Company Quick10K Filing
Quick10K
Sunrise Real Estate Group
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-01-28 Other Events
8-K 2018-10-29 Control, Other Events, Exhibits
8-K 2018-01-30 Officers
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TDS Telephone & Data Systems 3,660
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SGMO Sangamo Therapeutics 1,110
GPRE Green Plains 648
AKRX Akorn 561
SRTS Sensus Healthcare 105
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MYDP Dougherty's Pharmacy 0
ALDA Atlantica 0
SRRE 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Description of Business
Note 2 -Summary of Significant Accounting Policies
Note 3- Restricted Cash
Note 4- Transactional Financial Assets
Note 5- Promissory Deposits
Note 6 - Real Estate Property Under Development
Note 7 - Other Receivables and Deposits, Net
Note 8 - Property and Equipment, Net
Note 9 - Investment Properties, Net
Note 10 - Investment in and Amount Due From An Unconsolidated Affiliate
Note 11- Promissory Notes Payable
Note 12- Amounts Due To Directors
Note 13- Other Payables and Accrued Expenses
Note 14- Account Payable
Note 15 - Amount Due To Affiliates
Note 16 - Customer Deposits
Note 17 - Income Tax Payable
Note 18- Deferred Government Subsidy
Note 19- Commitments and Contingencies
Note 20- Statutory Reserve
Note 21 - Segment Information
Note 22 - Subsequent Events
Item 2 Management's Discussion and Analysis of Finanical Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tv507818_ex31-1.htm
EX-31.2 tv507818_ex31-2.htm
EX-32.1 tv507818_ex32-1.htm

Sunrise Real Estate Group Earnings 2018-09-30

SRRE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv507818_10q.htm 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2018

 

¨ 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 5A11 Fl, Building A

Shanghai, PRC 200070

(Address of Principal Executive Offices) (Zip Code)

 

Issuer's telephone number: + 86-21-6139-8018

 

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 ¨  No x

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes x  No ¨

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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: December 14, 2018 –68,691,925 shares of Common Stock

 

 

 

 

 

 

FORM 10-Q

 

For the Quarter Ended September 30, 2018

 

INDEX

 

      Page
PART I. FINANCIAL INFORMATION   3
Item 1. Financial Statements (Unaudited)   3
  Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017   3
  Condensed Consolidated Statements of Operations for The Nine Months Ended September 30, 2018 and 2017   4
  Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2018 and 2017   5
  Notes to Condensed Consolidated Financial Statements   6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
Item 3. Quantitative and Qualitative Disclosures About Market Risk   26
Item 4. Controls and Procedures   26
       
PART II. OTHER INFORMATION   27
Item 1. Legal Proceedings   27
Item 1A Risk Factors   27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   27
Item 3. Defaults Upon Senior Securities   27
Item 4. Mine Safety Disclosures   27
Item 5. Other Information   27
Item 6. Exhibits   27
       
SIGNATURES   27

 

 2 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   September 30,   December 31, 
   2018   2017 
ASSETS          
           
Current assets          
Cash and cash equivalents  $8,704,999   $5,869,944 
Restricted cash (Note 3)   372,722    1,068,805 
Transactional financial assets (Note 4)   22,074,141    23,152,639 
Accounts receivable   367,475    350,524 
Promissory deposits (Note 5)   114,484    120,529 
Real estate property under development (Note 6)   63,422,830    67,974,281 
Amount due from an unconsolidated affiliate (Note 10)   2,559,617    2,686,498 
Other receivables and deposits, net (Note 7)   8,911,324    6,719,078 
Total current assets   106,527,592    107,942,298 
           
Property and equipment, net (Note 8)   1,125,992    1,283,901 
Investment properties, net (Note 9)   3,784,608    4,255,265 
Deferred tax assets   641,166    591,300 
Investment in an unconsolidated affiliate (Note 10)   109,606,139    50,677,228 
Other investments   145,366    153,041 
Total assets  $221,830,863   $164,903,033 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)          
           
Current liabilities          
Promissory notes payable (Note11)   1,453,657    1,530,409 
Accounts payable (Note 14)   2,025,184    3,767,578 
Amounts due to directors (Note 12)   1,344,898    5,263,171 
Amount due to an affiliate (Note 15)   30,612,447    18,579,652 
Customer deposits (Note 16)   38,655,726    41,468,361 
Other payables and accrued expenses (Note 13)   1,004,574    961,235 
Other taxes payable   218,282    261,633 
Income taxes payable (Note 17)   982,273    776,110 
Total current liabilities   76,297,041    72,608,149 
           
Long term income tax payable (Note 17)   3,364,677    3,623,499 
Deferred government subsidy (Note 18)   4,818,208    5,072,605 
Total liabilities   84,479,926    81,304,253 
           
Commitments and contingencies (Note 19)          
           
Shareholders’ equity          
Common stock, par value $0.01 per share; 200,000,000 shares   686,919    686,919 
Authorized; 68,691,925 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively          
Additional paid-in capital   7,570,008    7,570,008 
Statutory reserve (Note 20)   2,671,691    931,510 
Retained Earnings   128,057,045    68,975,118 
Accumulated other comprehensive income   (4,208,023)   3,095,469 
Total deficit of Sunrise Real Estate Group, Inc.   134,777,640    81,259,024 
Non-controlling interests   2,573,297    2,339,756 
Total shareholders’ equity   137,350,937    83,598,780 
Total liabilities and shareholders’ equity  $221,830,863   $164,903,033 

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   Three Months Ended September
30,
   Nine Months Ended September
30,
 
   2018   2017   2018   2017 
                 
Net revenues  $1,664,317   $3,164,421   $5,162,387   $21,924,881 
Cost of revenues   (999,707)   (2,866,938)   (3,087,307)   (18,042,808)
Gross profit   664,610    297,483    2,075,080    3,882,073 
                     
Operating expenses   (213,874)   (198,238)   (1,306,001)   (811,076)
General and administrative expenses   (779,372)   (777,367)   (1,897,276)   (2,165,401)
Operating profit (loss)   (328,636)   (678,122)   (1,128,197)   905,596 
                     
Other income (expenses)                    
Interest income   33,981    7,277    64,375    24,420 
Interest expense   56,026    (119,334)   (2,246,270)   (350,666)
Equity in net gain of affiliate   33,343,384    15,908,212    64,679,542    48,663,103 
Other income (loss), net   497,072    (436,877)   783,470    687,377 
Total other Income   33,930,463    15,359,278    63,281,117    49,024,234 
                     
Income before income taxes   33,601,827    14,681,156    62,152,920    49,929,830 
                     
Income tax benefit   (980,563)   1,870    (961,626)   63,974 
                     
Net income   32,621,264    14,683,026    61,191,294    49,993,804 
Less:  Net income (loss) attributable to non-controlling interests   (236,314)   (1,525,539)   (369,185)   (1,667,998)
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.  $32,384,950   $13,157,487   $60,822,109   $48,325,806 
Net income   32,261,264    14,683,026    61,191,294    49,993,804 
                     
Other comprehensive income (loss)                    
Foreign currency translation adjustment   (5,319,554)   1,118,977    (7,439,136)   1,496,624 
Comprehensive income   27,301,710    15,802,003    53,752,158    51,490,428 
                     
Less: Comprehensive (income) loss attributable to non-controlling interests   (134,582)   (1,598,747)   (233,541)   (1,815,269)
Total comprehensive income  attributable to shareholders of Sunrise Real Estate Group, Inc.   27,167,128    14,203,256    53,518,617    49,675,159 
Loss per share – basic and fully diluted  $0.47   $0.21   $0.89   $0.72 
                     
Weighted average common shares outstanding                    
-  Basic and fully diluted   68,691,925    68,691,925    68,691,925    68,691,925 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 4 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

 

   Nine Months Ended September 30, 
   2018   2017 
Cash flows from operating activities          
Net income  $61,191,294   $49,993,804 
           
Adjustments to reconcile net income (loss) to net cash  used in operating activities          
Depreciation and amortization   363,713    393,677 
Loss (Gain) on disposal of property, plant and equipment   4,174    30,286 
Equity in net loss (income) of an unconsolidated affiliate   (64,678,404)   (49,554,152)
Changes in assets and liabilities          
Accounts receivable   (36,332)   637,340 
Promissory deposits   -    64,780 
Real estate property under development   1,202,082    12,671,666 
Customer Deposits   (771,198)   (9,933,276)
Amount due from unconsolidated affiliates   (8,260)   374,645 
Other receivables and deposits   (2,661,208)   (1,296,695)
Deferred tax assets   (83,670)   (63,975)
Accounts payable   (1,634,516)   (1,229,537)
Other payables and accrued expenses   96,324    (671,833)
Other taxes payable   (31,807)   16,636 
Income taxes payable   (946)   (172,241)
Net cash provided by operating activities   (7,048,754)   1,261,125 
           
Cash flows from investing activities          
Purchases of property and equipment   (3,665)   (11,159)
Transactional financial assets   (86,947)   (19,581,284)
Dividend distribution of affiliates   -    23,090,780 
Repayment of advances to unconsolidated affiliate   -    - 
Net cash provided by investing activities   (90,612)   3,498,337 
           
Cash flows from financing activities          
Restricted cash   676,010    (727,022)
Bank loan repayments   -    (6,072,112)
Capital injection from non-controlling interests of consolidated subsidiaries   -    36,807 
Advances from directors   24,578    50,876 
Repayments of advances from directors   (3,870,889)   - 
Advances from an affiliate   13,118,432    17,400,270 
Repayments to an affiliate   (135,820)   (799,894)
Repayments of promissory notes   -    (178,789)
Net cash provided in (used by) financing activities   9,812,311    9,710,136 
           
Effect of exchange rate changes on cash and cash equivalents   162,110    (822,055)
           
Net increase (decrease) in cash and cash equivalents   2,835,055    13,647,543 
Cash and cash equivalents at beginning of period   5,869,944    8,693,345 
Cash and cash equivalents at end of period  $8,704,999   $22,340,888 
           
Supplemental disclosure of cash flow information          
Income taxes paid  $1,094,024   $172,236 
Interest paid   139,237    581,216 

 

See accompanying notes to consolidated financial statements.

 

 5 

 

 

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Sunrise Real Estate Group, Inc. “SRRE” was incorporated in Texas on October 10, 1996 under the name of Parallax Entertainment, Inc. SRRE together with its subsidiaries and equity investment described below is collectively referred to as “the Company”, “our” or “us”. The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing and management services; and real estate development in the People’s Republic of China (the “PRC”).

 

As of September 30, 2018, the Company has the following major subsidiaries and equity investment.

 

Company Name   Date of
Incorporation
  Place of
Incorporation
  % of
Ownership
held by the
Company
  Relationship
with the
Company
  Principal activity
Sunrise Real Estate Development Group, Inc. (CY-SRRE)   April 30, 2004   Cayman Islands   100%   Subsidiary   Investment holding
Lin Ray Yang Enterprise Limited (“LRY”)   November 13, 2003   British Virgin Islands   100%   Subsidiary   Investment holding
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)   August 20, 2001   PRC   100%   Subsidiary   Property brokerage services
Shanghai Shang Yang Real Estate Consultation Company Limited (“SHSY”)   February 5, 2004   PRC   100%   Subsidiary   Property brokerage services
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”)   November 24, 2006   PRC   75.25%*   Subsidiary   Property brokerage and management services
Suzhou Xi Ji Yang Real Estate Consultation Company Limited (“SZXJY”)   June 25, 2004   PRC   75%   Subsidiary   Property brokerage services
Linyi Shangyang Real Estate Development Company Limited (“LYSY”)   October 13, 2011   PRC   24%**   Subsidiary   Real estate development
Shangqiu Shang Yang Real Estate Consultation Company Limited (“SQSY”)   October 20, 2010   PRC   100%   Subsidiary   Property brokerage services
Wuhan Gao Feng Hui Consultation Company Limited (“WHGFH”)   November 10, 2010   PRC   60%   Subsidiary   Property brokerage services
Sanya Shang Yang Real Estate Consultation Company Limited (“SYSY”)   September 18, 2008   PRC   100%   Subsidiary   Property brokerage services
Shanghai Rui Jian Design Company Limited (“SHRJ”)   August 15, 2011   PRC   100%   Subsidiary   Property brokerage services
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)   March 6, 2012   PRC   100%   Subsidiary   Investment holding
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)   December 28, 2009   PRC   49%   Equity investment   Real estate development
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”)   September 28, 2011   PRC   40%   Equity investment   Property brokerage services
Xin Guang Investment Management and Consulting Company Limited (“XG”)   December 17, 2012   PRC   49%   Equity investment   Investment management and consulting
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)   June 6, 2013   PRC   20.75%***   Equity investment   Import and export trading
Shanghai Hui Tian (“SHHT”)   July 25, 2014   PRC   100%   Subsidiary   Investment holding

 

 6 

 

 

*

After the equity transaction in February 2015, the Company holds 75.25% equity of SZSY. The various subsidiaries holds the percentage of SZSY is as follows: SZXJY, SHXJY, CY-SRRE holds 36.75%, 26% and 12.5% respectively.

**The Company and a shareholder of LYSY, which holds 51% equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company.
***On June 20, 2018, SHDEW sold additional shares of capital stock to increase its registered capital, which diluted the Company’s equity interest of SHDEW from 23.08% to 20.75%.

 

The accompanying condensed consolidated balance sheet as of December 31, 2017, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

 

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Sunrise Real Estate as of September 30, 2018 and the results of operations for the nine months ended September 30, 2018 and 2017, and the cash flows for the nine months ended September 30, 2018 and 2017. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017. The results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Principles of Consolidation

 

The condensed consolidated financial statements include the financial statements of Sunrise Real Estate Group, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated on consolidation.

 

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

 

Fair Value of Financial Instruments

 

The Company follows the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). It clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The Company values its investments in wealth management products using alternative pricing sources and models utilizing market observable inputs, and accordingly the Company classifies the valuation techniques that use these inputs as Level 2.

 

The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, promissory deposits, amount due from an unconsolidated affiliate, other receivables and deposits, deferred tax assets, bank loans, promissory notes payable, accounts payable, customer deposits, amounts due to directors, other payables and accrued expenses, other taxes payable and income taxes payable approximate their fair value based on the short-term maturity of these instruments. The fair value of the deposits received from underwriting sales approximate their carrying amounts because the deposits were received in cash.

 

 7 

 

 

Foreign Currency Translation and Transactions

 

The functional currency of SRRE, CY-SRRE and LRY is U.S. dollars (“$”) and their financial records are maintained and the financial statements prepared in U.S. dollars. The functional currency of the Company’s subsidiaries and affiliate in China is Renminbi (“RMB”) and their financial records and statements are maintained and prepared in RMB.

 

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

 

The financial statements of the Company’s operations based outside of the United States have been translated into U.S. dollars in accordance with ASC830. Management has determined that the functional currency for each of the Company’s foreign operations is its applicable local currency. When translating functional currency financial statements into U.S. dollars, period-end exchange rates are applied to the condensed consolidated balance sheets, while average exchange rates as to revenues and expenses are applied to consolidated statements of operations. The effect of foreign currency translation adjustments is included as a component of accumulated other comprehensive income in shareholders’ equity.

 

The exchange rates as of September 30, 2018 and December 31, 2017 are $1: RMB6.8792 and $1: RMB6.5342, respectively.

 

The RMB is not freely convertible into foreign currency and all foreign exchange transaction must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rate used in translation.

 

Real Estate Property under Development

 

Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.

 

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.

 

Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.

 

In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.

 

For the nine months ended September 30, 2018, the company had recognized the net revenue and cost of revenue of Linyi project at a certain proportion.

 

Long Term Investments

 

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

 

Investment in Unconsolidated Affiliates

 

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

 

 8 

 

 

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

 

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

 

Other Investments

 

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

 

Government Subsidies

 

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

 

In recognizing the benefit of government subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs are matched with those costs and recorded as a reduction in costs. Those benefits that are more general in nature or driven by business performance measures are classified as revenue.

 

Government subsidy was received in 2012 and the company recorded it as deferred government subsidy in balance sheets. As of September 30, 2018 and December 31, 2017, the balance of deferred government subsidy was $4,818,208 and $5,072,605, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete the subsidized property development project by the agreed date.

 

Revenue Recognition

 

Agency commission revenue from property brokerage is recognized when the property developer and the buyer complete a property sales transaction, and the property developer 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 real estate development sales in accordance with the ASC 976-605, “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66) (“ASC 976-605”). A real estate development sale is recognized by the percentage-of-completion method on the sale of individual units when the individual unit sites are being sold separately and all the following criteria are met as below:

 

a. Construction is beyond a preliminary stage.

 

b. The buyer is committed to the extent of being unable to require a refund except for no delivery of the unit.

 

 9 

 

  

c. Sufficient units have already been sold to assure that the entire property will not revert to rental property.

 

d. Sales prices are collectible.

 

e. Aggregate sales proceeds and costs can be reasonably estimated.

 

If any of the above criteria is not met, proceeds shall be accounted for as deposits until the criteria are met.

 

All revenues represent gross revenues less sales and business taxes.

 

Net Earnings (Loss) per Common Share

 

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

 

Recently Adopted Accounting Standards

 

The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which replaces most existing revenue recognition guidance in U.S. GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. ASU 2014-09 and its amendments were included primarily in ASC 606. The core principle of ASC 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASC 606 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. We adopted ASC 606 effective January 1, 2018, using the modified retrospective method. There was no significant impact to the opening balance of reinvested earnings as of January 1, 2018.

 

New Accounting Pronouncements

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated statement of cash flows.

 

 10 

 

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's financial statements and disclosures.

 

NOTE 3– RESTRICTED CASH

 

The Company is required to maintain certain deposits with the bank that provide mortgage loans to the Company. As of September 30, 2018 and December 31, 2017, the Company held cash deposits of $372,722 and $1,068,805 as guarantee to the banks which provides mortgage loan to individual customers of our construction products. These balances are subject to withdrawal restrictions and were not covered by insurance.

 

NOTE 4– TRANSACTIONAL FINANCIAL ASSETS

 

As of September 30, 2018, we have $22,074,141 invested in bank wealth management investment products. The investments are short termed with maturity periods and can be rolled into a maturity date of our choosing or automatically rolled into subsequent maturity period. The annualized rate of return may range from 2.8% to 5.45% depending on the amount and time period invested.

 

NOTE 5- PROMISSORY DEPOSITS

 

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

 

NOTE 6 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

 

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The Company acquired the site and commenced construction of this project during the fiscal year of 2012.

 

On March 13, 2014, the Company has signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has obtained a right to develop the Guangxinglu (“GXL”) Project, located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartment.

 

For the period ended of September 30, 2018, the company had recognized the net revenue and cost of revenue of Linyi project at a certain proportion. As of September 30, 2018, land use rights included in real estate property under development totaled $63,422,830.

 

NOTE 7 - OTHER RECEIVABLES AND DEPOSITS, NET

 

   September 30,   December 31, 
   2018   2017 
     
Advances to staff  $100,492    118,835 
Rental deposits   37,762    72,531 
Prepaid expense   18,033    22,572 
Prepaid tax   4,543,100    4,687,947 
Other receivables   4,211,937    1,817,193 
   $8,911,324   $6,719,078 

 

 11 

 

 

Other receivables and deposits as of September 30, 2018 and December 31, 2017 are stated net of allowance for doubtful accounts of $316,910 and $674,478, respectively.

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

   September 30,   December 31, 
   2018   2017 
         
Furniture and fixtures  $160,687   $166,660 
Computer and office equipment   155,034    163,969 
Motor vehicles   533,844    602,260 
Properties   2,199,306    2,315,428 
    3,048,871    3,248,317 
Less: Accumulated depreciation   (1,922,879)   (1,964,416)
   $1,125,992   $1,283,901 

 

Depreciation and amortization expense for property and equipment amounted to $363,713 and $130,088 for the nine months ended September 30, 2018 and 2017, respectively.

 

NOTE 9 – INVESTMENT PROPERTIES, NET

 

   September 30,   December 31, 
   2018   2017 
         
Investment properties  $9,001,166   $9,476,420 
Less: Accumulated depreciation   (5,216,558)   (5,221,155)
   $3,784,608   $4,255,265 

 

Depreciation and amortization expense for investment properties amounted to $992,478 and $607,940 for the nine months ended September 30, 2018 and 2017, respectively.

 

NOTE 10 – INVESTMENT IN AND AMOUNT DUE FROM AN UNCONSOLIDATED AFFILIATE

 

The investments in unconsolidated affiliates primarily consist of WHYYL (49%) and SHDEW (20.75%). As of September 30, 2018, the investment amount in WHYYL and SHDEW were $0 and $109,606,139 separately.

 

WHYYL is primarily developing a real estate project in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period. SHDEW is a company engaged in R&D and sale of skincare and cosmetic products. The Company has accounted for these investments using the equity method as the Company has the ability to exercise significant influence over their activities.

 

In 2011, the Company invested $4,697,686 for acquiring 49% equity interest in WHYYL to expand its operations to real estate development business. As of September 30, 2018 the investment in WHYYL was $0, which included its equity in net loss of WHYYL, net of income taxes, totaling $514,794 as of September 30, 2018. The following table sets forth the unaudited financial information of WHYYL.

 

For the period ended of September 30, 2018, the company had recognized the net revenue and cost of revenue of WHYYL project at a certain proportion.

 

   Nine Months ended September 30, 
   2018   2017 
     
Revenues  $-   $- 
           
Net loss  $514,794   $3,854,857 

 

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   September 30,   December 31, 
   2018   2017 
     
Current assets  $12,666,877   $19,066,691 
Non-current assets   8,006    9,736 
Total assets   12,674,884    19,076,427 
           
Current liabilities   13,058,793    18,965,514 
Total equity  $(383,909)  $110,914 

 

As of September 30, 2018 and December 31, 2017, the Company has a balance of $2,559,617 and $2,686,498 due from WHYYL, which was no longer charged interest from September 1, 2014.

 

SHDEW was established in June of 2013 with its business as a skincare and cosmetic company. The company has made progress in its operation. Its Wechat stores have a membership of over a million members. It is developing its own skincare products as well as solidifying its position in the ecommerce platform.

 

As of September 30, 2018, the net profit for SHDEW was $329,534,733 with total equity in the amount of $530,925,028 . The following table sets for the unaudited financial information of SHDEW

 

   Nine Months ended September 30, 
   2018   2017 
     
Revenues  $621,953,403   $517,346,238 
           
Net income  $329,534,733   $237,519,703 

 

   September 30,   December 31, 
   2018   2017 
     
Current assets  $802,163,671   $647,287,630 
Non-current assets   13,884,614    19,471,756 
Total assets   816,048,285    666,759,387 
           
Current liabilities   285,123,257    447,406,389 
Total equity  $ 530,925,028,   $219,337,694 

 

NOTE 11– PROMISSORY NOTES PAYABLE

 

The promissory notes payable consist of the following unsecured notes to unrelated parties. Included in the balances are promissory notes with outstanding principal and unpaid interest of an aggregate of $1,453,657 and $1,530,409 as of September 30, 2018 and December 31, 2017, respectively.

 

The promissory note with a principal as of September 30, 2018 amounting to $726,829 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2018 and December 31, 2017, the outstanding principal and unpaid interest related to this promissory note amounted to $726,829 and $765,205, respectively.

 

The promissory note with a principal as of September 30, 2018 amounts to $726,829 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2018 and December 31, 2017, the outstanding principal and unpaid interest related to this promissory note amounted to $726,829 and $765,205, respectively.

 

For the nine months ended September 30, 2018, the interest expense related to these promissory notes was $NIL.

 

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NOTE 12– AMOUNTS DUE TO DIRECTORS

 

   September 30,   December 31, 
   2018   2017 
     
Lin Chi-Jung  $1,282,755   $5,154,329 
Lin Hsin-Hung   62,143    108,842 
   $1,344,898   $5,263,171 

 

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

 

The balances are unsecured, interest-free and have no fixed term of repayment.

 

The advances together with unpaid interest as of September 30, 2018 and December 31, 2017 were $1,282,755 and $5,154,329, respectively. The balances are unsecured and interest bearing at rates was 0% per annum.

 

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

 

NOTE 13- OTHER PAYABLES AND ACCRUED EXPENSES

 

   September 30,   December 31, 
   2018   2017 
     
Accrued staff commission and bonus  $295,042   $302,710 
Rental deposits received   87,896    161,055 
Bid bond   203,512    - 
Dividends payable to non-controlling interest   195,597    291,546 
Other payables   222,527    205,924 
   $1,004,574   $961,235 

 

NOTE 14- ACCOUNT PAYABLE

 

Account payable was mostly derived from our property development of Linyi project and GXL project. As of September 30, 2018 and December 31, 2017, the company’s account payable amounted to $2,025,184 and $3,767,578.

 

NOTE 15 – AMOUNT DUE TO AFFILIATES

 

The temporary borrowing, in the amount of $30,099,829 from SHDEW is for operations and is unsecured, has an interest between 4.35% to 4.6% and payable on demands. The amount due to JXSY, in the amount of $512,618, were intercompany transfers for day to day operation.

 

NOTE 16 – CUSTOMER DEPOSITS

 

Customer deposits were mostly derived from our property development of Linyi project and GXL project, which was pre-sale collection from our customers. As of September 30, 2018 and December 31, 2017, the company’s customer deposits amounted to $38,655,726 and $41,613,715.

 

NOTE 17 – INCOME TAX PAYABLE

 

The 2017 Tax Act was enacted on December 22, 2017. Due to the complexities involved in the accounting for the 2017 Tax Act, the SEC issued SAB 118, which provides guidance on the application of US GAAP for income taxes in the period of enactment. SAB 118 requires companies to include in their financial statements a reasonable estimate of the impact of the 2017 Tax Act, to the extent such an estimate has been determined. As a result, our financial results reflect the income tax effects of the 2017 Tax Act for which the accounting is complete, as well as provisional amounts for those impacts from the 2017 Tax Act.

 

NOTE 18– DEFERRED GOVERNMENT SUBSIDY

 

Deferred government subsidy consists of the cash subsidy provided by the local government.

 

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Government subsidy was received in 2012, and as of September 30, 2018 and December 31, 2017, the Company’s deferred government subsidy amounted to $4,818,208 and $5,072,605, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project, and are repayable if the Company fails to complete the subsidized property development project before the agreed date. The entire government subsidy is deferred and included as deferred government subsidy in consolidated balance sheets.

 

NOTE 19- COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases certain of its office properties under non-cancellable operating lease arrangements. Payments under operating leases are expensed on a straight-line basis over the periods of their respective terms, and the terms of the leases do not contain rent escalation, or contingent rent, renewal, or purchase options. There are no restrictions placed upon the Company by entering into these leases. Rental expenses under operating leases for the nine months ended September 30, 2018 and 2017 were $92,131 and $162,297, respectively.

 

As of September 30, 2018, the Company had the following operating lease obligations.

 

   Amount 
     
Within one year  $43,961 
Two to five years   - 
   $43,961 

 

NOTE 20– STATUTORY RESERVE

 

According to the relevant corporation laws in the PRC, a PRC company is required to transfer at least 10% of its profit after taxes, as determined under accounting principles generally accepted in the PRC, to the statutory reserve until the balance reaches 50% of its registered capital. The statutory reserve can be used to make good on losses or to increase the capital of the relevant company.

 

According to the Law of the PRC on Enterprises with Wholly-Owned Foreign Investment, the Company PRC’s subsidiaries are required to make appropriations from after-tax profits as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) to non-distributable reserves. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion reserve and (iii) a staff bonus and welfare fund. A wholly-owned PRC subsidiary is not required to make appropriations to the enterprise expansion reserve but annual appropriations to the general reserve are required to be made at 10% of the profit after tax as determined under PRC GAAP at each year-end, until such fund has reached 50% of its respective registered capital. The staff welfare and bonus reserve is determined by the board of directors. The general reserve is used to offset future losses. The subsidiary may, upon a resolution passed by the stockholders, convert the general reserve into capital. The staff welfare and bonus reserve are used for the collective welfare of the employees of the subsidiary. The enterprise expansion reserve is for the expansion of the subsidiary operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law.

 

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of September 30, 2018 and December 31, 2017, the Company’s statutory reserve fund was $2,671,691 and $931,510, respectively.

 

NOTE 21 - SEGMENT INFORMATION

 

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

 

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

 

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   Three Months Ended September 30, 2018 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues  $257,284   $1,407,033   $-   $-   $1,664,317 
Cost of revenues   (168,304)   (831,402)   -    -    (999,707)
Gross profit   88,980    575,630    -    -    664,610 
                          
Operating expenses   (115,108)   (98,674)   -    (92)   (213,874)
General and administrative expenses   (502,436)   (207,430)   -    (69,506)   (779,372)
Operating loss   (528,564)   269,526    -    (69,598)   (328,636)
                          
Other income (expenses)                         
Interest income   30,222    3,261    -    498    33,981 
Interest expense   -    3,473    52,553         56,026 
Other income, Net   206,873    35,383    254,809    7    497,072 
Equity in net income (loss) of unconsolidated affiliates   -    -    33,343,384    -    33,343,384 
Total other (expenses) income   237,095    42,117    33,650,746    505    33,930,463 
                          
Income (loss) before income taxes   (291,469)   311,643    33,650,746    (69,093)   33,601,827 
Income tax   (992,913)   12,350    -    -    (980,563)
Net Income (loss)  $(1,284,382)  $323,993   $33,650,746   $(69,093)  $32,621,264 

 

   Nine Months Ended September 30, 2018 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues  $1,147,654   $4,014,733   $-   $-    5,162,387 
Cost of revenues   (659,007)   (2,428,300)   -    -    (3,087,307)
Gross profit   488,647    1,586,433    -    -    2,075,080 
                          
Operating expenses   (805,529)   (50,198)   -    (274)   (1,306,001)
General and administrative expenses   (928,794)   (586,819)   -    (381,663)   (1,897,276)
Operating loss   (1,245,676)   499,416    -    (381,937)   (1,128,197)
                          
Other income (expenses)                         
Interest income   50,778    8,004    -    5,593    64,375 
Interest expense   -    (139,237)   (2,107,033)   -    (2,246,270)
Other income, Net   32,397    (109,589)   860,918    (256)   783,470 
Equity in net income (loss) of unconsolidated affiliates   -    -    64,679,542    -    64,679,542 
Total other (expenses) income   83,175    (240,822)   63,433,427    5,337    63,281,117 
                          
Income (loss) before income taxes   (1,162,501)   258,594    63,433,427    (376,60)   62,152,920 
Income tax   (1,045,296)   83,670    -    -    (961,626)
Net Income (loss)  $(2,207,797)  $342,264   $63,433,427   $(376,600)  $61,191,294 

 

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   Three Months Ended September 30, 2017 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues  $445,566   $2,697,459   $-   $21,396   $3,164,421 
Cost of revenues   (284,127)   (2,509,005)   -    (73,806)   (2,866,938)
Gross profit   161,439    188,454    -    (52,410)   297,483 
                          
Operating expenses   (157,085)   (36,046)   -    (5,107)   (198,238)
General and administrative expenses   (278,386)   (350,259)   -    (148,722)   (777,367)
Operating loss   (274,032)   (197,851)   -    (206,239)   (678,122)
                          
Other income (expenses)                         
Interest income   4,994    2,188    -    95    7,277 
Interest expense   (119,334)        -         (119,334)
Other income, Net   (38,911)   (397,966)   -    -    (436,877)
Equity in net income (loss) of unconsolidated affiliates   -    -    15,908,212    -    15,908,212 
Total other (expenses) income   (153,251)   (395,778)   15,908,212    95    15,359,278 
                          
Income (loss) before income taxes   (427,283)   (593,629)   15,908,212    (206,144)   14,681,156 
Income tax        1,870    -    -    1,870 
Net Income (loss)  $(427,283)  $(591,759)  $15,908,212   $(206,144)  $14,683,026 

 

   Nine Months Ended September 30, 2017 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues  $3,461,721   $18,441,764   $-   $21,396    21,924,881 
Cost of revenues   (801,351)   (17,097,524)   -    (143,933)   (18,042,808)
Gross profit   2,660,370    1,344,240    -    (122,537)   3,882,073 
                          
Operating expenses   (426,444)   (375,475)   -    (9,157)   (811,076)
General and administrative expenses   (834,520)   (1,172,985)   -    (157,896)   (2,165,401)
Operating loss   1,399,406    (204,220)   -    (289,590)   905,596 
                          
Other income (expenses)                         
Interest income   14,895    9,283    -    242    24,420 
Interest expense   (350,666)        -    -    (350,666)
Other income, Net   1,065,491    (378,114)   -    -    687,377 
Equity in net income (loss) of unconsolidated affiliates   -    -    48,663,103    -    48,663,103 
Total other (expenses) income   729,720    (368,831)   48,663,103    242    49,024,234 
                          
Income (loss) before income taxes   2,129,126    (573,051)   48,663,103    (289,348)   49,929,830 
Income tax   -    63,974    -    -    63,974 
Net Income (loss)  $2,129,126   $(509,077)  $48,663,103   $(206,144)  $49,993,804 

 

 17 

 

  

   Property                 
   Brokerage   Real Estate   Investment*         
   Services   Development   Transaction   Others   Total 
As of September 30, 2018                         
Real estate property under development  $-   $63,422,830   $-   $-   $63,422,830 
Total assets   2,730,819    78,716,319    131,825,646    8,558,079    221,830,863 
                          
As of September 30, 2017                         
Real estate property under development  $-   $66,704,455   $-   $-   $66,704,455 
Total assets   26,140,675    80,340,124    85,612,995    155,974    192,249,768 

 

NOTE 22 - SUBSEQUENT EVENTS

 

On October 29, 2018, the Company declared a cash dividend of $0.10 per share payable January 28, 2019 to shareholders of record of December 28, 2018. The ex-dividend date will be December 26, 2018.

 

In October 2018, the Company’s subsidiaries, SHSY and LYRL, received cash dividends from SHDEW in an aggregate amount of 248,952,000RMB (approximately $35,741,235 US).

 

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

 

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

 

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

 

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

 

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

 

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

 

 18 

 

 

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 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”), 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 real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC.

 

RECENT DEVELOPMENTS

 

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

 

In mid-2011, we established a project company in Wuhan in which we have a 49% ownership. We commenced the construction of Phase 1 of the project in the third quarter of 2012 and the pre-sale of Phase 1 in the first quarter of 2013. We have begun Phase 2 construction of the project in the second quarter of 2013 and the pre-sale of Phase 2 was started in mid-August. The Wuhan project includes seven residential buildings with three buildings being part of Phase 1 and four buildings in Phase 2. As of September 30, 2018, the project has sold all of the apartment units with an area of 81,221 square meters. For the period ended of September 30, 2018, the company WHYYL had recognized the net revenue and cost of revenue of WHYYL the project at a certain proportion.

 

In October 2011, we established LYSY and own 24% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. We began construction in mid-2012 and as of December 31, 2016 have constructed 121 units, which encompasses all units in phase 1. The phase 1 has completed construction in May 2015. The sales started in November 2013, we have made sales of 116 units at the end of September 30, 2018. Proceeds from sales will be used to finance the constructions of the subsequent phases of the project. The phase 2 has begun construction of 17,000 sqm in October 2017. For the period ended of September 30, 2018, the company had recognized the net revenue and cost of revenue of Linyi project at a certain proportion.

 

On March 13, 2014, the Company signed a joint development agreement with ZhongjiPufa Real Estate Co. According to this agreement, the Company obtained a right to develop the GXL project, which is located in the Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartment. Presale began on March 2016, and construction was completed on March of 2017. As of September 30, 2018, the project had sold 79 units with a sales area of 3,967 square meters (There are 18 units presale contract termination out of maximum presale of 97 units.). The project is preparing for the final acceptance of construction by the government authorities.

 

 19 

 

 

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over a million members as of December June 301, 20172018. SHDEW develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products from third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW has its own online shopping app, “庭秘密,” where consumers can purchase its cosmetics and skincare products as well as products imported into China. The online shopping platform is currently in operation. On June 20th, 2018 SHDEW increased its share capital, this decreased the Company’s equity interest of SHDEW from 23.08% to 20.75%.

 

RECENTLY ADOPTED ACCOUNTING STANDARDS

 

The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in the presentation and classification of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period. We are currently assessing the impact this standard will have on our consolidated statement of cash flows.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's financial statements and disclosures.

 

APPLICATION OF CRITICAL ACCOUNTING POLICIES

 

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

 

 20 

 

 

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

 

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 real estate development sales in accordance with the ASC 976-605, “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66) (“ASC 976-605”). A real estate development sale is recognized by the percentage-of-completion method on the sale of individual units when the individual unit sites are being sold separately and all the following criteria are met as below:

 

a. Construction is beyond a preliminary stage.

 

b. The buyer is committed to the extent of being unable to require a refund except for no delivery of the unit.

 

c. Sufficient units have already been sold to assure that the entire property will not revert to rental property.

 

d. Sales prices are collectible.

 

e. Aggregate sales proceeds and costs can be reasonably estimated.

 

If any of the above criteria is not met, proceeds shall be accounted for as deposits until the criteria are met.

 

All revenues represent gross revenues less sales and business taxes.

 

Real Estate Property under Development

 

Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.

 

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.

 

Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.

 

 21 

 

 

In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.

 

Government Subsidies

 

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

 

In recognizing the benefit of government subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs are matched with those costs and recorded as a reduction in costs. Those benefits that are more general in nature or driven by business performance measures are classified as revenue.

 

The government subsidy received by the Company is given to reimburse the land acquisition costs and certain construction costs incurred for its property development project in Linyi. The subsidy is repayable if the Company fails to complete the subsidized property development project by the agreed date. The Company recorded the subsidy received as a deferred government subsidy in consolidated balance sheets.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company recognizes tax benefits that satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for such tax benefits. The Company did not incur any interest or penalties related to potential underpaid income tax expenses during the nine months ended September 30, 2018 and 2017

 

RESULTS OF OPERATIONS

 

We provide the following discussion and analyses of our changes in financial condition and results of operations for the period ended September 30, 2018 with comparisons to the period ended September 30, 2017.

 

Revenue

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   % to
total
   2017   % to
total
   %
change
   2018   % to
total
   2017   % to
total
   %
change
 
Agency sales   92,692    6    218,510    7    (58)   604,591    12    753,278    3    (20)
Property management   164,593    10    205,145    6    (20)   543,064    11    513,917    2    6 
House sales   1,407,032    84    2,697,459    85    (48)   4,014,733    77    18,441,764    84    (78)
Service sales   -    0    43,307    2    (100)   -    0    2,215,922    11    (100)
Net revenues   1,664,317    100    3,164,421    100    (47)   5,162,387    100    21,924,881    100    (76)

 

 22 

 

 

The net revenue in the third quarter of 2018 was $1,664,317, which decreased 47% from $3,164,421 in the third quarter of 2017. The net revenue in the first three quarter of 2018 was $5,162,387, which was decreased by 76% from $21,924,881 in the first three quarter of 2017. In the third quarter of 2018, agency sales represented 6% of our net revenues, property management represented 10% and house sales represented 84%. In the first three quarters of 2018, agency sales represented 12% of our net revenues, property management represented 11% and house sales represented 77%. The decrease in net revenue in the first three quarter of 2018 was mainly due to less unit recognized house sales for the Linyi Project.

 

Agency sales

 

In the third quarter and first three quarters of 2018, 6% and 12%, respectively, of our net revenues were attributable to agency sales. As compared with similar periods in 2017, net revenue of agency sales decreased 58% and 20%, respectively, in the third quarter and the first three quarters of 2018. The primary reason was there were less sales in our agency projects.

 

Property Management

 

Property management represented 11% of our revenue in the first three quarter of 2018 and revenue from property management increased by 6% compared with same period in 2017.

 

House sales

 

House sales represented 77% of our revenue in the first three quarter of 2018 and revenue from house sales decreased by 78% compared with same period in 2007.

 

Cost of Revenue

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   % to
total
   2017   % to
total
   %
change
   2018   % to
total
   2017   % to
total
   %
change
 
Agency sales   60,423    6    131,661    5    (54)   302,129    10    439,661    2    (31)
Property management   107,881    11    152,466    5    (29)   356,878    11    361,690    2    (1)
House sales   831,403    83    2,509,005    88    (67)   2,428,300    79    17,097,524    95    (86)
Service sales   -    0    73,806    2    (100)   -    0    143,933    1    (100)
Cost of revenues   999,707    100    2,866,937    100    (65)   3,087,307    100    18,042,808    100    (83)

 

The cost of revenues of the third quarter of 2018 was $999,707, which decreased 65% from $2,866,937 during the third quarter of 2017. The cost of revenues of the first three quarters of 2018 was $3,087,307, which decreased 83% from $18,042,808 during the first three quarters of 2017. In the third quarter of 2018 agency sales represented 6% of our cost of revenues, property management represented 11% and house sales represented 83%. In the first three quarters of 2018, agency sales represented 10% of our cost of revenues, property management represented 11% and house sales represented 79%. The decrease in cost of revenue in the third quarter and decrease in the first three quarters of 2018 was mainly due to the less amount recognized cost of revenue of Linyi project.

 

Agency sales

 

The cost of revenue for agency sales in the first three quarter, 2018 was $302,129, an decrease of 31% from $439,661 in the same period in 2017. This decrease was mainly due to the decrease in our commissions from the decrease in sales of agency sales in the first three quarter of 2018.

 

Property management

 

The cost of revenue for property management in the first three quarter of 2018 was $356,878, decreased by 1% from $361,690 in the same period in 2017.

 

House sales

 

In the first three quarters of 2018, the Company have recognized the cost of house sales of Linyi project. And house sales represented 79% of our cost of revenue in the first three quarter of 2018.

 

 23 

 

 

Operating Expenses

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   % to
total
   2017   % to
total
   %
change
   2018   % to
total
   2017   % to
total
   %
change
 
Agency sales   51,094    24    90,615    46    (44)   212,024    16    266,478    33    (20)
Property management   64,013    30    66,468    33    (4)   593,505    45    159,966    20    271 
House sales   98,674    46    36,047    18    174    500,198    38    375,475    46    133 
Service sales   92    0    5,107    3    (98)   274    1    9,157    1    274 
Operating expenses   213,873    100    198,237    100    8    1,306,001    100    811,076    100    61 

 

The operating expenses for the third quarter of 2018 were $213,873, which increased 8% from $192,237 for the same period in 2017. The total operating expenses for the first three quarters of 2018 were $1,306,001, which increased 61% from $811,076 for the same period in 2017. In the third quarter of 2018, agency sales represented 24% of the total operating expenses, property management represented 30%, service sales represented 0% and house sales represented 46%. In the first three quarters of 2018, agency sales represented 16% of the total operating expenses, property management represented 45%, service sales represented 1% and house sales represented 38%. The increase in the overall operating expense was due to the increase in consulting fee under property management for the first three quarters of 2018.

 

Agency sales

 

The operating expenses for agency sales in the first three quarter of 2018 were $212,024 which decreased by 20% from $266,478 in the same period in 2017.

 

Property management

 

The operating expenses for property management in the first three quarter of 2018 were $593,505 which increased 271% from $159,966 in the same period in 2017.

 

Service Sales

 

The service sales in the first three quarter of 2018 were $274, which decreased 97% from $9,157 in the same period in 2017.

 

House sales

 

The operating expenses for house sales in the first three quarter of 2018 were $500,198 which increased 133% from $375,475 in the same period in 2017.

 

General and Administrative Expenses

 

The general and administrative expenses in the first three quarter of 2018 were $1,897,276, decreased by 12% from $2,165,401 in the same period in 2017. This decrease was mainly due to a decrease in staff cost, professional service fee and so on.

 

Interest Expenses

 

Interest expenses in the first three quarter of 2018 were $2,246,270 increased by 541% from $350,666 in the same period in 2017. The interest expenses were mainly incurred the advance from affiliate of the company. This increase was mainly due to the incurred interest expense of advance from affiliate.

 

 24 

 

 

Equity in net gain (loss) of affiliates

 

Equity in net gain in the first three quarters of 2018 was $68,421,548, an increase of 41% from a net gain of $48,663,103 in the same period in 2017. The equity in net gain (loss) of an affiliate was mainly the investment value variety of WHYYL and SHDEW. This increase was mainly due to the equity gain of SHDEW.

 

Major Related Party Transaction

 

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 September 30, 2018 was $1,344,898. The amounts due are as follows:

 

Amount due to Lin Chi-Jung

 

The balances are unsecured, interest-free and have no fixed term of repayment.

 

The advances together with unpaid interest as of September 30, 2018 and December 31, 2017 were $1,282,755 and $5,154,329, respectively. The balances are unsecured and interest bearing at rates was 0% per annum.

 

Amount due to Lin Hsin Hung

 

The amount of $62,143 represents the salary payable to Lin Hsin Hung.

 

Amount due from affiliates

 

The amount of $2,559,617 is due from WHYYL, our Wuhan project development company.

 

Amount due to affiliate

 

The temporary borrowing, in the amount of $30,099,829 from SHDEW is for operations and is unsecured, has an interest between 4.35% to 4.6% and payable on demands. The amount due to JXSY in the amount of $512,618, were intercompany transfers for day to day operation.

 

LIQUIDITY AND CAPITAL RESOURCES

 

In the first three quarter of 2018, our principal sources of cash were revenues from our agency sales, receipts in advance from real estate development projects and property management business, as well as the dividend distribution, advances and intercompany transfers from our affiliates. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.

 

We ended the period with a cash position of $8,704,999.

 

The Company’s operating activities used cash in the amount of $7,048,754, which was primarily attributable to the repayment of account payable of our real estate property development.

 

The Company’s investing activities used cash resources of $90,612, which was primarily attributable to the investment of transactional financial assets.

 

The Company’s financing activities provided cash resources of $9,812,311, which was primarily attributable to advances from affiliates.

 

The potential cash needs for 2018 will be the payment of property projects as well as our development projects in GXL project and Linyi project.

 

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Capital Resources

 

Taking into account of our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months. 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 or obtain funds 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

 

A.Material weaknesses

 

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2017, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we are going to undertake the following remediation initiatives:

 

·hiring additional personnel with sufficient knowledge and experience in U.S. GAAP; and
·providing ongoing training course in U.S. GAAP to existing personnel, including our Chief Financial Officer and Financial Controller.

 

Since the first quarter of 2015, additional qualified accounting personnel have been hired and put into place to assist preparation of financial information, as required for interim and annual reporting, in accordance with generally accepted accounting principles in the U.S. As the newly implemented remediation activities have not operated for a sufficient period of time to demonstrate operating effectiveness, we will continue to monitor and assess our remediation activities to ensure that the aforementioned material weakness is remediated.

 

B.Evaluation of Disclosure Controls and Procedures

 

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

 

C.Changes in Internal Control over Financial Reporting

 

Since the first quarter of 2015, we put into place additional qualified accounting personnel to address the aforementioned material weakness. This action strengthened our internal controls over financial reporting.

 

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

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2017.

 

ITEM 1A.RISK FACTORS

 

Not applicable.

 

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

 

None.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6.EXHIBITS

 

Exhibit
Number
  Description
     
     
31.1*   Section 302 Certification by the Corporation's Chief Executive Officer.
     
31.2*   Section 302 Certification by the Corporation's Chief Financial Officer.
     
32.1*   Section 1350 Certification by the Corporation's Chief Executive Officer and Corporation's Chief Financial Officer.
     
101   XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

 

* Filed herewith

 

SIGNATURES

 

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

 

SUNRISE REAL ESTATE GROUP, INC.

 

Date: December 17, 2018  
   
By: /s/ Pan, Yu-Jen  
Pan, Yu-Jen, Chief Executive Officer  
   
Date: December 17, 2018  
   
By: /s/ Mi, Yong Jun  
Mi, Yong Jun, Chief Financial Officer  

 

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