NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Sunrise Real Estate Group, Inc. “SRRE”
was incorporated in Texas on October 10, 1996 under the name of Parallax Entertainment, Inc. SRRE together with its subsidiaries
and equity investment described below is collectively referred to as “the Company”, “our” or “us”.
The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing and
management services; and real estate development in the People’s Republic of China (the “PRC”).
As of March 31, 2016, the Company has the following
major subsidiaries and equity investment.
Company Name
|
|
Date of
Incorporation
|
|
Place of
Incorporation
|
|
%
of
Ownership
held by the
Company
|
|
|
Relationship
with the
Company
|
|
Principal activity
|
Sunrise
Real Estate Development Group, Inc. (CY-SRRE)
|
|
April 30, 2004
|
|
Cayman Islands
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Lin Ray Yang Enterprise Limited (“LRY”)
|
|
November 13, 2003
|
|
British Virgin Islands
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shanghai Xin Ji Yang
Real Estate Consultation Company Limited (“SHXJY”)
|
|
August 20, 2001
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Shanghai Shang Yang
Real Estate consultation Company Limited (“SHSY”)
|
|
February 5, 2004
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Suzhou Gao Feng Hui
Property Management Company Limited (“SZGFH”)
|
|
January 10, 2005
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property management and leasing services
|
Suzhou
Shang Yang Real Estate Consultation Company Limited (“SZSY”)
|
|
November 24, 2006
|
|
PRC
|
|
|
38.5
|
%*
|
|
Subsidiary
|
|
Property brokerage and management services
|
Suzhou Xi Ji Yang Real
Estate Consultation Company Limited (“SZXJY”)
|
|
June 25, 2004
|
|
PRC
|
|
|
75
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Linyi Shangyang Real
Estate Development Company Limited (“LYSY”)
|
|
October 13, 2011
|
|
PRC
|
|
|
24
|
%**
|
|
Subsidiary
|
|
Real estate development
|
Shangqiu Shang Yang
Real Estate Consultation Company Limited (“SQSY”)
|
|
October 20, 2010
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Wuhan Gao Feng Hui Consultation
Company Limited (“WHGFH”)
|
|
November 10, 2010
|
|
PRC
|
|
|
60
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Sanya Shang Yang Real
Estate Consultation Company Limited (“SYSY”)
|
|
September 18, 2008
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Shanghai
Rui Jian Design Company Limited (“SHRJ”)
|
|
August 15, 2011
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Linyi Rui Lin Construction
and Design Company Limited (“LYRL”)
|
|
March 6, 2012
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Putian Xin Ji Yang Real
Estate Consultation Company Limited (“PTXJY”)
|
|
June 5, 2012
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Wuhan Yuan Yu Long Real
Estate Development Company Limited (“WHYYL”)
|
|
December 28, 2009
|
|
PRC
|
|
|
49
|
%
|
|
Equity investment
|
|
Real estate development
|
Shanghai Xin Xing Yang
Real Estate Brokerage Company Limited (“
SHXXY
”)
|
|
September 28, 2011
|
|
PRC
|
|
|
40
|
%
|
|
Equity investment
|
|
Property brokerage services
|
Xin
Guang Investment Management and Consulting Company Limited (“
XG
”)
|
|
December 17, 2012
|
|
PRC
|
|
|
49
|
%
|
|
Equity investment
|
|
Investment management and consulting
|
Shanghai
Da Er Wei Trading Company Limited (“SHDEW”)
|
|
June 6, 2013
|
|
PRC
|
|
|
30
|
%
|
|
Equity investment
|
|
Import and export trading
|
Shanghai Hui Tian (“SHHT”)
|
|
July 25, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shanghai Tian Xi (“SHSYTX”)
|
|
August 19, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shenzhen Hui Tian (“SZHT”)
|
|
October 15, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Chongqing Nongxin Shangyang
Equity Investment Fund Management Co., Ltd(“CQNXSY”)
|
|
January 14, 2015
|
|
PRC
|
|
|
65
|
%
|
|
Subsidiary
|
|
Investment holding
|
Suzhou Shangyang Huitian
Wealth Investment Management Co,. Ltd(SZSYHT)
|
|
January 14, 2015
|
|
PRC
|
|
|
75
|
%
|
|
Subsidiary
|
|
Investment holding
|
|
*
|
The Company and a shareholder of SZSY, which holds 12.5%
equity interest in SZSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect
of the shareholder’s 12.5% equity interest in SZSY. The Company effectively holds 51% voting rights in SZSY and therefore
considers SZSY as a subsidiary of the Company.
|
|
**
|
The Company and a shareholder of LYSY, which holds 51%
equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect
of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and therefore considers LYSY as a
subsidiary of the Company.
|
The accompanying condensed consolidated balance
sheet as of December31, 2015, which has been derived from the audited consolidated financial statements and the accompanying unaudited
condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been
condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to
make the information not misleading.
In the opinion of management, these condensed
consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present
fairly the financial position of Sunrise Real Estate as of March 31, 2016 and the results of operations for the three months ended
March 31, 2016 and 2015, and the cash flows for the three months ended March 31, 2016 and 2015. These condensed consolidated financial
statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of
the results which may be expected for the entire fiscal year.
The preparation of condensed consolidated financial
statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Accounting and Principles of Consolidation
The
condensed
consolidated financial statements include the financial statements
of Sunrise Real Estate Group, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated
on consolidation.
Investments in business entities, in which
the Company does not have control but has the ability to exercise significant influence over operating and financial policies,
are accounted for using the equity method.
Going Concern
The Company’s condensed consolidated
financial statements have been prepared on a going concern, which contemplates the realization of assets and satisfaction of liabilities
and commitments in the normal course of business. As of March31, 2016, the Company has a working capital deficiency, accumulated
deficit and significant short-term debt obligations currently in default or maturing in less than one year. These factors raise
substantial doubts about the Company’s ability to continue as a going concern.
Management believes that the Company will generate
sufficient cash flows to fund its operations and to meet its obligations on timely basis for the next twelve months by successful
implementation of its business plans, obtaining continued support from its lenders to rollover debts when they became due, and
securing additional financing as needed. There is no assurance that the Company will be able to obtain additional financing on
acceptable terms and any financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if
the Company is able to obtain additional financing, it may contain undue restrictions on our operations in the case of debt financing,
or cause substantial dilution for our shareholders in the case of equity financing. If events or circumstances occur that
the Company is unable to successfully implement its business plans, fails to obtain continued supports from its lenders or to secure
additional financing, or incurs significant unplanned cash outlays, the Company may be required to suspend operations or cease
business entirely.
The accompanying condensed consolidated financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications
of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 affiliate in China is Renminbi (“RMB”) and
their financial records and statements are maintained and prepared in RMB.
Foreign currency transactions during the period
are translated into each company’s denominated currency at the exchange rates ruling at the transaction dates. Gain and loss
resulting from foreign currency transactions are included in the consolidated statement of operations. Assets and liabilities denominated
in foreign currencies at the balance sheet date are translated into each company’s denominated currency at period-end exchange
rates. All exchange differences are dealt with in the consolidated statements of operations.
The financial statements of the Company’s
operations based outside of the United States have been translated into U.S. dollars in accordance with ASC830. Management has
determined that the functional currency for each of the Company’s foreign operations is its applicable local currency. When
translating functional currency financial statements into U.S. dollars, period-end exchange rates are applied to the condensed
consolidated balance sheets, while average exchange rates as to revenues and expenses are applied to consolidated statements of
operations. The effect of foreign currency translation adjustments is included as a component of accumulated other comprehensive
income in shareholders’ equity.
The exchange rates as of March 31, 2016 and
December 31, 2015 are $1: RMB6.4612 and $1: RMB6.4936, respectively.
The RMB is not freely convertible into foreign
currency and all foreign exchange transaction must take place through authorized institutions. No representation is made that the
RMB amounts could have been, or could be, converted into U.S. dollars at the rate used in translation.
Real Estate Property under Development
Real estate property under development, which
consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying
amounts or fair value less selling costs.
Expenditures for land development, including
cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects
by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value
of units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers are
allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities
retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of
operations of amenities retained by the Company are included in current operating results.
In accordance with ASC 360, “Property,
Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments
when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not
recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to be generated by the assets.
For the three months ended March 31, 2016 and
2015, the Company had not recognized any impairment for real estate property under development.
Long Term Investments
The Company accounts for long term investments
in equities as follows.
Investment 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. The Company recorded any impairment losses in any of the periods reported.
Other Investments
Where the Company has no significant influence,
the investment is classified as other assets in the balance sheet and is carried under the cost method. Investment income is recognized
by the Company when the investee declares a dividend and the Company believes it is collectible. The Company periodically evaluates
the carrying value of its investment under the cost method and any decline in value is included in impairment of cost of the investment.
Government Subsidies
Government subsidies include cash subsidies
received by the Company’s subsidiaries in the PRC from local governments.
In recognizing the benefit of government subsidies
in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements for the receipt
of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities such as land development
in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated statements of operations
and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs are matched with those costs
and recorded as a reduction in costs. Those benefits that are more general in nature or driven by business performance measures
are classified as revenue.
Government subsidy was received in 2012 and
the company recorded it as deferred government subsidy on its balance sheets. As of March 31, 2016 and December 31, 2015, the balance
of deferred government subsidy was $5,134,560 and $5,108,941, respectively. The subsidy was given to reimburse the land acquisition
costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable
if the Company fails to complete the subsidized property development project by the agreed date.
Revenue Recognition
Agency commission revenue from property brokerage
is recognized when the property developer and the buyer complete a property sales transaction, and the property developer provides
confirmation to us in order to invoice them accordingly. We normally receive the commission at the time when the property developer
receives a portion of the sales proceeds from the buyer (i) in accordance with the terms of the relevant property sales agreement,
(ii) or the balance of the bank loan to the buyer has been funded, (iii) or recognized under the sales schedule or other specific
items of the 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, this occurs when title is transferred and the Company no longer has substantial continuing involvement with the real
estate asset sold. If the Company provides certain rent guarantees or other forms of support where the maximum exposure to loss
exceeds the gain, it defers the related commission income and expenses by applying the deposit method. In future periods, the commission
income and related expenses are recognized when the remaining maximum exposure to loss is reduced below the amount of income deferred.
All revenues represent gross revenues less
sales and business taxes.
Net Earnings (Loss) per Common Share
The Company computes net earnings (loss) per
share in accordance with ASC 260, “Earnings per Share” (“ASC 260”). Under the provisions of ASC 260, basic
net earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders for the period by the
weighted average number of shares of common stock outstanding during the period. The calculation of diluted net earnings (loss)
per share recognizes common stock equivalents. However, potential common stock in the diluted EPS computation is excluded in net
loss periods, as their effect is anti-dilutive.
Recently Adopted Accounting Standards
The Company evaluated all recent accounting
pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial
position, results of operations or cash flows of the Company.
New Accounting Pronouncements
In January 2017, the Financial Accounting Standards
Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805)
Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals
of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied
prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard
update.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents
on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted
cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods
beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this
accounting standard update on its financial statements.
In August, 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended
to reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing
guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017
and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard
will have on our consolidated statement of cash flows.
In August 2014, the FASB issued Accounting
Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides
guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires
management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the
date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial
doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December
15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption
of ASU 2014-15 on the Company's financial statements and disclosures.
NOTE 3– RESTRICTED CASH
The Company is required to maintain certain
deposits with the bank that provides secured loans to the Company. As of March 31, 2016 and December 31, 2015, the Company held
cash deposits of $142,263 and $143,590, respectively, as security for its bank loans (see Note 10). These balances were subject
to withdrawal restrictions and were 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 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.
On March 13, 2014, the Company signed a joint
development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company obtained a right to develop the
Guangxinglu Project, which is located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of
approximately 2,502 square meters for the development of one apartment building.
As of March 31, 2016, land use rights included
in real estate property under development totaled $79,942,967.
NOTE 6 - OTHER RECEIVABLES AND DEPOSITS,
NET
|
|
March31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Advances to staff
|
|
$
|
59,747
|
|
|
|
13,274
|
|
Rental deposits
|
|
|
32,687
|
|
|
|
32,709
|
|
Prepaid expense
|
|
|
945,375
|
|
|
|
38,692
|
|
Prepaid tax
|
|
|
1,451,336
|
|
|
|
1,427,812
|
|
Other receivables
|
|
|
736,699
|
|
|
|
502,820
|
|
|
|
$
|
3,225,844
|
|
|
$
|
2,015,307
|
|
Other receivables and deposits as of March
31, 2016 and December 31, 2015 were stated net of allowance for doubtful accounts of $314,570 and $283,505, respectively.
NOTE 7 – PROPERTY AND EQUIPMENT
,
NET
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
165,951
|
|
|
$
|
362,584
|
|
Computer and office equipment
|
|
|
328,401
|
|
|
|
326,762
|
|
Motor vehicles
|
|
|
721,608
|
|
|
|
718,007
|
|
Properties
|
|
|
2,341,587
|
|
|
|
9,280,235
|
|
|
|
|
3,557,547
|
|
|
|
10,687,588
|
|
Less: Accumulated depreciation
|
|
|
(1,963,710
|
)
|
|
|
(3,151,430
|
)
|
|
|
$
|
1,593,837
|
|
|
$
|
7,536,158
|
|
Depreciation and amortization expense for property
and equipment amounted to $106,955 and $154,496 for the three months ended March 31, 2016 and 2015, respectively.
All properties as of March 31, 2016 and December
31, 2015 were pledged as collateral for the Company’s bank loans (See Note 10).
NOTE 8 – INVESTMENT PROPERTIES, NET
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Investment properties
|
|
$
|
9,583,487
|
|
|
$
|
9,535,669
|
|
Less: Accumulated depreciation
|
|
|
(4,640,024
|
)
|
|
|
(4,527,060
|
)
|
|
|
$
|
4,943,463
|
|
|
$
|
5,008,609
|
|
Depreciation and amortization expense for investment
properties amounted to $89,458 and $96,039 for the three months ended March 31, 2016 and 2015, respectively.
All investment properties as of March 31, 2016
and December 31, 2015 were pledged as collateral for the Company’s bank loans (See Note 10).
NOTE 9 – INVESTMENT IN AND AMOUNT
DUE FROM UNCONSOLIDATED AFFILIATES
The investments in unconsolidated affiliates
primarily consist of WHYYL (49%) and SHDEW (30%). As of March 31, 2016, the investment amounts in WHYYL and SHDEW were $3,962,966
and $5,163,577, respectively.
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 three 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 to
acquire a 49% equity interest in WHYYL to expand its operations to real estate development. As of March 31, 2016 the investment
in WHYYL was $3,962,966, which included its equity in net loss of WHYYL, net of income taxes, totaling $172,951 as of March 31,
2016. The following table sets forth the unaudited financial information of WHYYL.
|
|
Three Months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
172,951
|
|
|
$
|
358,974
|
|
|
|
March31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Current assets
|
|
$
|
66,639,320
|
|
|
$
|
66,345,953
|
|
Non-current assets
|
|
|
1,264,924
|
|
|
|
1,208,224
|
|
Total assets
|
|
|
67,904,244
|
|
|
|
67,554,177
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
59,816,021
|
|
|
|
59,332,675
|
|
Total equity
|
|
$
|
8,088,223
|
|
|
$
|
8,221,503
|
|
As of March 31, 2016 and December 31, 2015,
the Company has a balance of $2,543,075 and $2,508,251 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..
SHDEW was established in June 2013 with its
business as a skincare and cosmetic company. SHDEW is developing its own skincare products as well as improving its online ecommerce
platform. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics,
personal care products such as soaps, shampoos, skin care devices and apparel. SHDEW is developing its own online shopping platform
where consumers can purchase its cosmetics and skincare products. The app is expected to be in operation in mid 2016.
As of March 31, 2016, the net profit for SHDEW
was $7,374,973 with total equity in the amount of $22,375,524.
|
|
Three Months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Revenues
|
|
$
|
34,745,108
|
|
|
$
|
1,704,454
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,374,973
|
|
|
$
|
774,310
|
|
|
|
March31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Current assets
|
|
$
|
77,348,621
|
|
|
$
|
5,798,367
|
|
Non-current assets
|
|
|
9,686,979,
|
|
|
|
18,525
|
|
Total assets
|
|
|
87,035,600
|
|
|
|
5,798,367
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
64,660,076
|
|
|
|
4,148,749
|
|
Total equity
|
|
$
|
22,375,524
|
|
|
$
|
1,649,617
|
|
NOTE 10 – BANK LOANS
In January 2013, the Company obtained a bank
loan of $1,302,465 (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 of 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, 2016.
In
March 2, 2016, the Company entered into a new loan for 1–year period with the amount of $464,310 (RMB3,000,000)
As
of March 31, 2016 and December 31, 2015, the outstanding balance of this loan was $464,310 (RMB3,000,000) and $923,987 (RMB6,000,000).
In April 2012,
the Company entered into a three 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
March 31
,
2016. 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 one year to three years as announced by PBOC. The average interest rate for the three months ended March 31,
2016 was 7.5% per annum. The credit facility was secured by all of the Company’s investment properties (See Note 8) and guaranteed
by a director of the Company, and matured on March 31, 2016. In March 2016, this facility was extended for three year period and
will mature on March 31, 2019. As of
March 31
, 2016 and December 31, 2015, the Company had
outstanding loan balances of $7,764,781 (RMB50,169,802) and $7,726,038 (RMB50,169,802), respectively, under this facility line
of credit.
NOTE 11- LONG TERM BORROWINGS
On May 16, 2013, the Company entered into a
project finance loan agreement with China CITIC Bank to finance the development of the Company’s
Linyi
Project. The loan has a two 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.
The Company pledged its real estate properties
in the Linyi project with a carrying value of $41,132,935 as of March 31, 2016. The loan is also subject to certain covenants including
floating mortgage ratio not more than 50%. Floating mortgage rate is calculated as the outstanding principal and unpaid interest
after deduction of guaranteed funds kept in the stipulated bank account divided by the value of pledged properties. In addition,
the Company is required to maintain all monies received from sales of any properties relating to the Linyi project in a stipulated
bank account as guaranteed funds. As of March 31, 2016, the Company had an outstanding loan balance of $4,024,020 (RMB26,000,000)
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 three year term in the principal amount of $18,479,734 (RMB120,000,000) at an interest rate
of 7.025% per annum. As of March 31, 2016, there were $18,572,401 (RMB120,000,000) draw down from this loan facility.
|
|
March31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Outstanding borrowings
|
|
$
|
22,596,422
|
|
|
$
|
23,099,667
|
|
Less: Current portion of long term borrowings
|
|
|
11,452,981
|
|
|
|
4,619,933
|
|
|
|
|
11,143,441
|
|
|
|
18,479,734
|
|
For the three months period ended March 31,
2016, total loan interest was approximately $496,825, which was capitalized in the development cost of the Guxinglu project and
expenditure in the interest expenses of the Linyi project, respectively.
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 amounts and unpaid interest in the aggregate of $4,283,160 and $8,123,596 as of March 31, 2016
and December 31, 2015, respectively.
The promissory note
with an outs
tanding principal amount of $1,482,323 bears interest at a rate of 12% per annum, is unsecured and has a maturity
date of January 31, 2013. The new terms of repayment had not been determined with the debtor and therefore have no fixed term of
repayment
. As of March 31, 2016 and December 31, 2015, the outstanding principal amount in default and
the unpaid interest related to this promissory note amounted to $1,482,323 and
$1,461,412, respectively
.
The Company is currently making payments towards this loan.
The promissory note
with a principal balance as of March 31, 2016 in the amount of $773,850 bears interest at a rate of 0% per annum, is unsecured
and has no fixed term of repayment.
As of March 31, 2016
and December 31, 2015
, the outstanding
principal amount and unpaid interest related to this promissory note amounted to $773,850 and $814,041, respectively.
The promissory note with a principal balance
as of March 31, 2016 in the amounts of $773,850 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of
repayment. As of March 31, 2016 and December 31, 2015, the outstanding principal and unpaid interest related to this promissory
note amounted to $773,850 and $814,041, respectively.
The promissory note with a principal balance
as of March 31, 2016 in the amounts to $154,770 bears interest at a rate of 15.75% per annum, is unsecured and has no fixed term
of repayment. As of March 31, 2016 and December 31, 2015, the outstanding principal and unpaid interest related to this promissory
note amounted to $161,880 and $170,287, respectively.
The promissory
note with a principal balance of $154,770 as of
March
31, 2016 bears interest at the rate
of 15% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2016, the outstanding principal amount and unpaid
interest related to this promissory note amounted to $160,558.
The promissory
note with a principal balance of $433,356 as of
March
31, 2016 bears interest at the rate
of 15% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2016, the outstanding principal amount and unpaid
interest related to this promissory note amounted to $575,473.
The promissory note with a principal balance
of $300,000 as of March 31, 2016 bears interest at the rate of 15% per annum, is unsecured and has no fixed term of repayment.
As of March 31, 2016 and December 31, 2015, the outstanding principal amount and unpaid interest related to this promissory note
amounted to $355,226 and $329,404, respectively..
For the three months ended March 31, 2016,
the interest expense related to these promissory notes was $201,049.
NOTE 13– AMOUNTS DUE TO DIRECTORS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Lin Chi-Jung
|
|
$
|
10,730,165
|
|
|
$
|
10,908,905
|
|
Lin Hsin-Hung
|
|
|
76,426
|
|
|
|
71,649
|
|
|
|
$
|
10,806,591
|
|
|
$
|
10,980,554
|
|
|
(a)
|
The balance due to Lin Chi-Jung consists of unpaid salaries and reimbursements and advances together with unpaid interest.
|
The balances are unsecured, interest-free
and have no fixed term of repayment.
The
advances together with unpaid interest as of March 31, 2016 and December 31, 2015 were $
10,730,165
and
$
10,908,905
, respectively. The balances
are unsecured and interest bearing at rates ranging from 18% to 30% per annum.
|
(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- OTHER PAYABLES AND ACCRUED EXPENSES
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Accrued staff commission and bonus
|
|
$
|
401,403
|
|
|
$
|
531,856
|
|
Rental deposits received
|
|
|
257,995
|
|
|
|
319,641
|
|
Rental receipts in advance
|
|
|
1,948
|
|
|
|
4,640
|
|
Dividends payable to non-controlling interest
|
|
|
208,251
|
|
|
|
273,447
|
|
Other payables
|
|
|
325,708
|
|
|
|
367,352
|
|
|
|
$
|
1,195,305
|
|
|
$
|
1,496,936
|
|
NOTE 15- ACCOUNT PAYABLE
Account payable was mostly derived from our
property development of Linyi project and GXL project. As of March 31, 2016 and December 31, 2015, the company’s account
payable amounted to $6,362,138 and $7,467,199.
NOTE 16 – AMOUNT DUE TO AFFILIATES
A balance of $36,983,184 was due to JXSY of
$16,443,024, SHDEW of $20,520,969, SHXG of $19,191.
NOTE 17 – CUSTOMER DEPOSITS
Customer deposits were mostly derived from
our property development of Linyi project and GXL project, which was pre-sale collection from our customers. As of March 31, 2016
and December 31, 2015, the company’s customer deposits amounted to $21,002,218 and $18,138,065.
NOTE 18– DEFERRED GOVERNMENT SUBSIDY
Deferred government subsidy consists of the
cash subsidy provided by the local government.
Government subsidy was received in 2012, and
as of March 31, 2016 and December 31, 2015, the Company’s deferred government subsidy amounted to $5,134,560 and $5,108,941,
respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s
property development project, and are repayable if the Company fails to complete the subsidized property development project before
the agreed date. The entire government subsidy is deferred and included as deferred government subsidy in the consolidated balance
sheets.
NOTE 19- 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 three months ended March 31, 2016 and 2015 were $33,062 and $100,139, respectively.
As of March 31, 2016, the Company had the following
operating lease obligations.
|
|
Amount
|
|
|
|
|
|
Within one year
|
|
$
|
100,094
|
|
Two to five years
|
|
|
14,033
|
|
|
|
$
|
114,127
|
|
NOTE 20– 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 March 31, 2016 and December 31, 2015,
the Company’s statutory reserve fund was $851,729 and $851,729, respectively.
NOTE 21 - 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:
|
|
Three Months Ended March 31, 2016
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment*
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
665,381
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
665,381
|
|
Cost of revenues
|
|
|
(682,137
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(682,137
|
)
|
Gross profit
|
|
|
(16,756
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(193,669
|
)
|
|
|
(172,912
|
)
|
|
|
|
|
|
|
(4,174
|
)
|
|
|
(370,755
|
)
|
General and administrative expenses
|
|
|
(435,562
|
)
|
|
|
(322,378
|
)
|
|
|
|
|
|
|
(50,350
|
)
|
|
|
(808,290
|
)
|
Operating loss
|
|
|
(645,987
|
)
|
|
|
(495,290
|
)
|
|
|
|
|
|
|
(54,524
|
)
|
|
|
(1,195,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
31,387
|
|
|
|
269
|
|
|
|
|
|
|
|
3
|
|
|
|
31,359
|
|
Interest expense
|
|
|
(633,322
|
)
|
|
|
(165,293
|
)
|
|
|
|
|
|
|
(11,250
|
)
|
|
|
(809,865
|
)
|
Other income, Net
|
|
|
3,159,852
|
|
|
|
(9,115
|
)
|
|
|
|
|
|
|
-
|
|
|
|
3,150,737
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
2,127,131
|
|
|
|
|
|
|
|
2,127,131
|
|
Total other (expenses) income
|
|
|
2,557,917
|
|
|
|
(174,139
|
)
|
|
|
2,127,131
|
|
|
|
(11,247
|
)
|
|
|
4,499,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,911,930
|
|
|
|
(669,429
|
)
|
|
|
2,127,131
|
|
|
|
(65,771
|
)
|
|
|
3,303,861
|
|
Income tax
|
|
|
(5,373
|
)
|
|
|
13,104
|
|
|
|
|
|
|
|
-
|
|
|
|
7,730
|
|
Net Income( loss)
|
|
$
|
1,906,557
|
|
|
$
|
(656,325
|
)
|
|
$
|
2,127,131
|
|
|
$
|
(65,771
|
)
|
|
$
|
3,311,591
|
|
* Reflects changes made during the first quarter
of 2016 to align our segment reporting structure concurrent with changes in equity investment transactions. Figures for 2015 are
restated to conform to the new segment reporting structure as below.
|
|
Three Months Ended March 31, 2015
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
1,395,418
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,395,418
|
|
Cost of revenues
|
|
|
(732,900
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(732,900
|
)
|
Gross profit
|
|
|
662,518
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
662,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(201,566
|
)
|
|
|
(349,305
|
)
|
|
|
|
|
|
|
(10,316
|
)
|
|
|
(561,187
|
)
|
General and administrative expenses
|
|
|
(805,892
|
)
|
|
|
(188,241
|
)
|
|
|
|
|
|
|
(86,504
|
)
|
|
|
(1,080,637
|
)
|
Operating loss
|
|
|
(344,940
|
)
|
|
|
(537,546
|
)
|
|
|
|
|
|
|
(96,820
|
)
|
|
|
(979,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
27,706
|
|
|
|
214
|
|
|
|
|
|
|
|
9
|
|
|
|
27,929
|
|
Interest expense
|
|
|
(629,249
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(21,569
|
)
|
|
|
(650,819
|
)
|
Other income, Net
|
|
|
(245,459
|
)
|
|
|
(3,368
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(248,827
|
)
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
(213,865
|
)
|
|
|
|
|
|
|
(213,865
|
)
|
Total other (expenses) income
|
|
|
(847,002
|
)
|
|
|
(3,154
|
)
|
|
|
(213,865
|
)
|
|
|
(21,560
|
)
|
|
|
(1,085,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1,191,942
|
)
|
|
|
(540,701
|
)
|
|
|
(213,865
|
)
|
|
|
(118,380
|
)
|
|
|
(2,064,888
|
)
|
Income tax
|
|
|
-
|
|
|
|
46,229
|
|
|
|
|
|
|
|
-
|
|
|
|
46,229
|
|
Net Income (loss)
|
|
$
|
(1,191,942
|
)
|
|
$
|
(494,472
|
)
|
|
$
|
(213,865
|
)
|
|
$
|
(118,379
|
)
|
|
$
|
2,018,659
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
As of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
79,942,967
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
79,942,967
|
|
Total assets
|
|
|
13,196,671
|
|
|
|
86,467,993
|
|
|
|
10,830,393
|
|
|
|
83,003
|
|
|
|
110,578,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
74,937,324
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,937,324
|
|
Total assets
|
|
|
18,240,859
|
|
|
|
81,240,128
|
|
|
|
5,675,009
|
|
|
|
177,244
|
|
|
|
105,333,2413
|
|
NOTE 22 - SUBSEQUENT EVENTS
On July 31, 2017, our Board of Directors
engaged RH. CPA as the Company’s certifying accountant to audit the Company’s financial statements, replacing its former
certifying accountant, Kenne Ruan CPA, P.C. (“Kenne Ruan”). Upon receipt of the notice that the Company’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 Company’s certifying accountant on July 31, 2017.