UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,
D. C. 20549



FORM 10-Q



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

For the quarterly period ended June 30,
2012

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

For the transition period from __________
to __________



Commission File Number 000-32585



SUNRISE REAL ESTATE GROUP, INC.



(Exact name of registrant as specified
in its charter)



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



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

Shanghai, PRC 200070

(Address of Principal Executive Offices)
(Zip Code)



Registrant’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 xNo  ̈



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: August 17, 2012 - 28,691,925 shares of Common
Stock











FORM 10-Q



For the Quarter
Ended June 30, 2012



INDEX



|                              |                                                                                       | Page
|----------------------------- | ------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION | 3                                                                                    
|                              |                                                                                      
|Item 1.                       | Financial Statements                                                                  | 3   
|                              | Consolidated Balance Sheets                                                           | 3   
|                              | Consolidated Statements of Operations                                                 | 4   
|                              | Consolidated Statements of Cash Flows                                                 | 5   
|Item 2.                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15  
|Item 3.                       | Quantitative and Qualitative Disclosures About Market Risk                            | 22  
|Item 4.                       | Controls and Procedures                                                               | 22  
|                              |                                                                                       |     
|PART II. OTHER INFORMATION    | 23                                                                                   
|                              |                                                                                      
|Item 1.                       | Legal Proceedings                                                                     | 23  
|Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                           | 23  
|Item 3.                       | Defaults Upon Senior Securities                                                       | 23  
|Item 4.                       | (Removed and Reserved)                                                                | 23  
|Item 5.                       | Other Information                                                                     | 23  
|Item 6.                       | Exhibits                                                                              | 23  
|                              |                                                                                       |     
|SIGNATURES                    | 24                                                                                   



2







PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Sunrise Real Estate Group, Inc.

Unaudited Condensed
Consolidated Balance Sheets

(Expressed in US Dollars)

|                                                                                                                                                               |  | June 30,    |             |   | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ------------ | -
|                                                                                                                                                               |  | 2012        |             |   | 2011         |  
|                                                                                                                                                               |  | (Unaudited) |             |   | (Audited)    |  
|ASSETS                                                                                                                                                         |  |             |             |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Current assets                                                                                                                                                 |  |             |             |   |              |  
|Cash and cash equivalents                                                                                                                                      |  | $           | 2,648,514   |   |              | $
|Restricted cash (Note 3)                                                                                                                                       |  |             | 1,343,895   |   |              |  
|Accounts receivable                                                                                                                                            |  |             | 1,210,969   |   |              |  
|Promissory deposits (Note 4)                                                                                                                                   |  |             | 1,222,154   |   |              |  
|Amount due from related company (Note 12)                                                                                                                      |  |             | 22,711      |   |              |  
|Inventory (Note 5)                                                                                                                                             |  |             | 14,377,926  |   |              |  
|Other receivables and deposits (Note 6)                                                                                                                        |  |             | 643,117     |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Total current assets                                                                                                                                           |  |             | 21,469,286  |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Property, plant and equipment – net (Note 7)                                                                                                                   |  |             | 2,171,832   |   |              |  
|Investment properties (Note 8)                                                                                                                                 |  |             | 6,730,855   |   |              |  
|Long-term investment (Note 9)                                                                                                                                  |  |             | 3,660,883   |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Total assets                                                                                                                                                   |  | $           | 34,032,856  |   |              | $
|                                                                                                                                                               |  |             |             |   |              |  
|LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                          |  |             |             |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Current liabilities                                                                                                                                            |  |             |             |   |              |  
|Bank loans (Note 10)                                                                                                                                           |  | $           | 11,857,894  |   |              | $
|Promissory notes payable (Note 11)                                                                                                                             |  |             | 2,330,264   |   |              |  
|Accounts payable                                                                                                                                               |  |             | 27,097      |   |              |  
|Amount due to directors (Note 12)                                                                                                                              |  |             | 5,204,991   |   |              |  
|Amount due to related party (Note 12)                                                                                                                          |  |             | 110,531     |   |              |  
|Other payables and accrued expenses (Note 13)                                                                                                                  |  |             | 2,847,055   |   |              |  
|Other tax payable (Note 14)                                                                                                                                    |  |             | 65,926      |   |              |  
|Income tax payable                                                                                                                                             |  |             | 15,599      |   |              |  
|Total current liabilities                                                                                                                                      |  | $           | 22,459,357  |   |              | $
|                                                                                                                                                               |  |             |             |   |              |  
|Deposits received from underwriting sales (Note 15)                                                                                                            |  |             | 2,896,808   |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Total liabilities                                                                                                                                              |  | $           | 25,356,165  |   |              | $
|                                                                                                                                                               |  |             |             |   |              |  
|Commitments and contingencies (Note 16)                                                                                                                        |  |             |             |   |              |  
|                                                                                                                                                               |  |             |             |   |              |  
|Shareholders’ deficit                                                                                                                                          |  |             |             |   |              |  
|Common stock, par value $0.01 per share; 200,000,000
    shares authorized; 28,691,925 shares issued and outstanding as of June 30, 2012 and December 31, 2011 |  |             | 286,919     |   |              |  
|Additional paid-in capital                                                                                                                                     |  |             | 4,579,553   |   |              |  
|Statutory reserve (Note 17)                                                                                                                                    |  |             | 782,987     |   |              |  
|Accumulated losses                                                                                                                                             |  |             | (11,903,942 | ) |              |  
|Non-controlling interests of consolidated subsidiaries                                                                                                         |  |             | 14,478,880  |   |              |  
|Accumulated other comprehensive income (Note 18)                                                                                                               |  |             | 452,294     |   |              |  
|Total shareholders’ equity (deficit)                                                                                                                           |  |             | 8,676,691   |   |              |  
|Total liabilities and shareholders’ equity (deficit)                                                                                                           |  | $           | 34,032,856  |   |              | $





See accompanying
notes to consolidated financial statements.



3







Sunrise Real Estate Group, Inc.



Unaudited Condensed
Consolidated Statements of Operations



(Expressed in US Dollars)



|                                                             |  | Three Months Ending June 30, |            |   | Six Months Ending June 30, |  
|------------------------------------------------------------ |  | ---------------------------- | ---------- | - | -------------------------- | -
|                                                             |  | 2012                         |            |   | 2011                       |  
|                                                             |  | (Unaudited)                  |            |   | (Unaudited)                |  
|                                                             |  |                              |            |   |                            |  
|Net Revenues                                                 |  | $                            | 1,835,788  |   |                            | $
|                                                             |  |                              |            |   |                            |  
|Cost of Revenues                                             |  | $                            | (729,166   | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Gross Profit                                                 |  |                              | 1,106,662  |   |                            |  
|                                                             |  |                              |            |   |                            |  
|Operating Expenses                                           |  |                              | (326,490   | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|General and Administrative Expenses                          |  |                              | (1,090,673 | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Operating Profit/(Loss)                                      |  | $                            | (310,542   | ) |                            | $
|                                                             |  |                              |            |   |                            |  
|Loss on Investment                                           |  |                              | (49,653    | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Interest Income                                              |  |                              | 391        |   |                            |  
|                                                             |  |                              |            |   |                            |  
|Other Income, Net                                            |  | $                            | 830,701    |   |                            |  
|                                                             |  |                              |            |   |                            |  
|Interest Expenses                                            |  |                              | (493,155   | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Profit/(Loss) Before Income Tax and Non-controlling Interest |  |                              | (22,258    | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Income Tax                                                   |  |                              | (25,805    | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Profit/(Loss) Before Non-controlling Interest                |  |                              | (48,063    | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Non-controlling Interest                                     |  |                              | (391,850   | ) |                            |  
|                                                             |  |                              |            |   |                            |  
|Net Profit/(Loss)                                            |  | $                            | (439,913   | ) |                            | $
|                                                             |  |                              |            |   |                            |  
|Profit/(Loss) Per Share – Basic and Fully Diluted            |  | $                            | (0.02      | ) |                            | $
|                                                             |  |                              |            |   |                            |  
|Weighted average common shares outstanding                   |  |                              |            |   |                            |  
|– Basic and Fully Diluted                                    |  |                              | 28,691,925 |   |                            |  





See accompanying notes to unaudited condensed
consolidated financial statements.



4







Sunrise Real Estate Group, Inc.

Consolidated Statements of Cash Flows

Increase/(Decrease) in Cash and Cash
Equivalents

(Expressed in US Dollars)

|                                                             |  | Six Months Ending June 30, |            
|------------------------------------------------------------ |  | -------------------------- | -----------
|                                                             |  | 2012                       |            
|                                                             |  | (Unaudited)                |            
|Cash flows from operating activities                         |  |                            |            
|Net Profit/(Loss)                                            |  | $                          | (1,497,144 
|Adjustments to reconcile net income to                       |  |                            |            
|net cash used in operating activities                        |  |                            |            
|Depreciation of property, plant and equipment                |  |                            | 316,631    
|Loss on disposal of fixed assets                             |  |                            | 2,202      
|Loss/ (Gain) on disposal of property, plant and equipment    |  |                            | 622,096    
|Non-Controlling Interest                                     |  |                            | 1,490,232  
|Change in:                                                   |  |                            |            
|Accounts receivable                                          |  |                            | (75,649    
|Promissory deposits                                          |  |                            | 2,314,374  
|Other receivables and deposits                               |  |                            | 217,987    
|Inventory                                                    |  |                            | (14,415,532
|Amount due from related party                                |  |                            | 294,268    
|Accounts payable                                             |  |                            | (454,001   
|Other payables and accrued expenses                          |  |                            | (628,984   
|Deposit from underwriting sales                              |  |                            | (183,556   
|Interest payable on promissory notes                         |  |                            | 214,677    
|Interest payable on amount due to director                   |  |                            | 224,840    
|Other tax payable                                            |  |                            | (3,222     
|Income tax payable                                           |  |                            | (208,412   
|Net cash provided by/(used in)
    operating activities      |  |                            | (11,769,193
|                                                             |  |                            |            
|Cash flows from investing activities                         |  |                            |            
|Acquisition of property, plant and equipment                 |  |                            | (41,684    
|Acquisition of investment                                    |  |                            | (60,000    
|Proceeds from disposal of plant and equipments               |  |                            | -          
|Provide funds for investee                                   |  |                            | -          
|Net cash provided by/(used in)
    investing activities      |  |                            | (101,684   
|                                                             |  |                            |            
|Cash flows from financing activities                         |  |                            |            
|Funds received from capital increase                         |  |                            | 12,083,096 
|Bank loans obtained                                          |  |                            | 792,594    
|Repayment to director                                        |  |                            | (189,186   
|Proceeds from promissory note                                |  |                            | 418,477    
|Net cash provided by/ (used in) financing
    activities     |  |                            | 13,104,981 
|                                                             |  |                            |            
|Effect of exchange rate changes on cash and cash equivalents |  |                            | 37,317     
|                                                             |  |                            |            
|Net decrease in cash and cash equivalents                    |  |                            | 1,271,421  
|Cash and cash equivalents at beginning of period             |  |                            | 1,377,093  
|Cash and cash equivalents at end
    of period               |  | $                          | 2,648,514  
|                                                             |  |                            |            
|Supplemental disclosure of cash flow information             |  |                            |            
|Cash paid during the period:                                 |  |                            |            
|Income tax paid                                              |  |                            | 214,856    
|Interest paid                                                |  |                            | 158,205    



See accompanying notes to unaudited condensed
consolidated financial statements.



5







NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS



(Expressed in US Dollars)



NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS



Sunrise Real Estate Development Group,
Inc. (“CY-SRRE”) was established in the Cayman Islands on April 30, 2004 as a limited liability company. CY-SRRE was
wholly owned by Ace Develop Properties Limited, a corporation, (“Ace Develop”), of which Lin Chi-Jung, an individual,
is the principal and controlling shareholder. Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)
was established in the People’s Republic of China (the “PRC”) on August 14, 2001 as a limited liability company.
SHXJY was originally owned by a Taiwanese company, of which the principal and controlling shareholder was Lin Chi-Jung. On June
8, 2004, all the fully paid up capital of SHXJY was transferred to CY-SRRE. On June 25, 2004 SHXJY and two individuals established
a subsidiary, namely, Suzhou Xin Ji Yang Real Estate Consultation Company Limited (“SZXJY”) in the PRC, at which point
in time, SHXJY held a 90% equity interest in SZXJY. On August 9, 2005, SHXJY sold a 10% equity interest in SZXJY to a company
owned by a director of SZXJY, and transferred a 5% equity interest in SZXJY to CY-SRRE. Following the disposal and the transfer,
CY-SRRE effectively held an 80% equity interest in SZXJY. On November 24, 2006, CY-SRRE, SHXJY, a director of SZXJY and a third
party established a subsidiary, namely, Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”) in the
PRC, with CY-SRRE holding a 12.5% equity interest, SHXJY holding a 26% equity interest and the director of SZXJY holding a 12.5%
equity interest in SZSY. At the date of incorporation, SRRE and the director of SZXJY entered into a voting agreement that SRRE
is entitled to exercise the voting right in respect of his 12.5% equity interest in SZSY. Following that, SRRE effectively holds
51% equity interest in SZSY. On September 24, 2007, CY-SRRE sold a 5% equity interest in SZXJY to a company owned by a director
of SZXJY. Following the disposal, CY-SRRE effectively holds 75% equity interest in SZXJY. In January 2012, SHXJY obtained a 24%
interest and established a company in Linyi, named Linyi Shang Yang Real Estate Development Company Limited and acquired approximately
103,385 square meters for the purpose of developing villa-style residential housings. In an agreement with Zhang Shu Qing, a majority
shareholder with 51%, we have her 51% voting power and thus effectively have 75% of the voting power.



LIN RAY YANG Enterprise Ltd. (“LRY”)
was established in the British Virgin Islands on November 13, 2003 as a limited liability company. LRY was owned by Ace Develop,
Planet Technology Corporation (“Planet Tech”) and Systems & Technology Corporation (“Systems Tech”).
On February 5, 2004, LRY established a wholly owned subsidiary, Shanghai Shang Yang Real Estate Consultation Company Limited (“SHSY”)
in the PRC as a limited liability company. On January 10, 2005, LRY and a PRC third party established a subsidiary, Suzhou Gao
Feng Hui Property Management Company Limited (“SZGFH”), in the PRC, with LRY holding 80% of the equity interest in
SZGFH. On May 8, 2006, LRY acquired 20% of the equity interest in SZGFH from the third party. Following the acquisition, LRY effectively
holds 100% of the equity interest in SZGFH. In 2011 we established Wuhan Yuan Yu Long Real Estate Development Company Limited
("WHYYL") and have a 49% ownership, the purpose of this project company was for a residence development project in Wuhan.



On August 31, 2004, Sunrise Real Estate
Group, Inc. (“SRRE”), CY-SRRE and Lin Chi-Jung, an individual and agent for the beneficial shareholder of CY-SRRE,
i.e., Ace Develop, entered into an exchange agreement under which SRRE issued 5,000,000 shares of common stock to the beneficial
shareholder or its designees, in exchange for all outstanding capital stock of CY-SRRE. The transaction closed on October 5, 2004.
Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the president of CY-SRRE and the principal and controlling shareholder
of Ace Develop.



Also on August 31, 2004, SRRE, LRY and
Lin Chi-Jung, an individual and agent for beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems Tech, entered
into an exchange agreement under which SRRE issued 10,000,000 shares of common stock to the beneficial shareholders, or their
designees, in exchange for all outstanding capital stock of LRY. The transaction was closed on October 5, 2004. Lin Chi-Jung is
Chairman of the Board of Directors of SRRE, the President of LRY and the principal and controlling shareholder of Ace Develop.
Regarding the 10,000,000 shares of common stock of SRRE issued in this transaction, SRRE issued 8,500,000 shares to Ace Develop,
750,000 shares to Planet Tech and 750,000 shares to Systems Tech.



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



6







SRRE was initially incorporated in Texas
on October 10, 1996, under the name of Parallax Entertainment, Inc. (“Parallax”). On December 12, 2003, Parallax changed
its name to Sunrise Real Estate Development Group, Inc. On April 25, 2006, Sunrise Estate Development Group, Inc. filed Articles
of Amendment with the Texas Secretary of State, changing the name of Sunrise Real Estate Development Group, Inc. to Sunrise Real
Estate Group, Inc., effective from May 23, 2006.



Figure 1: Company Organization Chart







1. Beijing Xin Jin Yang Real Estate Consultation Company Limited
is currently in the process of being dissolved in 2012.



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



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



7







NOTE 2 –SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



Basis of Accounting and Principles
of Consolidation



The consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States of America that include the financial
statements of SRRE and its subsidiaries. All inter-company transactions and balances have been eliminated.



Going Concern



The Company’s financial statements
are prepared according to the accounting principles generally accepted in the United States of America applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has
accumulated losses of $11,903,942 as of June 30, 2012. The Company’s net working capital deficiency and significant accumulated
losses raise substantial doubt about its ability to continue as a going concern.



However, management believes that the
Company is able to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain successful
operations in respect of the agency sales and property management operations. Accordingly, the accompanying financial statements
do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.



Use of Estimates



The preparation of financial statements
in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect
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.



Cash and Cash Equivalents



Cash and cash equivalents include cash
in hand and all highly liquid investments with an original maturity of three months or less.



Foreign Currency Translation and Transactions



The functional currency of SRRE, CY-SRRE
and LRY is United States Dollars (“US$”) and the financial records are maintained and the financial statements prepared
in US $. The functional currency of all the companies located in China is Renminbi (“RMB”) and the financial records
and statements are maintained and prepared in RMB.



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



The financial statements of the Company’s
operations based outside of the United States have been translated into US$ in accordance with ASC 830. 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 US$, period-end exchange rates are applied to the consolidated balance sheets, while
average period rates are applied to consolidated statements of operations. Translation gains and losses are recorded in translation
reserve as a component of shareholders’ equity.



The exchange rates as of June 30, 2012
and December 31, 2011 are US$1: RMB6.3249 and US$1: RMB6.3009, respectively.



8







Property, Plant, Equipment and Depreciation



Property, plant and equipment are stated
at cost. Depreciation is computed using the straight-line method to allocate the cost of depreciable assets over the estimated
useful lives of the assets as follows:



|                              | Estimated
    Useful Life (in years)
|----------------------------- | ------------------------------------
|                              |                                     
|Furniture and fixtures        | 5-10                                
|Computer and office equipment | 5                                   
|Motor vehicles                | 5                                   
|Properties                    | 20                                  



Maintenance, repairs and minor renewals
are charged directly to the statement of operations as incurred. Additions and improvements are capitalized. When assets are disposed
of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included
in the statement of operations.



Investment property



Investment properties are stated at cost.
Depreciation is computed using the straight-line method to allocate the cost of depreciable assets over the estimated useful lives
of 20 years.



Significant additions that extend property
lives are capitalized and are depreciated over their respective estimated useful lives. Routine maintenance and repair costs are
expensed as incurred. The Company reviews its investment property for impairment whenever events or changes in circumstances indicate
that the carrying amount of an investment property may not be recoverable.



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” (SFAS 66). The commission revenue on underwriting
sales is recognized when the criteria in SFAS No. 66 have been met, generally when title is transferred and the Company no longer
has substantial continuing involvement with the real estate asset sold. If the Company provides certain rent guarantees or other
forms of support where the maximum exposure to loss exceeds the gain, it defers the related commission income and expenses by
applying the deposit method. In future periods, the commission income and related expenses are recognized when the remaining maximum
exposure to loss is reduced below the amount of income deferred.



All revenues represent gross revenues
less sales and business tax.



Net Earnings per Common Share



The Company computes net earnings per
share in accordance with ASC 260, “Earnings per Share.” Under the provisions of ASC 260, basic net earnings per share
is computed by dividing the net earnings 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 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.



9







Income Taxes



The Company accounts for income taxes
in accordance with ASC 740 “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax liabilities or assets at
the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.



We continue to account for income tax
contingencies using a benefit recognition model.Beginning January 1, 2007, if we considered that a tax position is 'more
likely than not' of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit.
We measure the benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming
that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These
assessments can be complex and we often obtain assistance from external advisors.



Under the benefit recognition model, if
our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently
recognize the tax benefit if there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing
on the technical merits of the position to more likely than not; if the statute of limitations expires; or if there is a completion
of an audit resulting in a settlement of that tax year with the appropriate agency.



Uncertain tax positions, represented by
liabilities on our balance sheet, are now classified as current only when we expect to pay cash within the next 12 months. Interest
and penalties, if any, continue to be recorded in Provision for taxes on income and are classified on the balance sheet with the
related tax liability.



Historically, our policy had been to account
for income tax contingencies based on whether we determined our tax position to be 'probable' under current tax law of being sustained,
as well as an analysis of potential outcomes under a given set of facts and circumstances. In addition, we previously considered
all tax liabilities as current once the associated tax year was under audit.



Segment information



The segments are generally determined
based on the management of the businesses and on the basis of separate groups of operating activities, each with general operating
autonomy over diversified products and services. The Company believes that it operates in one business segment. Management views
the business as consisting of several revenue streams; however it is not possible to attribute assets or indirect costs to the
individual streams other than direct expenses.



Recent Accounting Pronouncements



In 2011, new guidance was introduced to
eliminate the current option to report other comprehensive income and its components in the statement of stockholders’ equity,
and require an entity to present items of net income and other comprehensive income in one continuous statement, referred to as
the statement of comprehensive income, or in two separate, but consecutive, statements. This guidance would be effective in the
first quarter of 2012, with early adoption permitted. This pronouncement only changes the way we present other comprehensive income
and its components, and does not impact our results of operations, financial position or cash flows.



In May 2011, the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU
clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts,
the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of
shareowners’ equity. The ASU includes enhanced disclosure requirements about recurring Level 3 fair value measurements,
the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value.
The provisions of this ASU are effective prospectively for interim and annual periods beginning on or after December 15,
2011. Early application is prohibited. This ASU is not expected to have an impact currently on our financial statements or disclosures
as there are presently no recurring Level 3 fair value measurements.



On August 17, 2010, the FASB and IASB
issued an ED on lease accounting. The ED, released by the FASB as a proposed ASU, creates a new accounting model for both lessees
and lessors and eliminates the concept of operating leases. The proposed ASU, if finalized, would converge the FASB’s and
IASB’s accounting for lease contracts in most significant areas.



The Company does not anticipate that the
adoption of the above statements will have a material effect on the Company's financial condition and results of operations.



10







NOTE 3 – RESTRICTED CASH



This restricted cash is the covenant from
the bank loan described in Note 10.



NOTE 4 – PROMISSORY DEPOSITS



The amount of $1,222,154 represents the
deposits placed with several property developers in respect of a number of real estate projects where the Company is appointed
as sales agent.



NOTE 5 – INVENTORY



The amount of $14,377,926 belongs to Linyi
Shang Yang Real Estate Development Company. Ltd.



NOTE 6 - OTHER RECEIVABLES AND DEPOSITS



|                    |  | June 30 |         |  | December 31 |  
|------------------- |  | ------- | ------- |  | ----------- | -
|                    |  | 2012    |         |  | 2011        |  
|                    |  |         |        
|Advances to staff   |  | $       | 70,806  |  |             | $
|Rental deposits     |  |         | 70,246  |  |             |  
|Property Management |  |         | 1,613   |  |             |  
|Prepayment          |  |         | 255,536 |  |             |  
|Other receivables   |  |         | 244,916 |  |             |  
|                    |  | $       | 643,117 |  |             | $



NOTE 7 – PROPERTY, PLANT AND
EQUIPMENT – NET



|                               |  | June 30, |            |   | December 31, |  
|------------------------------ |  | -------- | ---------- | - | ------------ | -
|                               |  | 2012     |            |   | 2011         |  
|                               |  |          |           
|Furniture and fixtures         |  | $        | 63,097     |   |              | $
|Computer and office equipment  |  |          | 236,876    |   |              |  
|Motor vehicles                 |  |          | 820,619    |   |              |  
|Properties                     |  |          | 2,453,349  |   |              |  
|                               |  |          | 3,573,941  |   |              |  
|Less: Accumulated depreciation |  |          | (1,402,109 | ) |              |  
|                               |  | $        | 2,171,832  |   |              | $



All above properties as of June 30, 2012
and as of December 31, 2011 were pledged to secure a bank loan in note 10.



NOTE 8 – INVESTMENT PROPERTIES



|                               |  | June 30, |            |   | December 31, |  
|------------------------------ |  | -------- | ---------- | - | ------------ | -
|                               |  | 2012     |            |   | 2011         |  
|                               |  |          |           
|Investment property            |  | $        | 9,790,008  |   |              | $
|Less: Accumulated depreciation |  |          | (3,059,153 | ) |              |  
|                               |  | $        | 6,730,855  |   |              | $



The investment properties included one floor and four units
of a commercial building in Suzhou, the PRC. The investment properties were acquired by the Company for long-term investment purposes.



All above properties as of June 30, 2012
and as of December 31, 2011 were pledged to secure a bank loan in note 10.



11







As of June 30, 2012, the four units of
the investment properties were leased to a related party of the Company of 13% ownership, 87% of the total area of the one remaining
floor was leased out.



NOTE: 9 – LONG-TERM INVESTMENT



In mid 2011, we invested in a project
company in Wuhan where the initial investment amount was $4,151,375 for a 49% equity stake. The purpose of this project company
was for a residence development project in Wuhan. This investment was for our expansion to the real estate development business.
We use the equity method of accounting for this long-term investment. The land is approximately 27,950 square meters with an estimated
development period of three years, and we began its initial construction in the first quarter of 2012. The project company’s
total assets was $13,836,838, liability was $6,670,606 and has had losses of $1,268,833 in 2012. In accordance to the equity method,
we decreased this investment by $621,728. The balance of this investment is $3,529,647 at June 30 2012.



We invested $60,000 for a 40% equity stake
in a new real estate agency company at Feburary 2012. We used the equity method of accounting for this long-term investment. The
company will begin its operations until the third quarter of 2012 and therefore there were no profit or loss recorded for the
period ended June 30, 2012.



The remaining amount of $71,236 was invested
in various real estate agency sales related projects. All of the equity stakes we have in these projects are less than 20%. We
used the cost method for accounting purposes for these investments.



NOTE 10 – BANK LOANS



The balance includes a bank loan of $11,857,894
which bears interest at 130% of three-year prime rate as announced by the People’s Bank of China (the rate for 2012 was
6.15%) and is secured by the properties mentioned in Note 8 above. This loan is due on April 30, 2013 and can be extended automatically
for another 3 years; however, the bank does an annual routine loan renewal request with the Company.



NOTE 11– PROMISSORY NOTES PAYABLE



The promissory notes payable consist of
the following four unsecured notes to independent individual third parties.



The first note of $303,750 bears an interest
at a rate of 15% per annum, consists of a principal of $300,000 and an interest of $3,750. This loan’s terms of repayment
are not specifically defined.



The second note of $942,703 bears an interest
rate of 15% per annum consists of a principal of $837,958 and an interest of $104,745. This loan’s terms of repayment are
not specifically defined.



The third note of $849,815 bears an interest
rate of 15% per annum consists of a principal of $790,526 and an interest of $59,289. This loan’s terms of repayment are
not specifically defined.



The fourth note of $233,996 bears no interest
and the terms of repayment are not specifically defined.



NOTE 12 – AMOUNTS WITH RELATED
PARTIES AND DIRECTORS



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



Amount due to directors



The total amount due to directors for
June 30, 2012 was $5,204,991. The amounts due are as follows:



Amount due to Lin Chi-Jung

As of June 30, 2012, the balance includes
one amount due to and six loans obtained from Lin Chin-Jung.



12







The amount of $38,438 represented the
salary payable and rental reimbursement to Lin Chin-Jung outstanding as of June 30, 2012.



A loan includes an unsecured amount of
$110,018 and consists of a principal of $103,778 and interest of $6,240. This loan’s terms of repayment are not specifically
defined.



A loan includes an amount of $265,616.
This loan’s interest rate is 18%, per annum consists of a principal of $237,158 and interest of $28,458. This loan’s
terms of repayment are not specifically defined.



A loan includes an amount of $4,168,261
bears an interest rate of 15%, per annum consists of a principal of $3,709,529 and an interest of $458,732. This loan’s
the terms of repayment are not specifically defined. This loan is for the investment of Wuhan development project stated in note
9 in addition to any expenses related to the investment.



An unsecured loan of $546,982 bears an
interest rate of 18% per annum consists of a principal of $474,317 and an interest of $72,665. This loan’s terms of repayment
are not specifically defined



An unsecured loan includes a principal
of $47,432, which is without interest and the terms of repayment are not specifically defined.



Amount due to Lin Chao-Chin



A balance of $19,218 represented the salary
payable and rental reimbursement to Lin Chao-Chin outstanding as of June 30, 2012.



Amount due to Lin Hsin Hung



The amount of $9,026 represents the salary
payable to Lin Hsin Hung.



Amount due to related party



A balance of $110,531 is due to a related
party of the Company of 19% ownership.



NOTE 13 - OTHER PAYABLES AND ACCRUED
EXPENSES



|                                              |  | June 30, |           |  | December 31, |  
|--------------------------------------------- |  | -------- | --------- |  | ------------ | -
|                                              |  | 2012     |           |  | 2011         |  
|                                              |  |          |          
|Accrued staff commission & bonus              |  | $        | 559,073   |  |              | $
|Rental deposits received                      |  |          | 499,878   |  |              |  
|Accrual for onerous contracts                 |  |          | 12,453    |  |              |  
|Other payables                                |  |          | 634,285   |  |              |  
|Accrued legal fee                             |  |          | 87,149    |  |              |  
|Customer deposits                             |  |          | 306,933   |  |              |  
|Dividend payable for Non-controlling interest |  |          | 305,275   |  |              |  
|Rents received in advance                     |  |          | 442,009   |  |              |  
|                                              |  | $        | 2,847,055 |  |              | $



NOTE 14– OTHER TAX PAYABLE



Other tax payable mainly represents the
outstanding payables of business tax, urban real estate tax and land appreciation tax in the PRC.



NOTE 15 –DEPOSITS RECEIVED FROM
UNDERWRTING SALES



The Company accounts for its underwriting
sales revenue with underwriting rent guarantees in accordance with ASC 976-605 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from the sales of floor space with underwriting rent
guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers.



13







NOTE 16- COMMITMENTS AND CONTINGENCIES



Operating Lease Commitments



During the years ended June 30, 2012 and
2011, the Company incurred lease expenses amounting to $23,360 and $233,050, respectively. As of June 30, 2012, the Company had
commitments under operating leases, requiring annual minimum rentals as follows:



|                            |  | June 30 |       |  | December 31, |  
|--------------------------- |  | ------- | ----- |  | ------------ | -
|                            |  | 2012    |       |  | 2011         |  
|                            |  |         |      
|Within one year             |  | $       | 1,525 |  |              | $
|Two to five years           |  |         | -     |  |              |  
|Operating lease commitments |  | $       | 1,525 |  |              | $



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%. As of June 30, 2012, 55% of the buyers agreed upon the lowered rate, 3% of the buyers did not agreed to a lowered rate and
42% of the buyers agreed to cancel the leasing agreements. 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. As of June 30, 2012, 82
sub-leasing agreements have been signed, the area of these sub-leasing agreements represented 87% of the total area with these
lease commitments.



As of June 30, 2012, the lease commitments
are as follows:



|                                                                 |  | June 30, |           |  | December 31, |  
|---------------------------------------------------------------- |  | -------- | --------- |  | ------------ | -
|                                                                 |  | 2012     |           |  | 2011         |  
|                                                                 |  |          |          
|Within one year                                                  |  | $        | 884,533   |  |              | $
|Two to five years                                                |  |          | 272,371   |  |              |  
|Over five years                                                  |  |          | -         |  |              |  
|Operating lease commitments arising from the promotional package |  | $        | 1,156,904 |  |              | $



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. The accrual for onerous contracts was $ 12,453 as of June 30, 2012 and $0 as of December
31, 2011.



According to the leasing agreements, the
Company has an option to terminate any agreement by paying a predetermined compensation. As of June 30, 2012, the compensation
to terminate all leasing agreements is $316,401 According to the sub-leasing agreements that have been signed through June 30,
2012, the rental income from these sub-leasing agreements will be $884,533 within one year and $272,371 within two to five years.
However, no assurance can be given that we can collect all of the rental income.



NOTE 17 – 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.



14







NOTE 18 – ACCUMULATED OTHER COMPREHENSIVE
INCOME



As of June 30, 2012 and 2011, the only
component of accumulated other comprehensive income was translation reserve.



NOTE 19 – CONCENTRATION OF CUSTOMERS



During the years ended June 30, 2012 and
2011, the following customer accounted for more than 10% of total net revenue:



|           |  | Percentage of Net Revenue as of June 30, |     |  | Percentage of Accounts Receivable as of June 30 | 
|---------- |  | ---------------------------------------- | --- |  | ----------------------------------------------- | 
|           |  | 2012                                     |     |  | 2011                                            | 
|Customer A |  |                                          | *   |  |                                                 | 
|Customer B |  |                                          | 24% |  |                                                 | 
|Customer C |  |                                          | 14% |  |                                                 | 
|Customer D |  |                                          | 10% |  |                                                 | 



* less than 10%



NOTE 20 – SUBSEQUENT EVENT



None



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



CAUTIONARY STATEMENT



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.



15







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



SRRE and its subsidiaries, namely, CY-SRRE,
LRY, Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”), Suzhou Xin Ji Yang Real Estate Consultation
Company Limited (“SZXJY”), Beijing Xin Ji Yang Real Estate Consultation Company Limited (“BJXJY”), Shanghai
Shangyang Real Estate Consultation Company Limited (“SHSY”), Suzhou Gao Feng Hui Property Management Company Limited
(“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”), Suzhou Xin Ji Yang Real
Estate Brokerage Company Limited(“SZXJYB”), Kunshan Shang Yang Real Estate Brokerage Company Limited (“KSSY”)
and San Ya Shang Yang Real Estate Consultation Company Limited (“SYSY”) are sometimes hereinafter collectively referred
to as “the Company,” “our,” or “us”.



The principal activities of the Company
are real estate agency sales, real estate marketing services, real estate investments, property leasing services and property
management services 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 in Shanghai, Suzhou, Beijing,
Kunshan and Hainan, and branches in NanChang, YangZhou, NanJing, ChongQing, Putian and ShangQiu



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%. As of June 30, 2012, 55% of the buyers agreed upon the lowered rate, 3% of the buyers did not agreed to a lowered rate and
42% of the buyers agreed to cancel the leasing agreements. 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. As of June 30, 2012, 82
sub-leasing agreements have been signed and the area of these sub-leasing agreements represented 87% of the total area with these
lease commitments



In mid 2011, we established a project
company in Wuhan where we have a 49% stake. The purpose of this project company is for a residence development project in Wuhan.
During the fourth quarter of 2011, the project company was in the process of acquiring land and obtaining the appropriate license
and certificate for the development project. In the first quarter of 2012, we began its initial construction. The land is approximately
27,950 square meters with an estimated development period of three years.



In January 2012, we established a Linyi
Shang Yang Real Estate Development Company Limited (“LYSY”) with 24% stake in the company. During the first quarter
of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing, and began
the initial construction. We have planned on completing the phase 1 construction by end of 2012, however, there are no assurance
we can make this schedule.



We invested $60,000 for 40% equity stake
to a new real estate agency company in February 2012. The company will not commence its operations until the third quarter of
2012 and therefore there were no profit or loss recorded for the period ended June 30, 2012.



16







Due to the lack of business and the continuing
losses of the Beijing Xin Jin Yang and Kunshan Shang Yang subsidiaries, we have dissolved the Kunshan Shang Yang subsidiary and
the Beijing Xin Jin Yang subsidiary is still in the dissolution process.



RECENTLY ISSUED ACCOUNTING STANDARDS



In 2011, new guidance was introduced to
eliminate the current option to report other comprehensive income and its components in the statement of stockholders’ equity,
and require an entity to present items of net income and other comprehensive income in one continuous statement, referred to as
the statement of comprehensive income, or in two separate, but consecutive, statements. This guidance would be effective in the
first quarter of 2012, with early adoption permitted. This pronouncement only changes the way we present other comprehensive income
and its components, and does not impact our results of operations, financial position or cash flows.



In May 2011, the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU
clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts,
the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of
shareowners’ equity. The ASU includes enhanced disclosure requirements about recurring Level 3 fair value measurements,
the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value.
The provisions of this ASU are effective prospectively for interim and annual periods beginning on or after December 15,
2011. Early application is prohibited. This ASU is not expected to have an impact currently on our financial statements or disclosures
as there are presently no recurring Level 3 fair value measurements.



On August 17, 2010, the FASB and IASB
issued an ED on lease accounting. The ED, released by the FASB as a proposed ASU, creates a new accounting model for both lessees
and lessors and eliminates the concept of operating leases. The proposed ASU, if finalized, would converge the FASB’s and
IASB’s accounting for lease contracts in most significant areas.



The Company does not anticipate that the
adoption of the above statements will have a material effect on the Company's financial condition and results of operations.



APPLICATION OF CRITICAL ACCOUNTING
POLICIES



The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies
for us include revenue recognition, net earnings per common share, income taxes and segment information.



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 the FASB guidance of ASC Topic 360, “Property, Plant and Equipment”. The commission revenue
on underwriting sales is recognized when the criteria in ASC 360 have been met, 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.



17







All revenues represent gross revenues
less sales and business tax.



Net Earnings per Common Share



The Company computes net earnings per
share in accordance with SFAS No. 128, “Earnings per Share.” Under the provisions of SFAS No. 128, basic net earnings
per share is computed by dividing the net earnings 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 per share recognizes common stock
equivalents, however; potential common stock in the diluted EPS computation is excluded in net loss periods, as their effect is
anti-dilutive.



Income Taxes



The Company accounts for income taxes
in accordance with SFAS No. 109 “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax liabilities or assets
at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.



Segment information



The segments are generally determined
based on the management of the businesses and on the basis of separate groups of operating activities, each with general operating
autonomy over diversified products and services. The Company believes that it operates in one business segment. Management views
the business as consisting of several revenue streams; however it is not possible to attribute assets or indirect costs to the
individual streams other than direct expenses.



RESULTS OF OPERATIONS



We provide the discussion and analysis
of our changes in financial condition and results of operations for the three and six months ended June 30, 2012, with comparisons
to the historical three and six months ended June 30, 2012.



Revenue



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



|                    |  | Three Months Ended June 30, |           |  | Six Months Ended June 30, | 
|------------------- |  | --------------------------- | --------- |  | ------------------------- | 
|                    |  | 2012                        |           |  | % to total                | 
|                    |  |                             |           |  |                           | 
|Agency Sales        |  |                             | 1,067,704 |  |                           | 
|                    |  |                             |           |  |                           | 
|Underwriting Sales  |  |                             | 238,081   |  |                           | 
|                    |  |                             |           |  |                           | 
|Property Management |  |                             | 530,003   |  |                           | 
|                    |  |                             |           |  |                           | 
|Development         |  |                             | 0         |  |                           | 
|                    |  |                             |           |  |                           | 
|Net revenue         |  |                             | 1,835,788 |  |                           | 



The total net revenue in the second quarter
of 2012 was $1,835,788, which decreased 13% from $2,120,724 in the second quarter of 2011. The total net revenue of the first
two quarters of 2012 was $3,555,323, which decreased 25% from $4,725,348 of the first two quarters of 2011. In the second quarter
of 2012, agency sales represented 58% of the total net revenue, underwriting sales represented 13% and property management represented
29%. In the first two quarters of 2012, agency sales represented 68% of the total net revenue, underwriting sales represented
5% and property management represented 27%. The decrease in net revenue in the second quarter and first two quarters of 2012 was
due to the decrease in our agency sales and underwriting sales.



18







Agency sales



In the second quarter and first two quarters
of 2012, 58% and 67%, respectively, of our net revenue was attributable to agency sales. As compared with same period in 2011,
net revenue of agency sales in the second quarter and first two quarters of 2011 decreased 20% and 25% respectively. The primary
reason was there were fewer projects that contributed to our agency sales revenue.



Because of our diverse market locations,
the risk of market fluctuations has been minimized on our business operations in agency sales in 2012, and we are seeking stable
growth in our agency sales business in 2012. However, there can be no assurance that we will be able to do so.



Underwriting Sales



In February 2004, SHSY entered into an
agreement to underwrite an office building in Suzhou, known as Suzhou Sovereign Building. Being the sole distribution agent for
this office building, SHSY committed to a sales target of $56.53 million. Property underwriting sales are comparatively a higher
risk business model compared to our pure commission based agency business. Under this higher risk business model, the Underwriting
Model, our commission is not calculated as a percentage of the selling price; instead, our commission revenue is equivalent to
the price difference between the final selling price and underwriting price. We 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 are any unsold units on the expiration date
of the agreement, then we may have to purchase the unsold property units from the developer at the underwriting price and hold
them in our inventory or as investments.



We started selling units in the Sovereign
Building in January, 2005. As of December 31, 2006, we have reached our sales target by selling 46,779 square meters with a total
sales price of $70.45 million. However, there are still unsold properties with aggregate floor area of 314 square meters, which
represents 1% of total floor area underwritten, as of December 31, 2006. As of the end of February, 2007, we had sold or acquired
all of the units in the building, and we have achieved the sales target by selling 47,093 square meters with a total sales price
of $75.96 million.



The Company accounts for its underwriting
sales revenue with underwriting rent guarantees in accordance with SFAS No. 66 “Accounting for Sales of Real Estate”
(SFAS 66). Under SFAS 66, the deposit method should be used for the revenue from the sales of floor space with underwriting rent
guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers. Based
on this accounting principle, a significant portion of underwriting revenue was deferred. In early 2009, the Company negotiated
the rental payments with purchasers in the Sovereign Building. As of June 30, 2012, 55% of the buyers agreed upon the lowered
rate, 3% of the buyers did not agree to a lowered rate and 42% of the buyers agreed to cancel the leasing agreements. Based on
the new agreements, a portion of underwriting sales can be realized.



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%. As of June 30, 2012, 55% of the buyers agreed upon the lowered rate, 3% of the buyers did not agree to a lowered rate and
42% of the buyers agreed to cancel the leasing agreements. The leasing period started in the second quarter, 2006, and the Company
has the right to sublease the leased properties to cover these lease commitments in the leasing period. As of June 30, 2012, 82
sub-leasing agreements have been signed, the area of these sub-leasing agreements represented 87% of total area with these lease
commitments.



We expect that the income from the sub-leasing
business will be on a stable growth trend in 2012 and that it can cover the lease commitments in the leasing period as a whole.
However there can be no assurance that we will achieve these objectives.



Development



There was no revenue from the development
business during the three months ended June 30, 2012. .



19







Cost of Revenue



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



|                    |  | Three Months Ended June 30, |         |  | Six Months Ended June 30, | 
|------------------- |  | --------------------------- | ------- |  | ------------------------- | 
|                    |  | 2012                        |         |  | % to total                | 
|                    |  |                             |         |  |                           | 
|Agency Sales        |  |                             | 424,612 |  |                           | 
|                    |  |                             |         |  |                           | 
|Underwriting Sales  |  |                             | 54,525  |  |                           | 
|                    |  |                             |         |  |                           | 
|Property Management |  |                             | 250,029 |  |                           | 
|                    |  |                             |         |  |                           | 
|Development         |  |                             | 0       |  |                           | 
|                    |  |                             |         |  |                           | 
|Cost of revenue     |  |                             | 729,166 |  |                           | 



The cost of revenue of the second quarter
of 2012 was $729,166, which decreased 47% from $1,545,481 during the second quarter of 2011. The total cost of revenue of the
first two quarters of 2012 was $1,878,053, which decreased 43% from $3,284,822 during the first two quarters of 2011. In the second
quarter of 2012, agency sales represented 60% of the total cost of revenue, underwriting sales represented 7%, and property management
represented 33%. In the first two quarters of 2012, agency sales represented 63% of the total cost of revenue, underwriting sales
represented 3%, and property management represented 34%. The decrease in cost of revenue in the second quarter and first two quarters
of 2011 was mainly due to the decrease in the cost of revenue for our agency sales and property management.



Agency sales



As compared with same period in 2011,
cost of revenue of agency sales in the second quarter and first two quarters of 2012 decreased 14% and 37% respectively. This
decreased in cost was mainly due to the decrease in our commissions and consulting costs.



Underwriting Sales



The cost of underwriting sales represents
selling costs, such as staff costs and advertising expenses, associated with underwriting sales.



Property management



The cost of revenue of the second quarter
of 2012 was $229,037, which decreased 72% from $826,790 during the second quarter of 2011. The cost of revenue of the first two
quarters of 2012 was $639,768, which decreased 53% from $1,355,935 during the first two quarters of 2011.



In connection with our leasing guarantees
to third party buyers in the Sovereign Building, 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. The accrual for onerous contracts was $ 12,453 as of June 30, 2012 and $0 as of December 31, 2011.



Development



There was no cost of revenue from the
development business.



20







Operating Expenses



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



|                    |  | Three Months Ended June 30, |         |  | Six Months Ended June 30, | 
|------------------- |  | --------------------------- | ------- |  | ------------------------- | 
|                    |  | 2012                        |         |  | % to total                | 
|                    |  |                             |         |  |                           | 
|Agency sales        |  |                             | 300,454 |  |                           | 
|                    |  |                             |         |  |                           | 
|Property Management |  |                             | 25,656  |  |                           | 
|                    |  |                             |         |  |                           | 
|Development         |  |                             | 380     |  |                           | 
|                    |  |                             |         |  |                           | 
|Operating expenses  |  |                             | 326,490 |  |                           | 



The operating expenses of the second quarter
of 2012 were $326,490, which increased 1% from $322,402 of the second quarter of 2011. The total operating expenses of the first
two quarters of 2012 were $610,710, which decreased 8% from $661,306 in the first two quarters of 2011. In the second quarter
of 2012, agency sales represented 92% of the total operating expenses and property management represented 8%. In the first two
quarters of 2012, agency sales represented 91% of the total operating expenses and property management represented 9%. Operating
expense for development was less than 1% of the total operating expense.



Agency sales



Compared to the second quarter of 2011,
the operating expenses for agency sales in the second quarter of 2012 remained relatively unchanged while decreased by 6% for
the first two quarters of 2012.



Property management



Compared to the second quarter of 2011,
the operating expenses for property management in the second quarter of 2012 increased by 18% in the amount of $3,916.



Development



The increase in operating expense for
development of $380 was for miscellaneous expenditures.



General and Administrative Expenses



General and administrative expense increased
in the second quarter and first two quarters by 148% and 88% in 2012 respectively as compared to the same periods in 2011. The
main reason for the increased in the first two quarters in 2012 was the increase in salary and consulting expense.



Interest Expenses



When compared to 2011, the interest expenses
in the second quarter and first two quarters of 2012 increased 5% and 49% respectively. The interest expenses relate to bank loans
and promissory notes payable.



LIQUIDITY AND CAPITAL RESOURCES



In 2012, our principal sources of cash
were revenues from our agency sales and property management business. Most of our cash resources were used to fund our 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 and promissory notes.



As of June 30, 2012, we had a cash position
of $2,648,514.



The Company's operating activities during
the six months ended June 30, 2012 used cash in the amount of $11,769,193 which was primarily attributable to the inventory amount.



21







The Company's investing activities during
the six months ended June 30, 2012 used cash in the amount of $101,684, which was primarily attributable to acquisition of investments.



The Company's financing activities during
the six months ended June 30, 2011 provided cash in the amount of $13,104,981, which was primarily attributable to funds received
from capital increase.



The potential cash needs for the rest
of 2012 are expected to be for the repayments of our bank loans and promissory notes, the rental guarantee payments and promissory
deposits for various property projects.



We have accumulated losses of $11,903,942
for the year ended June 30, 2012. Our net working capital deficiency and significant accumulated losses raise substantial doubt
about our ability to continue as a going concern. However, management believes that we are able to generate sufficient cash flow
to meet our obligations on a timely basis and ultimately to attain successful operations in respect of the agency sales and property
management operations.



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



OFF BALANCE SHEET ARRANGEMENTS



The Company has no off-balance sheet arrangements.



ITEM 3.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK



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



ITEM 4.  CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and
Procedures.



The term “disclosure controls and
procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of
1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. Under the
supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2012. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were
effective at June 30, 2012, to ensure that information required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange
Commission rules and forms.



Changes in Internal Control Over Financial
Reporting.



The term “internal control over
financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. During the most recent quarter ended June 30, 2012, there has been no
change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.



22







PART II - OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS



The Company is not a party to any legal
proceedings of a material nature.



ITEM 1A.  RISK FACTORS



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



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



None.



ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES



None.



ITEM 4.  (REMOVED AND RESERVED)



ITEM 5.  OTHER INFORMATION



None.



ITEM 6. EXHIBITS



|Exhibit | Description                                                                                         
|------- | ----------------------------------------------------------------------------------------------------
|Number  |                                                                                                     
|        |                                                                                                     
|31.1    | Section 302 Certification by the Corporation's Chief Executive Officer.                             
|        |                                                                                                     
|31.2    | Section 302 Certification by the Corporation's Chief Financial Officer.                             
|        |                                                                                                     
|32.1    | Section 1350 Certification by the Corporation's Chief Executive Officer and Chief Financial Officer.



XBRL Exhibit

101.INS† XBRL Instance Document.

101.SCH† XBRL Taxonomy Extension
Schema Document.

101.CAL† XBRL Taxonomy Extension
Calculation Linkbase Document.

101.DEF† XBRL Taxonomy Extension
Definition Linkbase Document.

101.LAB† XBRL Taxonomy Extension
Label Linkbase Document.

101.PRE† XBRL Taxonomy Extension
Presentation Linkbase Document.



23







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: August 20, 2012 | By: /s/ Lin, Chi-Jung                 
|--------------------- | --------------------------------------
|                      | Lin, Chi-Jung, Chief Executive Officer
|                      |                                       
|Date: August 20, 2012 | By: /s/ Wang Wen Yan                  
|                      | Wang Wen Yan, Chief Financial Officer 



24