1,763,546). Included in the outstanding amounts with Lin Chi-Jung were advances of $ 7,973,418
that was currently in default.
|
(b)
|
The balances due to Lin Chao-Chin and Lin Hsin-Hung was unsecured, interest-free and have no fixed
term of repayment.
|
NOTE 14 – ACCOUNTS PAYABLE
As of December 31, 2015 and 2014, the balances
of accounts payable were $7,467,199 and $10,531,908 respectively. The balance of accounts payable as of December 31, 2015 included
unpaid development fee of Linyi project of $5,461,169 and Guangxinlu project of 1,081,544. 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 be 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, 2015, the pre-sales amounted to $17,928,278.
Note 16- AMOUNT DUE TO AN AFFILIATE
In
August 2014, the company obtained a entrusted bank loan of
$15,399,778
(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
Guxinglu 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 $2,243,554 at the end of December 31, 2015.
The Company has temporary borrowings temporary
borrowings without interest from SHDEW, an affiliate company, As of December 31, 2015, the amount of borrowings was $16,773,763.
There are other amount due to affiliates include
due to Jiaxing Shangyang and SHXG, with amount of $107,798 and $19,096., respectively.
NOTE 17- OTHER PAYABLES AND ACCRUED EXPENSES
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Accrued staff commission and bonus
|
|
$
|
531,856
|
|
|
$
|
532,411
|
|
Rental deposits received
|
|
|
319,641
|
|
|
|
374,680
|
|
Rental receipts in advance
|
|
|
4,620
|
|
|
|
-
|
|
Accrued expenses
|
|
|
-
|
|
|
|
-
|
|
Other payables
|
|
|
367,372
|
|
|
|
217,777
|
|
Dividends payable to non-controlling interest
|
|
|
273,447
|
|
|
|
290,188
|
|
|
|
$
|
1,496,936
|
|
|
$
|
1,415,056
|
|
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, 2015 and 2014.
Income tax benefit consists of
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
PRC
|
|
|
|
Provision for income tax
|
|
$
|
-
|
|
|
$
|
47,711
|
|
Deferred tax benefit
|
|
|
(132,984
|
)
|
|
|
(17,129
|
)
|
Total income tax benefit
|
|
$
|
(132,984
|
)
|
|
$
|
30,583
|
|
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, 2015
and 2014. 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,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Provision for income tax benefit at PRC statutory tax rate of 25%
|
|
$
|
(121,736
|
)
|
|
$
|
44,194
|
|
Permanent differences
|
|
|
(9,279
|
)
|
|
|
(14,116
|
)
|
Under (Over)-provision for income taxes in prior years
|
|
|
(1,969
|
)
|
|
|
505
|
|
Change in valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Total income tax benefit
|
|
$
|
(132,984
|
)
|
|
$
|
30,583
|
|
In assessing the reliability 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 carry forwards of $132,984 as of December 31, 2015 (2014: $17,129).
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 $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 year ended December 31, 2015, total loan interest was approximately
$393,455, 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 $40,871,913 as of December 31, 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. On May 2015, the loan was extended for a 1-year period matured in May 16, 2016.
On December 2015, the Company paid $6,159,911 (RMB40,000,000) to the bank. As of December 31, 2015, the Company had outstanding
loan balance of $4,619,933 (RMB30,000,000) 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 $18,479,734 (RMB120,000,000) at an interest rate of
7.025% per annum. At the end of December 31, 2015, there are $18,479,734 (RMB120,000,000) draw down from this loan facility.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Outstanding borrowings
|
|
$
|
23,099,667
|
|
|
$
|
15,062,960
|
|
Less: Current portion of long term borrowings
|
|
|
4,619,933
|
|
|
|
6,890,960
|
|
|
|
$
|
18,479,734
|
|
|
$
|
8,171,270
|
|
NOTE 20- DEFERRED GOVERNMENT 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 $
5,108,941
as of December 31, 2015. 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, 2015, the Company’s
statutory reserve fund was $851,729 (2014: 812,582).
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, 2015 were $398,451 (2014: $50,265).
As of December 31, 2015, the Company had the
following operating lease obligations falling due.
|
|
Amount
|
|
Year Ending
|
|
|
|
2016
|
|
$
|
110,732
|
|
2017
|
|
|
37,232
|
|
2018
|
|
|
-
|
|
|
|
$
|
147,964
|
|
NOTE 23- RELATED-PARTY TRANSACTION
During the year ended in December 31, 2015,
the related-party transaction accrued net revenues from SHDEW was $796,081, net revenues and interest income from WHYYL was $373,747
and interest expense to JXSY was $2,243,554.
NOTE 24- 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, 2015
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Corporate
|
|
|
Total
|
|
Net revenues
|
|
$
|
4,763,774
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,763,774
|
|
Cost of revenues
|
|
|
(2,811,134
|
)
|
|
|
-
|
|
|
|
(84,988
|
)
|
|
|
(2,896,123
|
)
|
Gross income
|
|
|
1,952,640
|
|
|
|
-
|
|
|
|
(84,988
|
)
|
|
|
1,867,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(857,807
|
)
|
|
|
(881,993
|
)
|
|
|
(68,083
|
)
|
|
|
(1,807,883
|
)
|
General and administrative expenses
|
|
|
(2,467,254
|
)
|
|
|
(1,078,102
|
)
|
|
|
(242,189
|
)
|
|
|
(3,787,544
|
)
|
Operating loss
|
|
|
(1,372,420
|
)
|
|
|
(1,960,095
|
)
|
|
|
(395,260
|
)
|
|
|
(3,727,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
130,650
|
|
|
|
1,718-
|
|
|
|
61
|
|
|
|
132,429
|
|
Interest expense
|
|
|
(3,412,261
|
)
|
|
|
-
|
|
|
|
(64,326
|
)
|
|
|
(3,476,587
|
)
|
Miscellaneous
|
|
|
(162,895
|
)
|
|
|
(4,631
|
)
|
|
|
(80
|
)
|
|
|
(167,607
|
)
|
Equity in net loss of an unconsolidated affiliate
|
|
|
1,309,752
|
|
|
|
(925,258
|
)
|
|
|
-
|
|
|
|
384,495
|
|
Total other (expenses) income
|
|
|
(2,134,755
|
)
|
|
|
(928,171
|
)
|
|
|
(64,345
|
)
|
|
|
(3,127,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net loss of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
an unconsolidated affiliate
|
|
|
(3,507,175
|
)
|
|
|
(2,888,266
|
)
|
|
|
(459,605
|
)
|
|
|
(6,855,046
|
)
|
Income tax (expense) benefit
|
|
|
15,816
|
|
|
|
117,168
|
|
|
|
-
|
|
|
|
132,984
|
|
Net loss
|
|
$
|
(3,491,359
|
)
|
|
$
|
(2,771,098
|
)
|
|
$
|
(459,605
|
)
|
|
$
|
(6,722,062
|
)
|
|
|
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
|
)
|
|
|
(4,587,528
|
)
|
Operating loss
|
|
|
193,400
|
|
|
|
(2,223,390
|
)
|
|
|
(212,343
|
)
|
|
|
(2,242,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
509,079
|
|
|
|
3
43,985
|
|
|
|
-
|
|
|
|
853,055
|
|
Interest expense
|
|
|
(3,356,238
|
)
|
|
|
-
|
|
|
|
(45,000
|
)
|
|
|
(3,401,238
|
)
|
Miscellaneous
|
|
|
51,712
|
|
|
|
2,255
|
|
|
|
-
|
|
|
|
53,966
|
|
Equity in net loss of an unconsolidated affiliate
|
|
|
(99,969
|
)
|
|
|
(402,348
|
)
|
|
|
57,037
|
|
|
|
(445,280
|
)
|
Total other (expenses) income
|
|
|
(2,895,425
|
)
|
|
|
(56,109
|
)
|
|
|
12,307
|
|
|
|
(2,939,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net loss of an unconsolidated
affiliate
|
|
|
(2,702,025
|
)
|
|
|
(2,279,499
|
)
|
|
|
(200,305
|
)
|
|
|
(5,181,829
|
)
|
Income tax (expense) benefit
|
|
|
(40,518
|
)
|
|
|
15,639
|
|
|
|
(5,704
|
)
|
|
|
(30,583
|
)
|
Net loss
|
|
$
|
(2,742,543
|
)
|
|
$
|
(2,263,860
|
)
|
|
$
|
(206,009
|
)
|
|
$
|
(5,212,412
|
)
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Corporate
|
|
|
Total
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
77,777,167
|
|
|
$
|
-
|
|
|
$
|
77,777,167
|
|
Total assets
|
|
|
27,660,378
|
|
|
|
78,523,053
|
|
|
|
100,801
|
|
|
|
106,284,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
NOTE 25 SUBSEQUENT EVENTS
On July 31, 2017, our Board of Directors engaged RH, CPA (“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.