10-Q 1 srre-20220331x10q.htm 10-Q
0.030.0268691925686919250001083490--12-312021Q3falsesrreCommon Stock, Par Value: 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

   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. 18, Panlong Road

Shanghai, PRC 201702

(Address of Principal Executive Offices) (Zip Code)

Issuer’s telephone number: + 86-21-6067-3830

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

N/A

N/A

N/A

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 

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   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

Smaller reporting company

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: July 15, 2022 –68,691,925 shares of Common Stock

FORM 10-Q

For the Quarter Ended March 31, 2022

INDEX

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations for The Three Months Ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Gain for The Three Months Ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Stockholders’ Equity for The Three Months Ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for The Three Months Ended March 31, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

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

28

SIGNATURES

 

29

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)

    

March 31, 

    

December 31, 

2022

2021

ASSETS

Current assets

Cash and cash equivalents

$

15,994,511

$

24,901,044

Restricted cash (Note 3)

 

64,813,744

 

73,010,575

Transactional financial assets (Note 4)

 

15,733,934

 

13,890,946

Accounts receivable, net

 

140,506

 

65,850

Real estate property under development (Note 5)

181,846,364

 

178,685,026

Amount due from an unconsolidated affiliate (Note 9)

18,072,427

 

15,837,851

Other receivables and deposits, net (Note 6)

15,796,606

 

15,241,563

Total current assets

312,398,092

 

321,632,855

Property and equipment, net (Note 7)

1,310,727

 

1,238,416

Investment properties, net (Note 8)

26,059,747

 

26,340,669

Deferred tax assets

857,060

 

853,364

Investment in an unconsolidated affiliate (Note 9)

13,989,168

 

14,320,943

Goodwill (Note 11)

1,887,032

1,855,655

Other investments (Note 10)

716,069

 

712,981

Total assets

$

357,217,895

$

366,954,883

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities

Promissory notes payable (Note 12)

1,575,250

 

1,568,455

Accounts payable (Note 15)

26,518,717

 

25,120,074

Amounts due to directors (Note 13)

456,787

 

525,396

Amount due to an affiliate (Note 16)

22,669,468

 

20,489,304

Customer deposits (Note 17)

115,703,447

 

126,175,201

Other payables and accrued expenses (Note 14)

8,772,296

 

8,819,132

Other taxes payable

267,146

 

404,833

Income taxes payable (Note 18)

1,201,618

 

683,957

Dividends payables

10,303,789

10,303,789

Total current liabilities

187,468,518

 

194,090,141

Long term income tax payable (Note 18)

 

1,725,475

 

2,243,118

Total liabilities

 

189,193,993

 

196,333,259

Commitments and contingencies (Note 19)

Shareholders’ equity

Common stock, par value $0.01 per share; 200,000,000 shares Authorized; 68,691,925 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

686,919

 

686,919

Additional paid-in capital

 

8,050,008

 

8,050,008

Statutory reserve (Note 20)

 

3,986,618

 

3,986,618

Retained Earnings

 

115,928,818

 

117,729,224

Accumulated other comprehensive income

 

25,497,888

 

24,738,423

Total Equity of Sunrise Real Estate Group, Inc.

 

154,150,251

 

155,191,192

Non-controlling interests

 

13,873,651

 

15,430,432

Total shareholders’ equity

 

168,023,902

 

170,621,624

Total liabilities and shareholders’ equity

$

357,217,895

$

366,954,883

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 March 31, 

    

2022

    

2021

Net revenues

$

10,822,398

$

2,361,601

Cost of revenues

 

(10,263,380)

 

(2,214,084)

Gross profit (loss)

 

559,018

 

147,517

Operating expenses

 

(702,303)

 

(1,057,131)

General and administrative expenses

 

(1,831,560)

 

(834,420)

Operating profit (loss)

 

(1,974,845)

 

(1,744,034)

Other income (expenses)

Interest income

 

245,972

 

260,434

Interest expense

 

(1,762,136)

 

Other income (expense), net

 

50,241

 

(327,829)

Total Other Income

 

(1,465,923)

 

(67,395)

Income (loss) before income taxes

 

(3,440,768)

 

(1,811,429)

Income tax benefit

 

(17)

 

165,806

Net income (loss)

 

(3,440,785)

 

(1,645,623)

Less: Net (income) loss attributable to non-controlling Interests

 

1,640,379

 

250,410

Net income attributable to shareholders of Sunrise Real Estate Group, Inc.

$

(1,800,406)

$

(1,395,213)

Earnings per share – basic and fully diluted

$

(0.03)

$

(0.02)

Weighted average common shares outstanding

- Basic and fully diluted

68,691,925

68,691,925

See accompanying notes to consolidated financial statements.

4

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Expressed in U.S. Dollars)

Three Months Ended March 31,

    

2022

    

2021

Net Income (loss)

$

(3,440,785)

$

(1,645,623)

Other comprehensive income (loss)

 

 

  

- Foreign currency translation adjustment

 

843,063

 

(1,066,298)

Total comprehensive income

 

(2,597,722)

 

(2,711,921)

Less: Comprehensive (income) loss attributable to non-controlling interests

 

1,556,781

 

(1,441,857)

Total comprehensive income attributable to stockholders of Sunrise Real Estate Group, Inc.

$

(1,040,941)

$

(4,153,778)

See accompanying notes to consolidated financial statements.

5

SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)

Accumulated

Total

Common Stock

Additional

Retained

Other

Stockholders’

Number of

Paid-in

Statutory

Earnings

Comprehensive

Non-controlling

(Deficit) 

    

shares issued

    

Amount

    

Capital

    

Reserve

    

(Deficits)

    

Income

    

 Interests

    

Equity

Balance, December 31, 2021

68,691,925

$

686,919

$

8,050,008

$

3,986,618

$

117,729,224

$

24,738,423

$

15,430,432

$

170,621,624

Profit (loss) for the period

 

 

 

(1,800,406)

 

(1,640,379)

 

(3,440,785)

Discontinuation of the equity method for an investment

 

 

 

 

 

 

 

 

Capital contribution from non-controlling interests of new consolidated subsidiaries

Translation of foreign operations

 

 

 

 

 

 

759,465

 

83,598

 

843,063

Balance, March 31, 2022

 

68,691,925

 

686,919

 

8,050,008

 

3,986,618

 

115,928,818

 

25,497,888

 

13,873,651

 

168,023,902

Accumulated

Total

Common Stock

Additional

Retained

Other

Stockholders’

Number of

    

Paid-in

Statutory

Earnings

Comprehensive

Non-controlling

(Deficit) 

    

shares issued

    

Amount

Capital

    

Reserve

    

(Deficits)

    

Income

    

 Interests

    

Equity

Balance, December 31, 2020

68,691,925

$

686,919

$

7,570,008

$

3,986,618

$

100,291,529

$

22,981,737

$

2,261,537

$

137,778,348

Profit (loss) for the period

 

 

 

(1,395,213)

 

 

(250,410)

 

(1,645,623)

Discontinuation of the equity method for an investment

Capital contribution from non-controlling interests of new consolidated subsidiaries

Translation of foreign operations

 

 

 

 

 

 

(2,758,565)

 

1,692,267

 

(1,066,298)

Balance, March 31, 2021

 

68,691,925

 

686,919

 

7,570,008

 

3,986,618

 

98,896,316

 

20,223,172

 

3,703,394

 

135,066,427

See accompanying notes to consolidated financial statements.

6

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

    

Three Months Ended March 31,

    

2022

    

2021

Cash flows from operating activities

Net income (loss)

$

(3,440,785)

$

(1,645,623)

Adjustments to reconcile net income (loss) to net cash used in operating activities

Depreciation and amortization

 

470,948

 

2,886,468

Loss on disposal of property, plant and equipment

 

16,988

 

3,716

Bad debts

Changes in assets and liabilities

Accounts receivable

 

(74,316)

 

32,546

Real estate property under development

 

(2,385,520)

 

(9,520,209)

Customer Deposits

 

(11,010,185)

 

29,552,518

Amount due from unconsolidated affiliates

 

(74,507)

 

(1,463,989)

Other receivables and deposits

 

(488,656)

 

(1,270,298)

Deferred tax assets

 

1

 

(165,806)

Accounts payable

 

1,288,870

 

969,771

Other payables and accrued expenses

 

(84,977)

 

(309,361)

Dividends

(44,602)

Interest payable on amount due to directors

(70,833)

(23,042,112)

Other taxes payable

 

(139,338)

 

(210,837)

Income taxes payable

 

(3,326)

 

(340,727)

Net cash provided by (used in) operating activities

 

(16,040,238)

 

(4,523,943)

Cash flows from investing activities

Acquisition of property, plant and equipment

(160,040)

Net cash from transactional financial assets

 

(1,781,494)

 

(187,579)

Net cash provided by (used in) investing activities

 

(1,941,534)

 

(187,579)

Cash flows from financing activities

Restricted cash

 

8,506,810

 

(17,862,150)

Advances from an affiliate

 

 

939,640

Net cash provided by (used in) financing activities

 

8,506,810

 

(16,922,510)

Effect of exchange rate changes on cash and cash equivalents

 

568,429

 

(2,497,750)

Net increase in cash and cash equivalents

 

(8,906,533)

 

(24,131,782)

Cash and cash equivalents at beginning of period

 

24,901,044

 

40,369,612

Cash and cash equivalents at end of period

$

15,994,511

$

16,237,830

Supplemental disclosure of cash flow information

Income taxes paid

$

17

$

345,095

Interest paid

 

 

See accompanying notes to consolidated financial statements.

7

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”, “we”, “our”, or “us”. The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing, and management services; and real estate development in the People’s Republic of China (the “PRC”).

As of March 31, 2022, the Company has the following major subsidiaries and equity investment.

% of Ownership

Relationship

 

Date of

Place of

 

held by the

 

with the

Company Name

    

Incorporation

    

Incorporation

    

Company

    

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%1

 

Subsidiary

 

Property brokerage and management services

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

 

June 25, 2004

 

PRC

 

75%

 

Subsidiary

 

Property brokerage services

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

 

October 13, 2011

 

PRC

 

34%2

 

Subsidiary

 

Real estate development

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

Zhong Ji Pu Fa Real Estate Company Limited (SHGXL)

 

March 13, 2012

 

PRC

 

100%

 

Equity investment

 

Real estate development.

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

 

June 6, 2013

 

PRC

 

19.91%3

 

Equity investment

 

Import and export trading

Shanghai Hui Tian (“SHHT”)

 

July 25, 2014

 

PRC

 

100%

 

Subsidiary

 

Investment holding

Shanghai Taobuting Media Co., Ltd (TBT)

July 1, 2020

 

PRC

 

7.5%

 

Subsidiary

 

Streaming platform

Huai’an Zhanbao Industrial Co., Ltd. (“HAZB”)

December 6, 2018

PRC

78.46%4

Subsidiary

Investment holding

Huai’an Tianxi Real Estate Development Co., Ltd (“HATX”)

October, 2018

PRC

78.46%4

Subsidiary

Investment holding

1After an equity transaction in February 2015, the Company held 100% equity in SHXJY, where SHXJY owns 75%% of SZXJY and SZXJY owns 49% of SZSY. The Company also owns 100% of CY-SRRE where CY-SRRE owns 12.5% of SZSY. In effect, the Company owns 75.25% of SZSY.
2The Company and a shareholder of LYSY, who holds 46% equity interest in LYSY, entered into a voting agreement that entitles the Company to exercise the voting rights in respect of her 46% equity interest in LYSY. The Company effectively holds 80% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company. On May 27, 2020, LYRL received 10% of the issued and outstanding shares of LYSY from Nanjing Longchang Real Estate Development Group. LYRL owned 34% of LYSY following the purchase.
3In December 2019, SHDEW issued an employee stock bonus where its employees received their vested shares. This resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%.
4We established HATX for real estate development in Huai’an through HAZB, of which we have 78.46% ownership.

The accompanying condensed consolidated balance sheet as of December 31, 2021, 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

8

States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Sunrise Real Estate as of March 31, 2022 and the results of operations for the three months ended March 31, 2022 and 2021, and the cash flows for the three months ended March 31, 2022 and 2021. 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, 2021. The results of operations for the three months ended March 31, 2022 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.

Foreign Currency Translation and Transactions

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

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

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

The exchange rates as of March 31, 2022 and December 31, 2021 are $1: RMB 6.3482 and $1: RMB 6.3757, 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.

9

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.

In October 2011, we established LYSY and own 34% 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. The LYSY project has divided into three phases. Phase 1 has completed construction of 121 units in May 2015 and sold 119 units out of all 121 units at the end of June 25, 2022. Phase 2 was divided into north and south area and completed construction of 84 units at the end of 2020. All units have been sold during phase 2 by the end of June 25, 2022. Phase 3 began construction in first quarter of 2021 and pre-sold 20 units out of 51 units at the end of June 25, 2022. In September 2020, the Company expanded the Linyi project by purchasing additional 54,312 square meters in the amount of 228 million RMB for future development.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters (“sqm”). In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment, and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of June 25, 2022, the Company sold and pre-sold 428 units and 242 units, respectively, out of 679 units of the first phase and pre-sold 364 out of 873 of the second phase.

Long Term Investments

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

Investment in Unconsolidated Affiliates

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

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

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

Other Investments

Where the Company has no significant influence, the investment is classified as other assets in the balance sheet and is carried under the measurement alternative which is measured at cost less impairment, adjusted for observable price changes in orderly transactions

10

for an identical or similar investment of the same issuer. 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 measurement alternative method in the case of the investment in SHDEW and any decline in value is included in impairment of cost of the investment.

Revenue Recognition

Most of the Company’s revenue is derived from real estate sales in the PRC. The majority of the Company’s contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development project, the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset.

All revenues represent gross revenues less sales and business tax.

ASC 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASC 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, ASC 606 requires extensive disclosures.

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective approach with no restatement of comparative periods and no cumulative-effect adjustment to retained earnings recognized as of the date of adoption. A significant portion of the Company’s revenue is derived from development and sales of condominium real estate property in the PRC, with revenue previously recognized using the percentage of completion method. Under the new standard, to recognize revenue over time similar to the percentage of completion method, contractual provisions need to provide the Company with an enforceable right to payment and the Company has no alternative use of the asset. Historically, all contracts executed contained an enforceable right to home purchase payments and the Company had no alternative use of assets, therefore, the adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements.

Net Earnings (Loss) per Common Share

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

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02 which establishes new accounting and disclosure requirements for leases. ASU No. 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. The Company adopted ASU 2016-02 in the first quarter of 2022 using the effective date approach to recognize and measure leases as of the adoption date. The Company has elected to utilize the available practical expedient to not separate lease components from non-lease components as well as the package of practical expedients that allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. At the date of adoption on January 1, 2022, this guidance had no impact to the Company’s condensed consolidated financial statements.

11

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for the public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2022, which had no material impact to the Company’s condensed consolidated financial statements.

New Accounting Pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss new accounting pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

NOTE 3 – RESTRICTED CASH

The Company is required to maintain certain deposits with the bank for those home buyers that has applied for a housing loan from their bank. This deposit is a percentage to each home buyer’s bank loan for the purpose of purchasing in our project. Once we complete the handover to the buyer, these deposits become unrestricted. As of March 31, 2022, and December 31, 2021, the Company held cash deposits of $64,813,744 and $73,010,575, respectively.

NOTE 4 – TRANSACTIONAL FINANCIAL ASSETS

As of March 31, 2022, we have $15,733,934 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 3.15% to 4.4% depending on the amount and time period invested.

NOTE 5 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of 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. We sold 119 of 121 Phase 1 villas and sold all 88 units in Phase 2 as of June 25, 2022. As to Phase 3, we pre-sold 20 units out of 36 units as of June 25, 2022.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters. In December 2018 we established HAZB with a 78.46% ownership for the purpose of real estate investment and in March 2019, HAZB purchased 100% of HATX and tis land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”)of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of June 25, 2022, the Company sold and pre-sold 428 units and 242 units, respectively, out of 679 units of the first phase and pre-sold 364 out of 873 of the second phase.

As of March 31, 2022, land use rights included in real estate property under development totaled $181,846,364.

12

NOTE 6 - OTHER RECEIVABLES AND DEPOSITS, NET

    

March 31, 

    

December 31, 

2022

2021

Advances to staff

$

380,276

 

37,573

Rental deposits

 

807,311

 

803,515

Prepaid expense

 

30,752

 

21,332

Prepaid tax

 

12,567,870

 

12,610,075

Other receivables

 

2,010,397

 

1,769,258

$

15,796,606

$

15,241,563

Other receivables and deposits as of March 31, 2022 and December 31, 2021 were stated net of allowance for doubtful accounts of $517,838 and $515,604, respectively.

NOTE 7 – PROPERTY AND EQUIPMENT, NET

    

March 31, 

    

December 31, 

2022

2021

Furniture and fixtures

$

230,032

$

233,678

Computer and office equipment

 

376,627

 

368,165

Motor vehicles

 

728,917

 

737,987

Properties

 

2,383,269

 

2,372,989

 

3,718,845

 

3,712,820

Less: Accumulated depreciation

 

(2,408,118)

 

(2,474,404)

$

1,310,727

$

1,238,416

Depreciation and amortization expense for property and equipment amounted to $16,988 and $22,053 for the three months ended March 31, 2022 and 2021, respectively.

NOTE 8 – INVESTMENT PROPERTIES, NET

    

March 31, 

    

December 31, 

2022

2021

Investment properties

$

36,607,855

$

36,449,956

Less: Accumulated depreciation

 

(10,548,108)

 

(10,109,287)

$

26,059,747

$

26,340,669

Depreciation and amortization expense for investment properties amounted to $394,736 and $322,721 for the three months ended March 31, 2022 and 2021, respectively.

NOTE 9 – INVESTMENT IN AND AMOUNT DUE FROM UNCONSOLIDATED AFFILIATES

The investments in unconsolidated affiliates primarily consist of SHDEW (19.91)% and SHTX (19.9)%. As of March 31, 2022, the investment amount in SHDEW was $13,957,663 and in SHTX was $31,505.

SHDEW was established in June 2013 as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over ten million members as of March 31, 2022. SHDEW is developing its own skincare products. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW is improving its own online shopping platform where consumers can purchase its cosmetics and skincare products as well as products imported into China. The online shopping platform has been in operation since 2017.

13

NOTE 10 - OTHER INVESTMENTS, NET

According to ASU 2016-01, where the Company has no significant influence, the investment is classified as other investments in the balance sheet and is carried under the measurement alternative method. The measurement alternative measures the equity investment at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. As of March 31, 2022 and December 31, 2021, the carrying amount of the Company’s measurement alternative investments was $716,069 and $712,981, respectively.

The Company performs impairment assessment of its investments under the measurement alternative whenever events or changes in circumstances indicate that the carrying value of the investment may not be fully recoverable. Impairment charges in connection with the measurement alternative investments of nil were recorded in others, net in the Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended December 31, 2020 and 2021, respectively.

NOTE 11 - GOODWILL

On April 4, 2020, the Company purchased 10% of LYSY from Nanjing Longchang Real Estate Development Group for 22.17 million RMB ($3,398,213). As of March 31, 2022, the amount of $1,887,032 of goodwill represents the difference between the investment cost and book value.

NOTE 12– PROMISSORY NOTES PAYABLE

The promissory notes payable consists 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  $1,575,250 and $1,568,455 as of March 31, 2022 and December 31, 2021, respectively.

The promissory note with a principal as of March 31, 2022 amounting to $787,625 bears an interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2022, and December 31, 2021, the outstanding principal and unpaid interest related to this promissory note amounted to $787,625 and $784,228, respectively.

The promissory note with a principal as of March 31, 2022 amounting to $787,625 bears an interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2022, and December 31, 2021, the outstanding principal and unpaid interest related to this promissory note amounted to $787,625 and $784,228, respectively.

For the three months ended March 31, 2022, the interest expense related to these promissory notes was $0.

NOTE 13– AMOUNTS DUE TO DIRECTORS

    

March 31, 

    

December 31, 

2022

2021

Lin Chi-Jung

$

433,954

$

502,663

Lin Hsin-Hung

 

22,833

 

22,733

$

456,787

$

525,396

(a)The balance due from Lin Chi-Jung consists of temporary advances.

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

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

14

NOTE 14- OTHER PAYABLES AND ACCRUED EXPENSES

    

March 31, 

    

December 31, 

2022

2021

Accrued staff commission and bonus

$

265,932

$

272,025

Rental deposits received

 

152,816

 

110,171

Bid bond

 

100,816

 

103,518

Dividends payable to no controlling interest

 

211,957

 

211,043

Other payables

 

8,040,776

 

8,122,375

$

8,772,296

$

8,819,132

NOTE 15 - ACCOUNT PAYABLE

As of March 31, 2022 and December 31, 2021, the balances of accounts payable were $26,518,717 and $25,120,074 respectively. The balance of accounts payable as of March 31, 2022 included unpaid development fee of Linyi project of $487,667 and HATX project of  $24,720,639. The remaining balance was due to agents of the operating business.

NOTE 16 – AMOUNT DUE TO AFFILIATES

As of March 31, 2022, the amount due to Shanghai Shengji (“SHSJ”) a shareholder of HATX, $22,110,751 and JXSY, $558,717, was an intercompany transfer for day-to-day operations.

NOTE 17 – CUSTOMER DEPOSITS

Customer deposits consisted of the sales from real estate development project (the Linyi project and the HATX project) which cannot be recognized as revenue at the accounting period and deposits received for rental.

The Linyi project has started pre-sales in November 2013 and as of March 31, 2022, the pre-sales amounted to $4,360,211. The HATX project has started pre-sales in December 2019, as of March 31, 2022 the pre-sales amounted to $111,308,356.

NOTE 18 – INCOME TAXES 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 for which the accounting is incomplete but a reasonable estimate could be determined.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases certain of its office properties under non-cancellable operating lease arrangements. Payments under operating leases are expensed on a straight-line basis over the periods of their respective terms, and the terms of the leases do not contain rent escalation, or contingent rent, renewal, or purchase options. There are no restrictions placed upon the Company by entering into these leases. Rental expenses under operating leases for the three months ended March 31, 2022 and 2021 were $107,584 and $19,010, respectively.

15

As of March 31, 2022, the Company had the following operating lease obligations.

    

Amount

Within one year

$

159,853

Two to five years

 

16,277

$

176,130

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 are determined by the board of directors. The general reserve is used to offset future losses. The subsidiary may, upon a resolution passed by the stockholders, convert the general reserve into capital. The staff welfare and bonus reserve are used for the collective welfare of the employees of the subsidiary. The enterprise expansion reserve is for the expansion of the subsidiary operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law.

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of March 31, 2022, and December 31, 2021, the Company’s statutory reserve fund was $3,986,618 and $3,986,618, respectively.

NOTE 21 - SEGMENT INFORMATION

The Company’s Chief Executive Officer and Chief Financial 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.

16

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

Three Months Ended March 31, 2022

Property

Real Estate

Investment

Management

Development

Transaction

Others

Total

Net revenues

    

187,768

    

$

10,634,630

    

$

    

$

    

$

10,822,398

Cost of revenues

 

(277,725)

 

(9,985,655)

 

 

 

(10,263,380)

Gross profit

 

(89,958)

 

648,976

 

 

 

559,018

Operating expenses

 

(379,098)

 

(323,205)

 

 

 

(702,303)

General and administrative expenses

 

(320,774)

 

(1,423,943)

 

 

(86,843)

 

(1,831,560)

Operating loss

 

(789,830)

 

(1,098,172)

 

 

(86,843)

 

(1,974,845)

Other income (expenses)

 

 

 

 

 

Interest income

 

2,726

 

242,413

 

 

833

 

245,972

Interest expense

 

671,381

 

(2,433,517)

 

 

 

(1,762,136)

Other income, Net

 

3,891

 

(9,221)

 

55,571

 

 

50,241

Total other (expenses) income

 

677,998

 

(2,200,325)

 

55,571

 

833

 

(1,465,923)

Income (loss) before income taxes

 

(111,832)

 

(3,298,497)

 

55,571

 

(86,010)

 

(3,440,768)

Income tax

 

(17)

 

 

 

 

(17)

Net Income(loss)

$

(111,849)

$

(3,298,497)

$

55,571

$

(86,010)

$

(3,440,785)

Three Months Ended March 31, 2021

Property

Real Estate