SUNRISE REAL ESTATE GROUP INC - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from __________ to __________

Commission File Number 000-32585

SUNRISE REAL ESTATE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

Shanghai, PRC 200070

(Address of Principal Executive Offices) (Zip Code)Issuer's telephone number: + 86-21-6167-2800

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

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: November 21, 2013 – 28,691,925 shares of Common Stock

FORM 10-Q

For the Quarter Ended September 30, 2013

INDEX

		Page
PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Operations for The Nine Months and Three Months Ended September 30, 2013 and 2012	5
	Condensed Consolidated Statements of Comprehensive Loss for The Nine Months and Three Months Ended September 30, 2013 and 2012	6
	Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2013 and 2012	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION		40
Item 1.	Legal Proceedings	40
Item 1A	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

SIGNATURES		41

	2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)

	September 30,		December 31,
	2013		2012
ASSETS

Current assets
Cash and cash equivalents	$	1,590,158	$	934,123
Restricted cash (Note 3)		1,261,234		1,352,319
Accounts receivable, net of allowance for doubtful accounts of $32,245 and $0 as of September 30, 2013 and December 31, 2012, respectively		974,453		1,883,162
Promissory deposits (Note 4)		748,211		1,038,899
Real estate property under development (Note 5)		29,911,559		20,493,851
Amounts due from unconsolidated affiliates (Note 9)		3,756,375		4,316,031
Other receivables and deposits, net of allowance for doubtful accounts of $74,356 and $73,864 as of September 30, 2013 and December 31, 2012, respectively (Note 6)		447,143		353,775
Total current assets		38,689,133		30,372,160

Property and equipment, net (Note 7)		9,236,661		9,303,261
Investment properties, net (Note8)		6,137,920		6,401,469
Deferred tax assets		279,722		189,375
Investments in unconsolidated affiliates (Note 9)		5,989,560		3,925,770
Total assets	$	60,332,996	$	50,192,035

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	332,498	$	586,935
Amounts due to directors (Note 10)		11,488,413		7,707,172
Other payables and accrued expenses (Note 11)		3,057,973		5,346,242
Other taxes payable		70,909		138,277
Income taxes payable		7,093		150,614
Bank loans (Note 12)		18,461,288		17,627,874
Promissory notes payable (Note 13)		5,010,568		6,154,095
Current portion of long term bank loan (Note 14)		11,385,817		-
Total current liabilities		49,814,559		37,711,209

Deferred government subsidy		5,396,131		5,273,314
Deposits received from underwriting sales (Note 15)		616,566		1,915,229
Total liabilities		55,827,256		44,899,752

Commitments and contingencies (Note 17)

	3

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Continued)

(Expressed in U.S. Dollars)

	September 30,		December 31,
	2013		2012
Shareholders’ equity
Common stock, par value $0.01 per share; 200,000,000 shares authorized; 28,691,925 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively	$	286,919	$	286,919
Additional paid-in capital		4,570,008		4,570,008
Statutory reserve (Note 16)		782,987		782,987
Accumulated losses		(14,378,338)		(13,500,082)
Accumulated other comprehensive income		270,092		359,183
Total deficit of Sunrise Real Estate Group, Inc		(8,468,332)		(7,500,985)
Non-controlling interests		12,974,072		12,793,268
Total shareholders’ equity		4,505,740		5,292,283
Total liabilities and shareholders’ equity	$	60,332,996	$	50,192,035

See accompanying notes to unaudited condensed consolidated financial statements.

	4

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
			(Restated)				(Restated)
Net revenues	$	2,673,046	$	1,877,851	$	9,273,860	$	5,433,174
Cost of revenues		(1,264,443)		(1,000,045)		(3,644,647)		(3,069,720)
Gross income		1,408,603		877,806		5,629,213		2,363,454

Operating expenses		(451,132)		(468,213)		(1,136,947)		(1,078,923)
General and administrative expenses		(870,165)		(907,222)		(2,693,023)		(2,765,542)
Operating income (loss)		87,306		(497,629)		1,799,243		(1,481,011)

Other income (expenses)
Interest income		196,741		5,372		575,959		9,162
Interest expense, net of amount capitalized		(1,146,811)		(289,977)		(3,019,003)		(1,274,583)
Miscellaneous, net		2,238		(4,652)		18,481		(6,613)
Total other expenses		(947,832)		(289,257)		(2,424,563)		(1,272,034)

Loss before income taxes and equity in net losses of unconsolidated affiliates		(860,526)		(786,886)		(625,320)		(2,753,045)

Income tax expense (benefit)		78,987		692		59,349		(40,788)
Equity in losses of unconsolidated affiliates, net of income taxes		(184,889)		(107,476)		(457,676)		(309,319)

Net loss		(966,428)		(893,670)		(1,023,647)		(3,103,152)
Less: Net loss attributable to non-controlling interests		70,038		49,565		145,391		526,450
Net loss attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(896,390)	$	(844,105)	$	(878,256)	$	(2,576,702)

Loss per share – basic and fully diluted	$	(0.03)	$	(0.03)	$	(0.03)	$	(0.09)

Weighted average common shares Outstanding
- Basic and fully diluted		28,691,925		28,691,925		28,691,925		28,691,925

See accompanying notes to unaudited condensed consolidated financial statements.

	5

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(Expressed in U.S. Dollars)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
			(Restated)				(Restated)
Net loss	$	(966,428)	$	(893,670)	$	(1,023,647)	$	(3,103,152)

Other comprehensive income (loss)
- Foreign currency translation Adjustment		49,195		(32,036)		196,976		(139,809)

Total comprehensive loss		(917,233)		(925,706)		(826,671)		(3,242,961)
Less: Comprehensive loss (income) attributable to non-controlling interests		5,210		49,565		(140,676)		606,603

Total comprehensive loss attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(912,023)	$	(876,141)	$	(967,347)	$	(2,636,358)

See accompanying notes to unaudited condensed consolidated financial statements.

	6

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

	Nine Months Ended September 30,
	2013		2012
Cash flows from operating activities			(Restated)
Net loss	$	(1,023,647)	$	(3,103,152)

Adjustments to reconcile net loss to net cash used in operating activities
(Gain) loss on disposal of property, plant and equipment		(66)		2,196
Depreciation and amortization		829,257		687,199
Allowance for doubtful accounts		106,601		-
Equity in net losses of unconsolidated affiliates		457,676		309,319
Changes in operating assets and liabilities
Accounts receivable		910,215		(145,747)
Promissory deposits		311,161		2,493,805
Real estate property under development		(8,880,528)		(17,581,438)
Other receivables and deposits		(159,060)		(146,715)
Deferred tax assets		(85,353)		-
Accounts payable		(265,211)		(221,009)
Other payables and accrued expenses		(2,241,549)		(4,863,955)
Interest payable on promissory notes		187,803		286,408
Interest payable on amounts due to directors		900,705		407,330
Other taxes payable		(69,841)		(59,568)
Income taxes payable		(145,598)		(220,529)
Deposits received from underwriting sales		(1,329,693)		(535,629)
Deferred government subsidy		-		5,260,426
Net cash used in operating activities		(10,497,128)		(17,431,059)

Cash flows from investing activities
Capital injection to unconsolidated affiliates		(2,418,004)		-
Advances to unconsolidated affiliates		(1,482,573)		(1,684,332)
Repayments of advances to unconsolidated affiliates		2,132,984		-
Acquisition of property and equipment		(170,876)		(3,420,251)
Acquisition of equity investment		-		(60,000)
Net cash used in investing activities		(1,938,469)		(5,164,583)

Cash flows from financing activities
Capital contribution from non-controlling interests of new consolidated subsidiaries		40,128		12,083,096
New bank loans		12,575,416		6,439,698
Bank loan repayments		(854,483)		-
Advances from directors		9,778,402		53,528
Repayments of advances from directors		(7,099,757)		-
Proceeds from new promissory notes		1,128,562		4,059,398
Repayment of promissory notes		(2,579,572)		-
Restricted cash		120,262		-
Dividend paid to non-controlling interests		(145,101)		-
Net cash provided by financing activities		12,963,857		22,635,720

	7

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Continued)

(Expressed in U.S. Dollars)

	Nine Months Ended September 30,
	2013		2012
			(Restated)
Effect of exchange rate changes on cash and cash equivalents		127,775		(193,318)

Net increase (decrease) in cash and cash equivalents		656,035		(153,240)
Cash and cash equivalents at beginning of period		934,123		1,377,093
Cash and cash equivalents at end of period	$	1,590,158	$	1,223,853

Supplemental disclosure of cash flow information
Income taxes paid	$	170,560	$	214,310
Interest paid		2,320,233		157,803

See accompanying notes to unaudited condensed consolidated financial statements.

	8

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Sunrise Real Estate Group, Inc. “SRRE” was incorporated in Texas on October 10, 1996 under the name of Parallax Entertainment, Inc. SRRE together with its subsidiaries and equity investments described below is collectively referred to as “the Company”, “our” or “us”. The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing and management services, and real estate development in the People’s Republic of China (the “PRC”). Aside from focusing on the aforesaid businesses, SRRE has invested in Xin Guang Equity Investment Management (Shanghai) Company Limited (“XG”), an equity investment company, and Shanghai Da Er Wei Trading Company Limited, an import and export trading company. The Company’s share of results of these equity investments is insignificant.

As of September 30, 2013, the Company has the following major subsidiaries and equity investments.

Company Name

Date of
Incorporation

Place of
Incorporation

% of
Ownership
held by the
Company

Relationship
with the
Company

Principal activity

Sunrise Real Estate Development Group, Inc.
(“CY-SRRE”)

April 30, 2004

Cayman Islands

100

Subsidiary

Investment holding

Lin Ray Yang Enterprise Limited
(“LRY”)

November 13, 2003

British Virgin Islands

100

Subsidiary

Investment holding

Shanghai Xin Ji Yang Real Estate
Consultation Company Limited
(“SHXJY”)

August 20, 2001

PRC

100

Subsidiary

Property brokerage services

Shanghai Shang Yang Real Estate
consultation Company Limited (“SHSY”)

February 5, 2004

PRC

100

Subsidiary

Property brokerage services

Suzhou Gao Feng Hui Property Management
Company Limited (“SZGFH”)

January 10, 2005

PRC

100

Subsidiary

Property management and leasing services

Suzhou Shang Yang Real Estate
Consultation Company Limited (“SZSY”)

November 24, 2006

PRC

38.5

%¹

Subsidiary

Property brokerage and management services

Suzhou Xi Ji Yang Real Estate Consultation
Company Limited (“SZXJY”)

June 25, 2004

PRC

Subsidiary

Property brokerage services

Linyi Shangyang Real Estate Development
Company Limited (“LYSY”)

October 13, 2011

PRC

%²

Subsidiary

Real estate development

Shangqiu Shang Yang Real Estate
Consultation Company Limited (“SQSY”)

October 20, 2010

PRC

100

Subsidiary

Property brokerage services

Wuhan Gao Feng Hui Consultation
Company Limited (“WHGFH”)

November 10, 2010

PRC

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

Linyi Rui Lin Construction and Design
Company Limited (“LYRL”)

March 6, 2012

PRC

100

%³

Subsidiary

Investment holding

PutianXinJi Yang Real Estate Consultation
Company Limited (“PTXJY”)

June 5, 2012

PRC

100

Subsidiary

Property brokerage services

	9

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

%⁴

Subsidiary

Property brokerage services

Wuhan Yuan Yu Long Real Estate
Development Company Limited
(“WHYYL”)

December 28, 2009

PRC

Equity investment

Real estate development

Shanghai Xin Xing Yang Real Estate
Brokerage Company Limited (“SHXXY”)

September 28, 2011

PRC

Equity investment

Property brokerage services

XinGuang Equity Investment Management
(Shanghai) Company Limited (“XG”)

December 17, 2012

PRC

Equity investment

Equity investment and consultancy

Shanghai Da Er Wei Trading Company
Limited (“SHDEW”)

June 6, 2013

PRC

Equity investment

Import and export trading

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

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

3. The equity interest in LYRL is held by three Chinese individuals in trust for SHXJY.

4. On January 28, 2013, CY-SRRE, SZXJY and an unrelated party established a subsidiary in the PRC, SHXJYB, with CY-SRRE holding a 15% equity interest and SZXJY holding a 60% equity interest in SHXYJB.

The accompanying condensed consolidated balance sheet as of December 31, 2012, which has been derived from the audited consolidated financial statements, and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of September 30, 2013 and the results of operations for the three months and nine months ended September 30, 2013 and 2012, and the cash flows for the nine months ended September 30, 2013 and 2012. 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, 2012. The results of operations for the three months and nine months ended September 30, 2013 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.

	10

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

Going Concern

The Company’s condensed consolidated financial statements have been prepared on a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2013, the Company has a working capital deficiency, accumulated deficit from recurring net losses, and significant short-term debt obligations currently in default or maturing in less than one year. These factors raise substantial doubts about the Company’s ability to continue as a going concern.

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

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

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 the PRC 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 condensed 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 condensed 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 condensed 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 September 30, 2013 and December 31, 2012 are $1: RMB6.1480 and $1: RMB6.2855, 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.

Major Customers

There was one customer that accounted for 20% and 11% of our net revenues during the nine months ended September 30, 2013 and 2012, respectively.

There was no customer that accounted for 10% or more of our net revenues during the three months ended September 30, 2013 and 2012.

	11

There were no accounts receivable from these customers as of September 30, 2013 and December 31, 2012.

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 and nine months ended September 30, 2013 and 2012, the Company had not recognized any impairment for real estate property under development.

Long Term Investments

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

Investments in Unconsolidated Affiliates

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

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

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

Other Investments

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

Government Subsidies

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

	12

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 $5,369,131 as of September 30, 2013. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and is repayable if the Company fails to complete the subsidized property development project according to the agreed schedules. The Company recorded the subsidy received as a deferred government subsidy.

Revenue Recognition

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

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

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

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

All revenues represent gross revenues less sales and business taxes.

Net Earnings (Loss) per Common Share

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

Recently Adopted Accounting Standards

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

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

	13

New Accounting Pronouncements Not Yet Adopted

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

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

In July 2013, the FASB issued ASU 2013-11 Topic 740 – Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). This update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless otherwise provided in the update. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.

NOTE 3 – RESTRICTED CASH

The Company is required to maintain certain deposits with the bank that provides secured loans to the Company. As of September 30, 2013 and December 31, 2012, the Company held cash deposits of $1,261,234 and $1,352,319, respectively, as security for its bank loans (see Note 12). These balances are subject to withdrawal restrictions and are not covered by insurance.

NOTE 4- PROMISSORY DEPOSITS

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

NOTE 5 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiemen Road and Hongkong 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.

As of September 30, 2013, land use rights included in real estate property under development totaled $11,992,049.

Real estate property under development as of September 30, 2013 has been pledged as collateral for the Company’s bank loans (See Note 14).

	14

NOTE 6 - OTHER RECEIVABLES AND DEPOSITS, NET

	September 30,		December 31,
	2013		2012

Advances to staff	$	113,256	$	40,477
Rental deposits		31,592		44,154
Other receivables		302,295		269,144
	$	447,143	$	353,775

Other receivables and deposits as of September 30, 2013 and December 31, 2012 are stated net of allowance for doubtful accounts of $74,356 and $73,864, respectively.

NOTE 7 – PROPERTY AND EQUIPMENT, NET

	September 30,		December 31,
	2013		2012

Furniture and fixtures	$	407,680	$	354,446
Computer and office equipment		293,895		281,975
Motor vehicles		871,429		761,702
Properties		9,577,157		9,367,650
		11,150,161		10,765,773
Less: Accumulated depreciation		(1,913,500)		(1,462,512)
	$	9,236,661	$	9,303,261

Depreciation and amortization expense for property and equipment amounted to $428,305 and $431,433 for the nine months ended September 30, 2013 and 2012, respectively.

All properties as of September 30, 2013 and December 31, 2012 were pledged as collateral for the Company’s bank loans (See Note 12).

NOTE 8 – INVESTMENT PROPERTIES, NET

	September 30,		December 31,
	2013		2012

Investment properties	$	10,071,702	$	9,851,376
Less: Accumulated depreciation		(3,933,782)		(3,449,907)
	$	6,137,920	$	6,401,469

Depreciation and amortization expense for investment properties amounted to $400,952 and $255,766 for the nine months ended September 30, 2013 and 2012, respectively.

All investment properties as of September 30, 2013 and December 31, 2012 were pledged as collateral for the Company’s bank loans (See Note 12).

	15

NOTE 9 – INVESTMENTS IN AND AMOUNTS DUE FROM UNCONSOLIDATED AFFILIATES

The carrying values of the Company’s investments in unconsolidated affiliates are as follows.

	September 30,		December 31,
	2013		2012

Wuhan Yuan Yu Long Real Estate Development Company Limited	$	5,764,282	$	3,925,770
XinGuang Equity Investment Management (Shanghai) Company Limited		196,000		-
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited		-		-
Shanghai Da Er Wei Trading Company Limited		29,278		-
	$	5,989,560	$	3,925,770

Equity in losses of unconsolidated affiliates, net of income taxes, is as follows.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
			(Restated)				(Restated)
Wuhan Yuan Yu Long Real Estate Development Company Limited	$	124,889	$	107,476	$	397,676	$	309,319
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited		60,000		-		60,000		-
	$	184,889	$	107,476	$	457,676	$	309,319

(a) Wuhan Yuan Yu Long Real Estate Development Company Limited

In 2011, the Company invested $4,250,163 to acquire a 49% equity interest in 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 a 3-year planned construction period. During the third quarter of 2013, WHYYL raised capital and as a result, the Company invested additional $2,132,976 and maintained 49% equity interest in WHYYL.

The following table sets forth the movements of the Company’s investment in WHYYL.

Balance as of January 1, 2013	$	3,925,770
Capital injection		2,132,976
Equity in net loss of the unconsolidated affiliate for the nine months ended September 30, 2013		(397,676)
Translation adjustments		103,212
Balance as of September 30, 2013	$	5,764,282

The following table sets forth the financial information of WHYYL.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012

Revenue	$	-	$	-	$	-	$	-

Net loss	$	262,645	$	219,339	$	819,353	$	631,263

	16

	September 30,		December 31,
	2013		2012

Current assets	$	42,252,431	$	19,387,419
Non-current assets		715,864		298,872
Total assets		42,968,295		19,686,291

Current liabilities		31,204,454		11,674,515
Total equity	$	11,763,841	$	8,011,776

(b) XinGuang Equity Investment Management (Shanghai) Company Limited

In December 2012, the Company acquired 49% equity interest in XG, a company that is engaged in equity investment and consultancy, and committed to contribute a total cash consideration of $980,000. As of September 30, 2013, the Company has made aggregate capital payments of $198,000 and the remaining $782,000 is payable upon capital calls before December 17, 2014.

In September 2011, the Company acquired a 40% equity interest in SHXXY, a company that is engaged in provision of property brokerage services, for a total cash consideration of $120,000. As of September 30, 2013, the net investment in SHXXY was $0 as a result of the inclusion of the Company’s equity in net loss of SHXXY totaling $120,000.

(d) Shanghai Da Er Wei Trading Company Limited

In June 2013, the Company acquired a 30% equity interest in SHDEW, a company that is engaged in import and export trading. The Company committed to contribute a total cash consideration of $162,655. As of September 30, 2013, the Company had made aggregate capital payments of $29,278 and the remaining $133,377 is payable upon capital calls before June 5, 2015.

As of September 30, 2013 and December 31, 2012, the Company has a balance of $3,756,375 and $4,316,031 due from unconsolidated affiliates, of which $3,735,281 and $4,316,031 are due as of September 30, 2013 and December 2012, respectively, bears interest at a rate of 15% per annum, and the remaining balance is interest-free. These amounts are unsecured and have no fixed term of repayment.

The Company recorded interest income from unconsolidated affiliates of $189,774 and $563,323, respectively, for the three months and nine months ended September 30, 2013. There was no interest income from unconsolidated affiliates during 2012.

During the three months and nine months ended September 30, 2013 and 2012, the Company had no impairment losses for investments in unconsolidated affiliates.

NOTE 10– AMOUNTS DUE TO DIRECTORS

	September 30,		December 31,
	2013		2012

Lin Chi-Jung	$	11,451,573	$	7,683,507
Lin Hsin-Hung		35,368		22,225
Lin Chao-Chin		1,472		1,440
	$	11,488,413	$	7,707,172

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

The balances of unpaid salaries and reimbursements as of September 30, 2013 and December 31, 2012 were $60,372 and $35,797, respectively. The balances are unsecured, interest-free and have no fixed term of repayment.

	17

The advances together with unpaid interest as of September 30, 2013 and December 31, 2012 were $11,391,201 and $7,647,710, respectively. The balances are unsecured and interest bearing at rates ranging from 9.6% to 36.5% per annum. The weighted average interest rate on these balances was 22.60% as of September 30, 2013. Included in the balance as of September 30, 2013, advances of $1,728,817 were overdue and currently in default, and the remaining balance had no fixed term of repayment.

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

The interest expense on amounts due to directors, which amount is entirely due to Lin Chi-Jung, amounted to $789,268 and $88,081 for the three months ended September 30, 2013 and 2012; and $1,600,108 and $575,129, respectively, for the nine months ended September 30, 2013 and 2012.

NOTE 11- OTHER PAYABLES AND ACCRUED EXPENSES

	September 30,		December 31,
	2013		2012

Accrued staff commission and bonus	$	543,641	$	890,419
Rental deposits received		877,441		945,309
Customer deposits		658,751		1,217,087
Advances from unrelated parties		-		1,288,680
Dividend payable to non-controlling interests		-		237,582
Accrued expenses		367,633		346,861
Other payables		610,507		420,304
	$	3,057,973	$	5,346,242

Advances from unrelated parties are unsecured, interest-free and have no fixed term of repayment.

NOTE 12 – BANK LOANS

In January 2013, the Company obtained a bank loan of $1,301,236 (RMB8,000,000) from the Bank of China, bearing interest at a rate of 7.56% per annum. The loan is secured by the properties of two unrelated parties and matures on December 5, 2013. As of September 30, 2013, the outstanding principal balance of this loan was $1,301,236.

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 $5,823,032 (RMB35,800,000) as of September 30, 2013. The borrowings under this facility bear interest at a rate per annum equal to 125% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by the People’s Bank of China (“PBOC”). The average interest rate for the nine months ended September 30, 2013 was 7.6875% per annum. The credit facility is secured by all of the Company’s properties included in property and equipment (See Note 7) and the restricted cash of $1,261,234 as of September 30, 2013 and $1,352,319 as of December 31, 2012 (See Note 3), is guaranteed by a director of the Company, and matures on March 31, 2015. Borrowings under this facility are renewable for an additional period not longer than 12 months and are due not later than March 31, 2015. As of September 30, 2013 and December 31, 2012, the Company had outstanding loan balances of $5,823,032 and $5,695,649, 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 $12,199,089 (RMB75,000,000) as of September 30, 2013. The borrowings under this facility bear interest at a rate per annum equal to 125% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by PBOC. The average interest rate for the nine months ended September 30, 2013 was 7.6875% per annum. The facility of credit is secured by all of the Company’s investment properties (See Note 8) and is guaranteed by a director of the Company, and matures on March 31, 2015. The borrowings under this facility are renewable for an additional period not longer than 36 months and are due not later than March 31, 2015. As of September 30, 2013 and December 31, 2012, the Company had outstanding loan balances of $11,337,020and $11,932,225, respectively, under this facility line of credit. Under the term of the agreement, the Company agreed not to use any of its pledged assets as security for another debt obligation or other liability. The Company used certain pledged assets to provide a loan guarantee to an unaffiliated third party lender for the borrowing of $813,272, bearing interest at a rate of 20% per annum, by Lin Chi-Jung, a director of the Company. Lin Chi-Jung obtained the loan from the third party lender and, in turn, lent the funds to the Company on the same terms. The Company therefore was not in compliance with the covenant as of September 30, 2013. As of September 30, 2013, we have not received any notice of default or other communication from the First Sino Bank with respect to our not being in compliance.

	18

In November 2009, the Company entered into a three-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 $8,945,999 (RMB55,000,000). The borrowings under this facility bore interest at a rate equal to 110% of the prevailing 1-year base lending rate announced by PBOC. The facility of credit was secured by all of the Company’s properties included in property and equipment (See Note 7), and was guaranteed by a director of the Company and an unrelated company. This facility was cancelled and replaced by the above-mentioned 3-year non-revolving facility line of credit agreement entered by the Company in April 2012.

In March 2010, the Company entered into a three-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 $2,439,818 (RMB15,000,000). The borrowings under this facility bore interest at a rate equal to 110% of the prevailing 1-year base lending rate announced by PBOC. The facility of credit was secured by all of the Company’s investment properties (See Note 8), and was guaranteed by a director of the Company and an unrelated company. This facility was cancelled and replaced by the above-mentioned three-year non-revolving facility line of credit agreement entered by the Company in April 2012.

NOTE 13 – PROMISSORY NOTES PAYABLE

The promissory notes payable consist of the following unsecured notes to unrelated parties. Included in the balances, the promissory note and unpaid interest thereon of $2,328,946 and $3,853,052 are in default as of September 30, 2013 and December 31, 2012, respectively.

The promissory note with an outstanding principal of $2,289,783 bears interest at a rate of 12% per annum, is unsecured and has matured on January 30, 2013. The Company is currently negotiating with the note holder for an extension of the repayment date. As of September 30, 2013 and December 31, 2012, the outstanding principal in default and unpaid interest related to this promissory note amounted to $2,328,946 and $3,853,052, respectively.

The promissory note with a principal of $300,000 bears interest at a rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2013 and December 31, 2012, the outstanding principal and unpaid interest related to this promissory note amounted to $ 292,364 and $307,500, respectively.

The promissory note with a principal of $940,143 (RMB5,780,000) bears interest at a rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2013 and December 31, 2012, the outstanding principal and unpaid interest related to this promissory note amounted to $1,209,540 and $1,088,219, respectively.

The promissory note with a principal of $813,272 (RMB5,000,000) bears interest at a rate of 15% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2013 and December 31, 2012, the outstanding principal and unpaid interest related to this promissory note amounted to $1,017,064 and $905,324, respectively.

The promissory note with a principal of $162,654 (RMB1,000,000) bears interest at a rate of 36% per annum, is unsecured and is due on December 27, 2013. As of September 30, 2013, the outstanding principal and unpaid interest related to this promissory note amounted to $162,654.

The interest expense on promissory notes amounted to $232,858 and $144,428 for the three months ended September 30, 2013 and 2012, respectively; and $702,460 and $267,551, respectively, for the nine months ended September 30, 2013 and 2012.

	19

NOTE 14 – LONG TERM BANK LOAN

Long term obligations of the Company are summarized as follows:

	September 30,		December 31,
	2013		2012

Loan from China Citi Bank	$	11,385,817	$	-

Less: Current portion		(11,385,817)		-
	$	-	$	-

In May 2013, the Company obtained a bank loan of $11,385,817 (RMB70,000,000) from the China Citi Bank. The loan bears interest at a rate of 14.21% per annum and is collateralized by the real estate property under development of LYSY (Note 5) and is guaranteed by a director of the Company and LYSY and his wife, and a director of a corporate shareholder of LYSY. The guarantors do not receive any compensation for these guarantees. The Company is obliged to repay $3,415,745 (RMB21,000,000), or higher, before May 14, 2014, $4,554,326 (RMB28,000,000), or higher, on November 14, 2014, and the remaining loan balance on May 14, 2015. As of September 30, 2013, the outstanding balance of this loan was $11,385,817. Under the term of the loan agreement, the Company is to adhere to certain covenants. The Company is obligated under the loan agreement to adhere to the restrictions on use of proceeds from the loan to finance construction of the real estate development project of LYSY. The Company used $1,626,545 (RMB10, 000,000.00) from the loan proceeds to finance WHYYL’s property development project in Wuhan, and therefore was not in compliance with the covenant as of September 30, 2013. The loan is classified as current. As of September 30, 2013, we have not received any notice of default or other communication from the China Citi Bank with respect to our not being in compliance.

NOTE15 –DEPOSITS RECEIVED FROM UNDERWRTING SALES

The Company accounts for its underwriting sales revenue with underwriting rent guarantees using the deposit method in accordance with ASC 976-605 (formerly SFAS No.66). Revenue from the sales of floor space with underwriting rent guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers.

NOTE 16 – 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 September 30, 2013 and December 31, 2012, the Company’s statutory reserve fund was $782,987.

	20

NOTE 17 - 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 were $65,009 and $11,293 for the three months ended September 30, 2013 and 2012, respectively; and $160,531 and $34,653 for the nine months ended September 30, 2013 and 2012, respectively.

As of September 30, 2013, the Company had the following operating lease obligations falling due.

	Amount
Within one year	$	81,006
Two to five years		18,868
	$	99,874

During 2005 and 2006, SZGFH entered into leasing agreements with certain buyers of the Sovereign Building underwriting project to lease the properties for them. These leasing agreements on these properties are for 62% of the floor space that was sold to third party buyers. In accordance with the leasing agreements, the owners of the properties can have a rental return of 8.5% and 8.8% per annum for a period of 5 years and 8 years, respectively. The leasing period started in the second quarter of 2006 and the Company had the right to sublease these properties to cover these lease commitments in the leasing periods. In 2009, we agreed with certain buyers to amend the agreed 5-year annual return rate from 8.5% to 5.8% and the agreed 8-year annual return rate from 8.8% to 6% for the remaining lease, or to terminate their lease agreements early. As of September 30, 2013, the Company has the following leasing commitment related to these properties.

	Amount
Within one year	$	606,739
Two to five years		-
	$	606,739

An accrual for onerous contracts was recognized which is equal to the difference between the present value of the sublease income and the present value of the associated lease expense at the appropriate discount rate. During the three months and nine months ended September 30, 2013 and 2012, the Company had no significant provision for onerous contracts.

According to the leasing agreements, the Company has an option to terminate any agreement by paying a predetermined compensation. As of September 30, 2013, the compensation to terminate all leasing agreements is $935,978. According to the sub-leasing agreements that have been signed through September 30, 2013, the rental income from these sub-leasing agreements will be $550,792 within one year and $0 within two to five years. However, no assurance can be given that we can collect all of the rental income.

Other commitments

As of September 30, 2013, the Company had outstanding commitments of $26,041,583 with respect to non-cancellable construction contracts for real estate development.

Contingencies

As of September 30, 2013, the Company was contingently liable for $813,272 in a guarantee executed in May, 2013. The Company provided a loan guarantee to an unaffiliated third-party lender for the borrowing of $813,272 (RMB5,000,000) by Lin Chi-Jung, a director of the Company. The Company provided the guarantee in order to secure a loan to the Company for $813,272 from Lin Chi-Jung. Lin Chi-Jung obtained the loan from the third party lender and, in turn, lent the funds to the Company on the same terms as his loan from the third-party lender. The loan to the Company bears interest at a rate of 20% per annum and matures in December 2013. The guarantee is secured by the use right of the Company’s investment properties located in Shanghai, and expires in December 2013. No loss has been experienced or is anticipated under this guarantee.

	21

NOTE 18 - SEGMENT INFORMATION

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

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

	Three Months ended September 30, 2013
	Property
	Brokerage		Real Estate
	Services		Development		Corporate		Total
Net revenues	$	2,673,046	$	-	$	-	$	2,673,046
Cost of revenues		(1,264,443)		-		-		(1,264,443)
Gross income		1,408,603		-		-		1,408,603

Operating expenses		(374,685)		(76,447)		-		(451,132)
General and administrative expenses		(651,951)		(124,519)		(93,695)		(870,165)
Operating income(loss)		381,967		(200,966)		(93,695)		87,306

Other income (expenses)
Interest income		170,032		26,709		-		196,741
Interest expense, net of amount capitalized		(1,133,545)		-		(13,266)		(1,146,811)
Miscellaneous, net		2,238		-		-		2,238
Total other (expenses) income		(961,275)		26,709		(13,266)		(947,832)

Loss before income tax		(579,308)		(174,257)		(106,961)		(860,526)

Income tax expense		9,415		69,572		-		78,987
Equity in losses of unconsolidated affiliates, net of income taxes		(60,000)		(124,889)		-		(184,889)
Net loss	$	(629,893)	$	(229,574)	$	(106,961)	$	(966,428)

	Three Months ended September 30, 2012
	Property
	Brokerage		Real Estate
	Services		Development		Corporate		Total
Net revenues	$	1,877,851	$	-	$	-	$	1,877,851
Cost of revenues		(1,000,045)		-		-		(1,000,045)
Gross income		877,806		-		-		877,806

Operating expenses		(326,571)		(141,642)		-		(468,213)
General and administrative expenses		(799,141)		(67,111)		(40,970)		(907,222)
Operating loss		(247,906)		(208,753)		(40,970)		(497,629)

Other income (expenses)
Interest income		3,070		2,270		32		5,372
Interest expense, net of amount capitalized		(278,657)		-		(11,320)		(289,977)
Miscellaneous, net		(4,652)		-		-		(4,652)
Total other (expenses) income		(280,239)		2,270		(11,288)		(289,257)

Loss before income taxes		(528,145)		(206,483)		(52,258)		(786,886)

Income tax expense		692		-		-		692
Equity in loss of an unconsolidated affiliate, net of income taxes		-		(107,476)		-		(107,476)
Net loss	$	(527,453)	$	(313,959)	$	(52,258)	$	(893,670)

	22

	Nine Months ended September 30, 2013
	Property
	Brokerage		Real Estate
	Services		Development		Corporate		Total
Net revenues	$	9,273,860	$	-	$	-	$	9,273,860
Cost of revenues		(3,644,647)		-		-		(3,644,647)
Gross income		5,629,213		-		-		5,629,213

Operating expenses		(997,176)		(139,771)		-		(1,136,947)
General and administrative expenses		(2,130,491)		(278,188)		(284,344)		(2,693,023)
Operating income (loss)		2,501,546		(417,959)		(284,344)		1,799,243

Other income (expenses)
Interest income		499,414		76,545		-		575,959
Interest expense, net of amount capitalized		(2,979,206)		-		(39,797)		(3,019,003)
Miscellaneous, net		18,481		-		-		18,481
Total other (expenses) income		(2,461,311)		76,545		(39,797)		(2,424,563)

Income (loss) before income taxes		40,235		(341,414)		(324,141)		(625,320)

Income tax (expense) benefit		(26,004)		85,353		-		59,349
Equity in losses of unconsolidated affiliates, net of income taxes		(60,000)		(397,676)		-		(457,676)
Net loss	$	(45,769)	$	(653,737)	$	(324,141)	$	(1,023,647)

	Nine Months ended September 30, 2012
	Property
	Brokerage		Real Estate
	Services		Development		Corporate		Total
Net revenues	$	5,433,174	$	-	$	-	$	5,433,174
Cost of revenues		(3,069,720)		-		-		(3,069,720)
Gross income		2,363,454		-		-		2,363,454

Operating expenses		(937,281)		(141,642)		-		(1,078,923)
General and administrative expenses		(1,971,426)		(595,055)		(199,061)		(2,765,542)
Operating loss		(545,253)		(736,697)		(199,061)		(1,481,011)

Other income (expenses)
Interest income		6,738		2,338		86		9,162
Interest expense, net of amount capitalized		(1,080,523)		-		(194,060)		(1,274,583)
Miscellaneous, net		(6,613)		-		-		(6,613)
Total other (expenses) income		(1,080,398)		2,338		(193,974)		(1,272,034)

Loss before income taxes		(1,625,651)		(734,359)		(393,035)		(2,753,045)

Income tax expense		(40,788)		-		-		(40,788)
Equity in loss of an unconsolidated affiliate, net of income taxes		-		(309,319)		-		(309,319)
Net loss	$	(1,666,439)	$	(1,043,678)	$	(393,035)	$	(3,103,152)

	23

	Property
	Brokerage		Real Estate
	Services		Development		Corporate		Total
As of September 30, 2013
Real estate property under development	$	-	$	29,911,559	$	-	$	29,911,559
Total assets		19,752,107		40,538,841		42,048		60,332,996

As of December 31, 2012
Real estate property under development	$	-	$	20,493,851	$	-	$	20,493,851
Total assets		24,322,419		25,813,935		55,681		50,192,035

NOTE 19 – RESTATEMENTS

Subsequent to the issuance of the Company’s condensed consolidated financial statements for the three months and nine months ended September 30, 2012, the Company determined that it incorrectly recognized the government subsidy and overstated the equity in net losses of unconsolidated affiliates in the condensed consolidated statement of operations.

(a) Government subsidy

The Company recognized the government subsidy received in the condensed consolidated statement of operations, and in its real estate property under development to offset against construction costs for the three months and nine months ended September 30, 2012. In consideration of the intended use and restrictions of the subsidy that the subsidy is given to reimburse the land acquisition costs and certain construction cost of the Company’s real estate development project in Linyi, and is repayable if the Company fails to complete the project by the agreed date, the Company determined that the government subsidy should be deferred. As a result, the net profit attributable to non-controlling interests was decreased, and both the real estate property under development and the deferred government subsidy increased.

(b) Equity in net loss of an unconsolidated affiliate

The Company’s unconsolidated affiliate charged the interest expense to its statement of operations for the three months and nine months ended September 30, 2012. The Company reconsidered the affiliate’s interest expense that was incurred in relation to the construction of a real estate development project of the affiliate, and determined that the interest expense should be capitalized as part of the project development cost. Accordingly, the Company should decrease its equity in net losses of unconsolidated affiliates for the three months and nine months ended September 30, 2012.

Additionally, the Company has made an immaterial adjustment to correct a consolidation error in additional paid-in capital and accumulated other comprehensive income and an error in classifying the Company’s equity in net loss of an unconsolidated affiliate as loss on disposal of property and equipment, and reclassified certain items in the condensed consolidated financial statements for the three months and nine months ended September 30, 2012 to be comparable with the classification for the three months and nine months ended September 30, 2013.

The Company has restated its condensed consolidated financial statements for the three months and nine months ended September 30, 2012 to reflect the correction of the above errors and reclassifications. The impacts of these restatements decrease the net loss by $2,319,358, and result in a net loss of $893,670, for the three months ended September 30, 2012; and decreased the net income by $116,787, and result in a net loss of $3,103,152 for the nine months ended September 30, 2012. Additionally, due to these restatements, the Company’s total assets, total liabilities and total shareholders’ equity as of September 30, 2012 increased by $5,377,213, $5,260,426 and $116,787, respectively.

The impacts of these restatements on the Company’s unaudited condensed consolidated balance sheet as of September 30, 2012, its unaudited condensed consolidated statements of operations for the three months and nine months ended September 30, 2012 and cash flows for the nine months ended September 30, 2012 are set forth below.

	24

Unaudited Condensed Consolidated Balance Sheet as of September 30, 2012

	As
	Previously					As
	Reported		Adjustments			Restated
ASSETS

Current assets
Cash and cash equivalents	$	1,223,853	$	-		$	1,223,853
Restricted cash		1,340,483		-			1,340,483
Accounts receivable		1,278,259		-			1,278,259
Promissory deposits		1,029,806		-			1,029,806
Real estate property under development		12,544,116		5,026,829	(a)		17,570,945
Amount due from an unconsolidated affiliate		1,998,332		-			1,998,332
Other receivables and deposits		1,004,942		-			1,004,942
Total current assets		20,419,791		5,026,829			25,446,620

Property and equipment, net		9,467,351		-			9,467,351
Investment properties, net		6,387,761		-			6,387,761
Investment in an unconsolidated affiliate		-		350,384	(b)		3,844,601
				3,494,217	(c)
Other investments		3,599,993		(3,494,217)	(c)		105,776
Total assets	$	39,874,896	$	5,377,213		$	45,252,109

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	257,871	$	-		$	257,871
Amounts due to directors		5,639,048		-			5,639,048
Amount due to a related party		86,737		(86,737)	(c)		-
Other payables and accrued expenses		6,039,862		86,737	(c)		2,483,332
				(3,643,267)	(c)
Other taxes payable		9,445		-			9,445
Income taxes payable		2,556		-			2,556
Bank loans		11,039,268		6,434,316	(c)		17,473,584
Promissory notes payable		2,397,282		3,643,267	(c)		6,040,549
Total current liabilities		25,472,069		6,434,316			31,906,385

Long term bank loans		6,434,316		(6,434,316)	(c)		-
Deferred government subsidy		-		5,260,426	(a)		5,260,426
Deposits received from underwriting sales		2,536,884		-			2,536,884
Total liabilities		34,443,269		5,260,426			39,703,695

Shareholders’ equity
Common stock, par value $0.01 per share; 20,000,000 shares authorized: 28,691,925 shares issued and outstanding		286,919		-			286,919
Additional paid-in capital		4,579,529		(9,521)	(c)		4,570,008
Statutory reserve		782,987		-			782,987
Accumulated losses		(13,277,821)		350,384	(b)		(12,983,500)
				177,534	(a)
				(233,597)	(a)
Accumulated other comprehensive income		420,282		9,521	(c)		429,803

Total deficit of Sunrise Real Estate Group, Inc.		(7,208,104)		294,321			(6,913,783)
Non-controlling interests		12,639,731		(177,534)	(a)		12,462,197
Total shareholders’ equity		5,431,627		116,787		$	5,548,414

Total liabilities and shareholders’ equity	$	39,874,896	$	5,377,213		$	45,252,109

	25

Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2012

	As
	Previously					As
	Reported		Adjustments			Restated
Net revenues	$	1,687,626	$	190,225	(c)	$	1,877,851
Cost of revenues		(766,868)		(134,115)	(c)		(1,000,045)
				(99,062)	(c)
Gross income		920,758		(42,952)			877,806

Operating expenses		(468,213)		-			(468,213)
General and administrative expenses		(1,041,337)		134,115	(c)		(907,222)
Operating income (loss)		(588,792)		91,163			(497,629)

Other income (expenses)
Interest income		5,372		-			5,372
Interest expense, net of amount capitalized		(289,977)		-			(289,977)
Miscellaneous, net		(2,302,717)		2,298,065	(a)		(4,652)
Total other (expenses) income		(2,587,322)		2,298,065			(289,257)

Loss before income taxes and equity in net loss of an unconsolidated affiliate		(3,176,114)		2,389,228			(786,886)
Income tax expense		692		-			692
Equity in loss of an unconsolidated affiliate, net of income taxes		(37,606)		(69,870)	(b)		(107,476)
Net loss		(3,213,028)		2,319,358			(893,670)

Less: Net loss attributable to non-controlling interests		1,839,148		(1,789,583)	(a)		49,565

Net loss attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(1,373,880)	$	529,775		$	(844,105)

Loss per share – basic and fully diluted	$	(0.05)				$	(0.03)

Weighted average common shares outstanding
- Basic and fully diluted		28,691,925					28,691,925

	26

Unaudited Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2012

	As
	Previously					As
	Reported		Adjustments			Restated
Net revenues	$	5,242,949	$	190,225	(c)	$	5,433,174
Cost of revenues		(2,644,921)		(22,454)	(c)		(3,069,720)
				(402,345)	(c)
Gross income		2,598,028		(234,574)			2,363,454

Operating expenses		(1,078,923)		-			(1,078,923)
General and administrative expenses		(3,167,887)		402,345	(c)		(2,765,542)
Operating loss		(1,648,782)		167,771			(1,481,011)

Other income (expenses)
Interest income		9,162		-			9,162
Interest expense, net of amount capitalized		(1,274,583)		-			(1,274,583)
Miscellaneous, net		394,755		(233,597)	(a)		(6,613)
				22,454	(c)
				(190,225)	(c)
Total other expenses		(870,666)		(401,368)			(1,272,034)

Loss before income taxes and equity in net loss of an unconsolidated affiliate		(2,519,448)		(233,597)			(2,753,045)
Income tax expense		(40,788)		-			(40,788)
Equity in loss of an unconsolidated affiliate, net of income taxes		(659,703)		350,384	(b)		(309,319)
Net loss		(3,219,939)		116,787			(3,103,152)

Less: Net loss attributable to non-controlling interests		348,916		177,534	(a)		526,450
Net loss attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(2,871,023)	$	294,321		$	(2,576,702)

Loss per share – basic and fully diluted	$	(0.10)				$	(0.09)

Weighted average common shares outstanding
- Basic and fully diluted		28,691,925					28,691,925

	27

Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2012

	As
	Previously					As
	Reported		Adjustments			Restated
Cash flows from operating activities
Net loss	$	(3,219,939)	$	(233,597)	(a)	$	(3,103,152)
				350,384	(b)
Adjustments to reconcile net loss to net cash used in operating activities
Loss on disposal of property and equipment		2,196		-			2,196
Depreciation and amortization		687,199		-			687,199
Loss on disposal of equity interest in subsidiary		659,703		(659,703)	(c)		-
Equity in net loss of an unconsolidated affiliate		-		659,703	(c)		309,319
				(350,384)	(b)
Changes in operating assets and liabilities
Accounts receivable		(145,747)		-			(145,747)
Promissory deposits		2,493,805					2,493,805
Real estate property under development		(12,554,609)		(5,026,829)	(a)		(17,581,438)
Other receivables and deposits		(146,715)		-			(146,715)
Amount due from an unconsolidated affiliate		(1,684,332)		1,684,332	(c)		-
Accounts payable		(221,009)		-			(221,009)
Other payables and accrued expenses		(1,220,688)		(3,643,267)	(c)		(4,863,955)
Interest payable on promissory notes		286,408		-			286,408
Interest payable on amounts due to directors		407,330		-			407,330
Other taxes payable		(59,568)		-			(59,568)
Income taxes payable		(220,529)		-			(220,529)
Deposits received from underwriting sales		(535,629)		-			(535,629)
Deferred government subsidy		-		5,260,426	(a)		5,260,426
Net cash used in operating activities		(15,472,124)		(1,958,935)			(17,431,059)

Cash flows from investing activities
Advances to an unconsolidated affiliate		-		(1,684,332)	(c)		(1,684,332)
Acquisitions of property and equipment		(3,420,251)		-			(3,420,251)
Acquisition of equity investment		(60,000)		-			(60,000)
Net cash used in investing activities		(3,480,251)		(1,684,332)			(5,164,583)

Cash flows from financing activities
Capital contribution from non-controlling interests of new consolidated subsidiaries		12,020,975		62,121	(c)		12,083,096
New bank loans		6,439,698		-			6,439,698
Advances from directors		53,528		-			53,528
Proceeds from new promissory notes		416,131		3,643,267	(c)		4,059,398
Net cash provided by financing activities		18,930,332		3,705,388			22,635,720

Effect of exchange rate changes on cash and cash Equivalents		(131,197)		(62,121)	(c)		(193,318)

Net decrease in cash and cash equivalents		(153,240)		-			(153,240)
Cash and cash equivalent at the beginning of period		1,377,093		-			1,377,093
Cash and cash equivalents at the end of period	$	1,222,853	$	-		$	1,222,853

Supplementary disclosure of cash flow information
Income taxes paid	$	214,310	$	-		$	214,310
Interest paid		157,803		-			157,803

	28

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

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

In addition to historical information, this Form 10-Q contains forward-looking statements. Forward-looking statements are based on our current beliefs and expectations, information currently available to us, estimates and projections about our industry, and certain assumptions made by our management. These statements are not historical facts. We use words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", and similar expressions to identify our forward-looking statements, which include, among other things, our anticipated revenue and cost of our agency and investment business.

Because we are unable to control or predict many of the factors that will determine our future performance and financial results, including future economic, competitive, and market conditions, our forward-looking statements are not guarantees of future performance. They are subject to risks, uncertainties, and errors in assumptions that could cause our actual results to differ materially from those reflected in our forward-looking statements. We believe that the assumptions underlying our forward-looking statements are reasonable. However, the investor should not place undue reliance on these forward-looking statements. They only reflect our view and expectations as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement in light of new information, future events, or other occurrences.

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

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

OVERVIEW

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

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

SRRE and its subsidiaries, namely, CY-SRRE, LRY, Shanghai XinJi Yang Real Estate Consultation Company Limited (“SHXJY”), Shanghai Shang Yang Real Estate Consultation Company, Ltd. (“SHSY”), Suzhou Gao Feng Hui Property Management Company, Ltd, (“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company (“SZSY”), Suzhou XinJi Yang Real Estate Consultation Company, Ltd. (“SZXJY”), Linyi Shang Yang Real Estate Development Company Ltd (“LYSY”), Shangqiu Shang Yang Real Estate Consultation Company, Ltd., (“SQSY”), Wuhan Gao Feng Hui Consultation Company Ltd. (“WHGFH”), Sanya Shang Yang Real Estate Consultation Company, Ltd. (“SYSH”), Shanghai RuiJian Design Company, Ltd., (“SHRJ”), Shanghai XinJi Yang Real Estate Brokerage Company Limited (“SHXJYB”), and its equity investments in affiliates, namely Wuhan Yuan Yu Long Real Estate Development Company, Ltd. (“WHYYL”), XinGuang Equity Investment Management (Shanghai) Company Limited (“XG”), Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”), and Shanghai Da Er Wei Trading Company Limited (“SHDEW”), are sometimes hereinafter collectively referred to as “the Company,” “our,” or “us”.

	29

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

RECENT DEVELOPMENTS

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

In mid-2011, we established a project company in Wuhan in which we have a 49% ownership. We commenced the construction of Phase 1 of the project in the third quarter of 2012 and the pre-sale of Phase 1 in the first quarter of 2013. We have begun Phase 2 construction of the project in the second quarter of 2013 and the pre-sale of Phase 2 was started in mid-August. The Wuhan project is planned to include seven residential buildings with three buildings being part of Phase 1 and four buildings in Phase 2.

In January 2012, we established LYSY in which we have a 24% ownership. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. We began construction in mid-2012 and through September 30, 2013 have constructed 98 units which encompasses approximately one-third of the gross sales area. Proceeds from sales will be used to finance the construction of the subsequent phases of the project. As of September 30, 2013, none of such units has been sold. We are applying for bank loans and other forms of funding, however, there are no assurances we will be able to obtain future financings.

RECENTLY ADOPTED ACCOUNTING STANDARDS

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

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

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

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

	30

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

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

Revenue Recognition

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

All revenues represent gross revenues less sales and business taxes.

	31

Real Estate Property under Development

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.

For the three months and nine months ended September 30, 2013 and 2012, the Company had not recognized any impairment for real estate property under development.

Impairment of Long-lived Assets

In accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", 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 three months and nine months ended September 30, 2013 and 2012.

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 three months and nine months ended September 30, 2013 and 2012.

	32

Government Subsidies

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

As of September 30, 2013, the Company received refundable government subsidies of $5,396,131. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project, and is repayable if the Company fails to complete the subsidized property development project by the agreed date. The Company recorded the subsidy received as a deferred government subsidy in the condensed consolidated balance sheets.

RESULTS OF OPERATIONS

We provide the following discussion and analyses of our changes in financial condition and results of operations for the three months and nine months ended September 30, 2013 with comparisons to the three months and nine months ended September 30, 2012.

Net Revenues

The following table shows the net revenues by line of business:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013	% to total	2012	% to total	% change	2013	% to total	2012	% to total	% change
Agency sales	1,441,153	53.91	961,422	51.20	49.90	5,859,198	63.18	3,339,290	61.46	75.46
Property management	537,423	20.11	459,772	24.48	16.89	1,631,164	17.59	1,399,146	25.75	16.58
Underwriting sales	694,470	25.98	456,657	24.32	52.08	1,783,498	19.23	694,738	12.79	156.72
Net revenues	2,673,046	100.00	1,877,851	100.00	42.35	9,273,860	100.00	5,433,174	100.00	70.69

The net revenue in the third quarter of 2013 was $2,673,046, which increased 42.35% from $1,877,851 in the third quarter of 2012. The net revenues of the first three quarters of 2013 were $9,273,860, which increased 70.69% from $5,433,174 of the first three quarters of 2012. In the third quarter of 2013, agency sales represented 53.91% of our net revenues, property management represented 20.11%, and underwriting sales represented 25.98%. In the first three quarters of 2013, agency sales represented 63.18% of our net revenues, property management represented 17.59%, and underwriting sales represented 19.23%. The increase in net revenues in the third quarter and first three quarters of 2013 was due to the increase in our agency sales and underwriting sales.

Agency sales

In the third quarter and first three quarters of 2013, 53.91% and 63.18%, respectively, of our net revenues were attributable to agency sales. As compared with similar periods in 2012, net revenue of agency sales increased 49.9% and 75.46%, respectively, in the third quarter and the first three quarters of 2013. The primary reason was there were more sales agency projects that were completed during the third quarter of 2013, which contributed to the increase in our agency sales revenue.

Because of our diverse market locations, the risk of market fluctuations on our business operations in agency sales in 2013 has increased, and we are seeking stable growth in our agency sales business in 2013. However, there can be no assurance that we will be able to do so.

Property management

During 2005 and 2006, SZGFH entered into leasing agreements with certain buyers of the Sovereign Building underwriting project to lease the properties for them. These leasing agreements on these properties are for 62% of the floor space that was sold to third party buyers. In accordance with the leasing agreements, the owners of the properties can have a rental return of 8.5% and 8.8% per annum for a period of 5 years and 8 years, respectively. In regards to the leasing agreements, we have negotiated with the buyers and have lowered the annual rental return rate for the remaining leasing period from 8.5% for 5 years to 5.8%, and from 8.8% for 8 years to 6%.The leasing period started in the second quarter of 2006, and the Company has the right to sublease the leased properties to cover these lease commitments in the leasing period.

	33

We expect that the income from the sub-leasing business will be on a stable growth trend for the rest of 2013 and that it can cover the lease commitments in the leasing period as a whole. We expect that these properties will be leased out in 2013 and the gross margin will improve. However there can be no assurance that we will achieve these objectives.

Underwriting sales

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

The Company accounts for its underwriting sales revenue with underwriting rent guarantees in accordance with ASC976-605, “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66, “Accounting for Sales of Real Estate”. The deposit method has been used for the revenue from the sales of floor space with underwriting rent guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers. During the three months and nine months ended September 30, 2013, more underwriting agreements are approaching its expiration and have met the recognition criteria. As a result, revenues from underwriting sales increased to $1,783,498 for the nine months ended September 30, 2013 from $694,738 for the same period in 2012, and increased to $694,470 for the three months ended September 30, 2013 from $456,657 in the same period in 2012.

Cost of Revenues

The following table shows the cost of revenues by line of business:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013	% to total	2012	% to total	% change	2013	% to total	2012	% to total	% change
Agency sales	625,204	49.44	411,174	41.12	52.05	1,830,408	50.22	1,594,935	51.96	14.76
Property management	440,050	34.80	484,286	48.43	(9.13)	1,360,433	37.33	1,315,675	42.86	3.40
Underwriting sales	199,189	15.76	104,585	10.45	90.46	453,806	12.45	159,110	5.18	185.22
Cost of revenues	1,264,443	100.00	1,000,045	100.00	26.44	3,644,647	100.00	3,069,720	100.00	18.73

The cost of revenues of the third quarter of 2013 was $1,264,443, which increased 26.44% from $1,000,045 during the third quarter of 2012. The cost of revenues of the first three quarters of 2013 was $3,644,647, which increased 18.73% from $3,069,720 during the first three quarters of 2012. In the third quarter of 2013 agency sales represented 49.44% of our cost of revenues, property management represented 34.80%, and underwriting sales represented less than 15.76%. For the first three quarters of 2013, agency sales represented 50.22% of our cost of revenues, property management represented 37.33%, and underwriting sales represented 12.45%. The increase in cost of revenue in the third quarter and first three quarters of 2013 was mainly due to the increase in the cost of revenue for our agency sales and underwriting sales.

Agency sales

As compared with similar periods in 2012, cost of revenue of agency sales in the third quarter and first three quarters of 2013 increased 52.05% and 14.76% respectively. This increase in cost was mainly due to the increase in our marketing cost and commission fee of $116,934 and $167,799 respectively.

	34

Property management

The cost of revenue from property management of the third quarter of 2013 was $440,050, which was decreased by 9.13% from $484,286 during the third quarter of 2012. The cost of revenue of the first three quarters of 2013 was $1,360,433, which increased 3.4% from $1,315,675 during the first three quarters of 2012.

Underwriting sales

As compared with similar periods in 2012, cost of revenue of underwriting sales in the third quarter and first three quarters of 2013 increased 90.46% and 185.22% respectively. The cost of underwriting sales represents selling costs, such as staff costs and advertising expenses, associated with underwriting sales. The increase in cost of underwriting sales for the third quarter and the first three quarters of 2013 was primarily in line with the increase in the underwriting sales revenue.

Operating Expenses

The following table shows operating expenses by line of business:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013	% to total	2012	% to total	% change	2013	% to total	2012	% to total	% change
Agency sales	344,779	76.42	302,014	64.50	14.16	928,267	81.65	857,613	79.49	8.24
Property management	29,906	6.63	24,937	5.33	19.93	68,909	6.06	79,668	7.38	(13.50)
Real estate development	76,447	16.95	141,262	30.17	(45.88)	139,771	12.29	141,642	13.13	(1.32)
Operating expenses	451,132	100.00	468,213	100.00	(3.65)	1,136,947	100.00	1,078,923	100.00	5.38

The operating expenses for the third quarter of 2013 were $451,132, which decreased3.65% from $468,213for the same period in 2012. The total operating expenses for the first three quarters of 2013 were $1,136,947, which increased 5.38% from $1,136,947 for the same period in 2012. In the third quarter of 2013, agency sales represented 76.42% of the total operating expenses, property management represented 6.63%, and real estate development represented 16.95%. In the first three quarters of 2013, agency sales represented 81.65% of the total operating expenses, property management represented 6.06%, and real estate development represented 12.29%. The slight decrease in operating expenses for the third quarter of 2013 as compared to the same period of 2012 was a result of the lower real estate development expense in 2013. However, operating expense overall for the three quarters ended 2013 was 5.38% higher due to our increased agency sale and real estate development business.

Agency sales

Compared to the similar periods in 2012, the operating expenses for agency sales in the third quarter of 2013 increased by 14.16% and increased 8.24% for the first three quarters of 2013. This increase was mainly due to the increases in employee salary expense.

Property management

Compared to the similar periods in 2012, the operating expenses for property management in the third quarter of 2013increased by 19.93%. The increase was mainly due to an increase of commission expense. For the first three quarters of 2013, operating expenses for property management decreased 13.50%for the first three quarters. This decrease was primarily due to the decrease in staff salary expenses.

Real estate development

The Company commenced the construction of its real estate development project in mid-2012. During the third quarter and the first three quarters of 2013, the Company’s real estate development operation incurred operating expenses of $76,447 and $139,771 respectively, which mainly comprise planning and marketing expenses.

	35

General and Administrative Expenses

General and administrative expenses in the third quarter and first three quarters of 2013 were decreased by 4.08% and 2.62% in 2013 respectively as compared to the same periods in 2012.The main reasons for the decrease in expense were decreases in staff related costs, rental and miscellaneous expenses.

Operating Income (Loss)

In the third quarter and first three quarters of 2013, the Company had an operating income of $87,306 and $1,799,243, respectively, as compared to our operating losses of $497,629 and $1,481,011, respectively, in the similar periods in 2012. The reason for the increase from the same period of 2012 is the higher revenues from all our operations.

Interest Income

Interest income increased to $196,741 in the third quarter of 2013 from $5,372 in the same period of 2012, and increased to $575,959 in the first three quarters of 2013 from $9,162 during the same period in 2012. The increase was mainly due to the interest income from WHYYL, which amounted to $189,774 for the third quarter of 2013 and $563,323 for the first three quarters of 2013.

Interest Expense

Interest expense in the third quarter and first three quarters of 2013 were $1,146,811 and $3,019,003, respectively, which increased by 295% and 137%, respectively, from $289,977 and $1,274,583 for the similar periods in 2012. The increase in interest expense in the third quarter and first three quarters of 2013 was primarily attributable to the higher balances of bank loans, promissory notes payable and amounts due to directors.

Major Related Party Transaction

	September 30,		December 31,
	2013		2012

Lin Chi-Jung	$	11,451,573	$	7,683,507
Lin Hsin-Hung		35,368		22,225
Lin Chao-Chin		1,472		1,440
	$	11,488,413	$	7,707,172

(b)

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

(b)

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

The interest expense on amounts due to directors amounted to $789,268 which expense is owed entirely to Lin Chi-Jung and $88,081 for the three months ended September 30, 2013 and 2012; and $1,600,108 and $575,129, respectively, for the nine months ended September 30, 2013 and 2012.

Advances to unconsolidated affiliates

As of September 30, 2013 and December 31, 2012, the Company has a balance of $3,756,375 and $4,316,031 due from unconsolidated affiliates, of which $3,735,281 and $4,316,031 as of September 30, 2013 and December 31, 2012, respectively, bears interest at a rate of 15% per annum, is unsecured and has no fixed term of repayment, and the remaining balance is interest free. The Company recorded interest income from unconsolidated affiliates of $189,774 and $563,323, respectively, for the third quarter of 2013 and the first three quarters of 2013. There was no interest income from unconsolidated affiliates during 2012.

	36

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2013, our principal sources of cash were revenues from our agency sales and property management business, new bank loan and promissory notes, and advances from directors. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices, and the repayments of our bank loans, promissory notes and advances from directors.

We ended the period with a cash position of $1,590,158.

Net cash used in operating activities

Net cash used in the Company’s operating activities for the nine months ended September 30 2013 was $10,497,128, representing a decrease of $6,933,931 as compared to the cash used in operating activities for the nine months ended September 30, 2012. The decrease was primarily attributable to the decrease in cash used for real estate property under development of $8,700,910 in the nine months ended September 30, 2013 from $17,581,438 of the same period in 2012, and in cash used in other payables and accrued expenses of $2,622,406 in the nine months ended September 30, 2013 from $4,863,955 in the same period in 2012, which was partly offset by the decrease in cash provided by the receipt of government subsidy of $5,260,426 as there was no such receipt in 2013.

Net cash provided by investing activities

Net cash used in the Company’s investing activities for the nine months ended September 30, 2013 was $1,938,469, represent a decrease of $3,226,114 as compared to cash used in investing activities of $5,164,583 for the same period in 2012. It was primarily due to the decrease in cash used in acquisition of property equipment by $3,249,375 to $170,876 in 2013 from $3,420,251 in the same period in 2012, and the cash provided by the repayment of advances to unconsolidated affiliates of $2,132,984 during the nine months ended September 30, 2013. This decrease however was partially offset by an increase in investments in unconsolidated affiliates of $2,418,004 during the nine months ended September 30, 2013.

Net cash provided by financing activities

Net cash provided by financing activities for the nine months ended September 30, 2013 was $12,963,857, representing a decrease of $9,671,863 from the same period in 2012. This was primarily due to the decrease in cash provided by funds received from capital contributions from non-controlling interests by $12,042,968 and the proceeds from new promissory notes by $2,930,836, and the increase in cash used in repayments of bank loans, advances from directors, and promissory notes, totaling $10,533,812 during the nine months ended September 30, 2013, as compared to the same period in 2012. It was partly offset by the increase in cash provided by new bank loans by $6,135,718 to $12,575,416 for the nine months ended September 2013, as compared to $6,439,698 in the same period of 2012.

Indebtedness

The company’s indebtedness is described under “Note 10- Amounts due to directors”, “Note 12- Bank Loans”, “Note 13- Promissory Notes Payable, and “Note 14- Long Term Bank Loan” to the Company’s accompanying unaudited condensed consolidated financial statements in Item 1 of Part I.

Promissory Notes – As of September 30, 2013, the Company had an aggregate amount due under outstanding promissory notes to parties other than banks in the amount of $5,010,568 bearing interest at rates varying from 12% to 36%. The interest expense on promissory notes amounted to $232,858 and $144,428, respectively, for the third quarter of 2013 and 2012; and $702,460 and $267,551, respectively, for the first three quarters of 2013 and 2012.

Bank Loans - In January 2013, the Company obtained a bank loan of $1,301,236 (RMB8,000,000) from the Bank of China, bearing interest at a rate of 7.56% per annum. The loan is secured by the properties of two unrelated parties and matures on December 5, 2013. As of September 30, 2013, the outstanding balance of this loan was $1,301,236.

	37

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 $5,823,032 (RMB35,800,000) as of September 30, 2013. The borrowings under this facility bear interest at a rate per annum equal to 125% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by the People’s Bank of China (“PBOC”). The average interest rate for the nine months ended September 30, 2013 was 7.6875% per annum. The credit facility is secured by all of the Company’s properties included in property and equipment and the restricted cash of $1,261,234 as of September 30, 2013 and $1,352,319 as of December 31, 2012, is guaranteed by a director of the Company, and matures on March 31, 2015. Borrowings under this facility are renewable for an additional period not longer than 12 months and are due not later than March 31, 2015. As of September 30, 2013 and December 31, 2012, the Company had outstanding loan balances of $5,823,032 and $5,695,649, 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 $12,199,089 (RMB75,000,000) as of September 30, 2013. The borrowings under this facility bore interest at a rate per annum equal to 125% of the prevailing base lending rate for periods ranging from 1 year to 3 years as announced by PBOC. The average interest rate for the nine months ended September 30, 2013 was 7.6875% per annum. The facility of credit is secured by all of the Company’s investment properties and is guaranteed by a director of the Company, and matures on March 31, 2015. Borrowings under this facility are renewable for an additional period not longer than 36 months and are due not later than March 31, 2015. As of September 30, 2013 and December 31, 2012, the Company had outstanding loan balances of $11,337,020 and $11,932,225, respectively, under this facility line of credit. Under the term of the agreement, the Company agreed not to use any of its pledged assets as security for another debt obligation or other liability. The Company used certain pledged assets to provide a loan guarantee to an unaffiliated third party lender for the borrowing of $813,272, bearing interest at a rate of 20% per annum, by Lin Chi-Jung, a director of the Company. Lin Chi-Jung obtained the loan from the third party lender and, in turn, lent the funds to the Company on the same terms. The Company therefore was not in compliance with the covenant as of September 30, 2013. As of September 30, 2013, we have not received any notice of default or other communication from the First Sino Bank with respect to our not being in compliance.

In November 2009, 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 $8,945,999 (RMB55,000,000). The borrowings under this facility bore interest at a rate equal to 110% of the prevailing 1-year base lending rate announced by PBOC. The facility of credit was secured by all of the Company’s properties included in property and equipment, and was guaranteed by a director of the Company and an unrelated company. This facility was cancelled and replaced by the above-mentioned 3-year non-revolving facility line of credit agreement entered by the Company in April 2012.

In March 2010, 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 $2,439,818 (RMB15,000,000). The borrowings under this facility bore interest at a rate equal to 110% of the prevailing 1-year base lending rate announced by PBOC. The facility of credit was secured by all of the Company’s investment properties, and was guaranteed by a director of the Company and an unrelated company. This facility was cancelled and replaced by the above-mentioned 3-year non-revolving facility line of credit agreement entered by the Company in April 2012.

In May 2013, the Company obtained a bank loan of $11,385,817 (RMB70,000,000) from the China Citi Bank. The loan bears interest at a rate of 14.21% per annum and is collateralized by the real estate property under development of LYSY and is guaranteed by a director of the Company and LYSY and his wife, and a director of a corporate shareholder of LYSY. The guarantors do not receive any compensation for these guarantees. The Company is obliged to repay $3,415,745 (RMB21,000,000), or higher, before May 14, 2014, $4,554,326 (RMB28,000,000), or higher, on November 14, 2014, and the remaining loan balance on May 14, 2015. As of September 30, 2013, the outstanding balance of this loan was $11,385,817. Under the term of the loan agreement, the Company is to adhere to certain covenants. The Company is obligated under the loan agreement to adhere to the restrictions on use of proceeds from the loan to finance construction of the real estate development project of LYSY. The Company used $1,626,545 (RMB10, 000,000.00) from the loan proceeds to finance WHYYL’s property development project in Wuhan, and therefore was not in compliance with the covenant as of September 30, 2013. The loan is classified as current. As of September 30, 2013, we have not received any notice of default or other communication from the China Citi Bank with respect to our not being in compliance.

Advances from Officers and Directors - The Company has also financed its operations in part with advances from officers and directors. At September 30, 2013, the Company had borrowings together with unpaid interest expense of $11,488,413 from officers and directors, including $11,451,573 from Lin Chi-Jung, our Chief Executive Officer, President and Chairman. The advances from Lin Chi-Jung bear interest at rates ranging from 9.6% to 36.5% per year. Included in the balance as of September 30, 2013, advances of $1,728,817 were overdue, and the remaining balance has no fixed term of repayment.

	38

The interest expense on amounts due to directors, which expense is owed entirely to Lin Chi-Jung, amounted to $789,268 and $88,081 for the three months ended September 30, 2013 and 2012; and $1,600,108 and $575,129, respectively, for the nine months ended September 30, 2013 and 2012.

Guarantee - As of September 30, 2013, the Company was contingently liable for $813,272 in a guarantee executed in May, 2013. The Company provided a loan guarantee to an unaffiliated third-party lender for the borrowing of $813,272 (RMB5,000,000) by Lin Chi-Jung, a director of the Company. The Company provided the guarantee in order to secure a loan to the Company for $813,272 from Lin Chi-Jung. Lin Chi-Jung obtained the loan from the third party lender and, in turn, lent the funds to the Company on the same terms as his loan from the third-party lender. The loan bears interest at a rate of 20% per annum and matures in December 2013. The guarantee is secured by the use right of the Company’s certain investment properties, and expires in December 2013. The Company is not aware of any existing event of default that would require us to satisfy this guarantee. The Company does not expect that the guarantee will have a material adverse effect on our consolidated financial condition, results of operations, or liquidity.

Capital resources

The cash needs for 2013and 2014 will be for the repayments of our bank loans, promissory notes and advances from directors, the rental guarantee payments, and funds required to finance promissory deposits for various future property projects as well as our real estate development projects in Wuhan and Linyi.

If our business grows more rapidly than we predict, we plan to raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings. We will also consider raising funds through credit facilities obtained with lending institutions and affiliates, as we have done previously, but there can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity that are with terms satisfactory to management and our board of directors.

As of September 30, 2013, the Company had a working capital deficit of $11,125,426, an accumulated deficit from recurring net losses of $14,378,338 and short-term debt obligations of $26,780,600that are currently in default and obligations of $19,565,486 are due in the coming twelve months or payable on demand. 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, including advances from affiliates. We have been able to secure new bank lines of credit and secure additional loans from affiliates to fund our operations to date. However, 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.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any outstanding derivative financial instruments, off-balance sheet guarantees or interest rate swap transactions of foreign currency forward contracts. The Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to the Company or that engages in leasing, hedging or research and development services with the Company.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

	39

ITEM 4.CONTROLS AND PROCEDURES

Material weakness

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2012, we identified one material weakness in the design and operation of our internal controls. The material weakness was related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we are undertaking the following remediation initiatives:

hiring additional personnel with sufficient knowledge and experience in U.S. GAAP; and

providing ongoing training course in U.S. GAAP to existing personnel, including our Chief Financial Officer and Financial Controller.

During the nine months ended September 30, 2013, additional qualified accounting personnel have been hired and put into place to assist in preparation of financial information, as required for interim and annual reporting, in accordance with generally accepted accounting principles in the U.S. As the newly implemented remediation activities have not operated for a sufficient period of time to demonstrate operating effectiveness, we will continue to monitor and assess our remediation activities to ensure that the aforementioned material weakness is remediated.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

During the nine months ended September 30, 2013, we put into place additional qualified accounting personnel to address the aforementioned material weakness. This action strengthened our internal controls over financial reporting.

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

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2012.

ITEM 1A. RISK FACTORS

Not required.

	40

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6.EXHIBITS

Exhibit
Number		Description

31.1*		Section 302 Certification by the Corporation's Chief Executive Officer.

31.2*		Section 302 Certification by the Corporation's Chief Financial Officer.

32.1and 32.2*		Section 1350 Certification by the Corporation's Chief Executive Officer and Corporation's Chief Financial Officer.

101		XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

* Filed herewith

SIGNATURES

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

SUNRISE REAL ESTATE GROUP, INC.

Date: December 6, 2013	By: /s/ Lin, Chi-Jung
	Lin, Chi-Jung, Chief Executive Officer


Date: December 6, 2013	By: /s/ Mi, Yong Jun
	Mi, Yong Jun, Chief Financial Officer

	41