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, are 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 September 30, 2019, 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%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
|
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
|
|
|
20%
|
|
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
|
|
|
19.91%3
|
|
Equity investment
|
|
Import and export trading
|
Shanghai Hui Tian (“SHHT”)
|
|
July 25, 2014
|
|
PRC
|
|
|
100%
|
|
Subsidiary
|
|
Investment holding
|
Huaian Zhanbao Industrial
Co., Ltd. (“HAZB”)
|
|
December 6, 2018
|
|
PRC
|
|
|
78.46%4
|
|
Subsidiary
|
|
Investment holding
|
Huaian Tianxi Real Estate
Development Co., Ltd (“HATX”)
|
|
October, 2018
|
|
PRC
|
|
|
78.46%4
|
|
Subsidiary
|
|
Investment holding
|
1
|
The Company and a shareholder of SZSY, which holds 12.5% equity interest in SZSY, entered into a voting agreement under which the Company is entitled to exercise the voting rights in respect of the shareholder’s 12.5% equity interest in SZSY. The Company effectively holds 75.25% voting rights in SZSY and therefore considers SZSY as a subsidiary of the Company.
|
2
|
The Company and a shareholder of LYSY, which holds 46% equity interest in LYSY, entered into a voting agreement that the Company is entitled 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.
|
3
|
In December 2019, SHDEW issued shares to its employees pursuant to an employee stock bonus. This issuance resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%.
|
4
|
We established HAZB for the purpose of for real estate development in Huai’an through HATX of which we have 78.46% ownership.
|
The accompanying condensed consolidated balance
sheet as of December 31, 2019, which has been derived from the audited consolidated financial statements and the accompanying unaudited
condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted
pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, these condensed
consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly
the financial position of the Company as of September 30, 2020 and the results of operations for the nine months ended September 30, 2020
and 2019, and the cash flows for the nine months ended September 30, 2020 and 2019. 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, 2019. The results of operations for the nine months ended September 30, 2020 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 financial statements are maintained and prepared in U.S. dollars. The
functional currency of the Company’s subsidiaries and affiliates 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. Gains and losses
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, 2020 and
December 31, 2019 are $1: RMB76.8101 and $1: RMB6.9762, 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.
In October 2018, we established HATX for the purpose
of for real estate development in Huai’an through HAZB of which we have 78.46% ownership. HAZB purchased the property in Qingjiang
Pu District, Huai’an City, Jiangsu Province, with an area of 78,030 square meters and the Company, through HATX, invested 78.46%
shares in HAZB. 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. As of March 12, 2021, the Company pre-sold 673 out of 679 units.
In September 2020, LYSY had purchased a land of
area 54,314 square meters with amount of RMB228,120,000 (approximately USD32,197,146), which is south to our developed land.
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 the value of the investment that is not 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 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.
Government Subsidies
Government subsidies include cash subsidies received
by the Company’s subsidiaries from local governments of the People's Republic of China (“PRC”).
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, 2020, and December 31, 2019, the deferred government
subsidy amounted to $4,867,097 and $4,751,214, respectively. The subsidy was used 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
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 June 2016, the Financial Accounting Standards
Board (FASB) issued a new accounting standard that amends the guidance for measuring and recording credit losses on financial assets measured
at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets are now presented
at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities
be recorded as an allowance through net income rather than reducing the carrying amount under the former other-than-temporary-impairment
model. We adopted this standard as of January 1, 2020, using a modified-retrospective approach. Adoption of the standard did not have
a material impact on our consolidated financial statements.
In August 2018, the FASB issued a new accounting
standard update which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates
the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces
a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The Company adopted this new accounting standard on January 1, 2020, using the prospective method, and the adoption did not have a material
impact on our consolidated financial statements.
In November 2018, the FASB issued Accounting Standards
Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU
2018-18”). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted
for under Topic 606, “Revenue from Contracts with Customers” when the counterparty is a customer. In addition, the update
precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty
is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018
when we initially adopted Topic 606. The adoption did not have an impact on our 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 have 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 a home in our project. Once we complete the transfer h to the buyer, these deposits become unrestricted.
As of September 30, 2020 and December 31, 2019, the Company held cash deposits of $49,349,998 and $8,383,359, respectively.
NOTE 4– TRANSACTIONAL FINANCIAL ASSETS
As of September 30, 2020, we had $51,876,026 invested
in bank wealth management investment products. The investments have short term maturity periods and can be rolled into a maturity date
of our choosing or automatically rolled into subsequent maturity periods. The annualized rate of return may range from 3.15% to 4.4% 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 at 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 118 of 121 Phase 1 villas and pre-sold 82 of 84 Phase
2 villas as of November 30, 2020.
On March 13, 2014, the Company signed a joint
development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company obtained a right to develop the Guangxinglu
(the “GXL”) project, which is located at 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. In 2016, the government issued a regulation prohibiting
the by-unit sale of commercial-use buildings. The apartment unit sale for the GXL project was put on hold until the government reviewed
our project’s status. During that time, we rented out any unsold apartment units while not recognizing the units previously sold
before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going
forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in
properties in Note 9. We also recognized all the units that were sold before the regulation in our financial statements for the period
ended September 30, 2019.
In October 2018, HATX purchased the property in
Huaian, 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 its land usage rights to the Huaian property.
The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679
units.
As of November 30, 2020, the Company pre-sold
672 out of 679 units of Tianxi Times project. And as of September 30, 2020, land-use rights included in the real estate property under
development totaled $143,883,805.
NOTE 7 - OTHER RECEIVABLES AND DEPOSITS, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Advances to staff
|
|
$
|
27,802
|
|
|
|
19,172
|
|
Rental deposits
|
|
|
42,989
|
|
|
|
40,575
|
|
Prepaid expense
|
|
|
58,879
|
|
|
|
318,424
|
|
Prepaid tax
|
|
|
8,339,874
|
|
|
|
2,378,199
|
|
Other receivables
|
|
|
3,775,915
|
|
|
|
4,779,431
|
|
|
|
$
|
12,245,459
|
|
|
$
|
7,535,801
|
|
Other receivables and deposits as of September
30, 2020 and December 31, 2019 were stated net of allowance for doubtful accounts of $42,051 and $327,739, respectively.
NOTE 8 – PROPERTY AND EQUIPMENT,
NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Furniture and fixtures
|
|
$
|
352,100
|
|
|
$
|
175,150
|
|
Computer and office equipment
|
|
|
344,807
|
|
|
|
203,581
|
|
Motor vehicles
|
|
|
602,887
|
|
|
|
588,532
|
|
Properties
|
|
|
2,221,622
|
|
|
|
2,168,726
|
|
|
|
|
3,521,415
|
|
|
|
3,135,990
|
|
Less: Accumulated depreciation
|
|
|
(2,092,679
|
)
|
|
|
(1,932,140
|
)
|
|
|
$
|
1,333,496
|
|
|
$
|
1,203,850
|
|
Depreciation and amortization expense for property
and equipment amounted to $17,825 and $147,129 for the nine months ended September 30, 2020 and 2019, respectively.
NOTE 9 – INVESTMENT PROPERTIES, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Investment properties
|
|
$
|
34,124,901
|
|
|
$
|
33,312,403
|
|
Less: Accumulated depreciation
|
|
|
(7,623,265
|
)
|
|
|
(6,363,357
|
)
|
|
|
$
|
26,501,636
|
|
|
$
|
26,949,046
|
|
Depreciation and amortization expense for investment
properties amounted to $1,260,544 and $438,387 for the nine months ended September 30, 2020 and 2019, respectively.
NOTE 10 – INVESTMENT IN AND AMOUNT DUE
FROM AN UNCONSOLIDATED AFFILIATE
The investments in unconsolidated affiliates primarily
consist of WHYYL (49%) and SHDEW (19.91%). As of September 30, 2020, the investment amount in WHYYL and SHDEW were $0 and $13,010,975,
respectively.
WHYYL is primarily developing a real estate project
in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period. SHDEW is
a company engaged principally in the manufacture and sales of skincare and cosmetic products. The Company has accounted for these investments
using the measurement alternative method for the periods presented in this report as the Company cannot exercise significant influence
over their activities
In 2011, the Company invested $4,697,686 to acquire
a 49% equity interest in WHYYL to expand its operations to the real estate development business. As of September 30, 2020, the investment
in WHYYL was $0.
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 ten million members as of September
30, 2020. SHDEW is developing its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under
its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps,
shampoos, skin care devices and children’s apparel. SHDEW operates its own online shopping platform where consumers can purchase
its cosmetics and skincare products as well as products imported into China.
NOTE 11– 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 $1,468,407 and $1,433,445 as of September 30, 2020 and December 31, 2019, respectively.
The promissory note with a principal as of September
30, 2020 amounting to $734,204 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September
30, 2020, and December 31, 2019, the outstanding principal and unpaid interest related to this promissory note amounted to $734,204 and
$716,723, respectively.
The promissory note with a principal as of September
30, 2020 amounting to $734,204 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September
30, 2020, and December 31, 2019, the outstanding principal and unpaid interest related to this promissory note amounted to $734,204 and
$716,723, respectively.
For the nine months ended September 30, 2020,
the interest expense related to these promissory notes was $NIL.
NOTE 12– AMOUNTS DUE TO DIRECTORS
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Lin Chi-Jung
|
|
$
|
513,770
|
|
|
$
|
1,469,315
|
|
Pan, Yu-Jen
|
|
|
-
|
|
|
|
(28,669
|
)
|
Lin Hsin-Hung
|
|
|
21,283
|
|
|
|
32,349
|
|
|
|
$
|
535,054
|
|
|
$
|
1,472,995
|
|
(a)
|
The balance due to 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.
|
NOTE 13- OTHER PAYABLES AND ACCRUED EXPENSES
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued staff commission and bonus
|
|
$
|
212,976
|
|
|
$
|
221,674
|
|
Rental deposits received
|
|
|
94,466
|
|
|
|
117,328
|
|
Bid bond
|
|
|
127,751
|
|
|
|
222,184
|
|
Dividends payable to non-controlling interest
|
|
|
197,581
|
|
|
|
192,877
|
|
Other payables
|
|
|
32,114,789
|
|
|
|
13,777,035
|
|
|
|
$
|
32,747,563
|
|
|
$
|
14,531,098
|
|
NOTE 14- ACCOUNT PAYABLE
Account payable was mostly derived from our property
development of the Linyi project and the HATX project. As of September 30, 2020, and December 31, 2019, the Company’s account payable
amounted to $8,390,162 and $4,347,678.
NOTE 15 – AMOUNT DUE TO AFFILIATES
The temporary borrowing, in the amount of $516,586
from JXSY is intercompany transfers for day to day operation.
NOTE 16 – CUSTOMER DEPOSITS
Customer deposits were mostly derived from our
property development of the Linyi project and the HATX project, which was pre-sale collection from our customers. As of September 30,
2020, and December 31, 2019, the Company’s customer deposits amounted to $102,177,291 and $21,702,494.
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 for
which the accounting is incomplete but a reasonable estimate could be determined.
NOTE 18– DEFERRED GOVERNMENT SUBSIDY
Deferred government subsidy consists of the cash
subsidy provided by the local government.
Government subsidy was received in 2012, and as
of September 30, 2020 and December 31, 2019, the Company’s deferred government subsidy amounted to $4,867,097 and $4,751,214, 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, 2020 and 2019 were $210,502 and $247,709, respectively.
As of September 30, 2020, the Company had the
following operating lease obligations.
|
|
Amount
|
|
Within one year
|
|
$
|
1,938
|
|
Two to five years
|
|
|
-
|
|
|
|
$
|
1,938
|
|
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, 2020, and December 31, 2019, the Company’s statutory
reserve fund was $3,194,604 and $3,194,604, respectively.
NOTE 21 - SEGMENT INFORMATION
The Company's chief executive officer and chief
operating officer have been identified as the chief operating decision makers. The Company's chief operating decision makers direct the
allocation of resources to operating segments based on the profitability and cash flows of each respective segment.
The Company evaluates performance based on several
factors, including net revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations
of the Company's operating segments:
|
|
Three Months Ended September 30, 2020
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
21,605
|
|
|
$
|
86,918
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
108,523
|
|
Cost of revenues
|
|
|
(301,450
|
)
|
|
|
(276,698
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(578,148
|
)
|
Gross profit
|
|
|
(279,845
|
)
|
|
|
(189,780
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(469,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
199,233
|
|
|
|
(850,885
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(651,652
|
)
|
General and administrative expenses
|
|
|
(328,554
|
)
|
|
|
(424,111
|
)
|
|
|
-
|
|
|
|
(241,943
|
)
|
|
|
(994,608
|
)
|
Operating loss
|
|
|
(409,166
|
)
|
|
|
(1,464,776
|
)
|
|
|
|
|
|
|
(241,943
|
)
|
|
|
(2,115,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
23,994
|
|
|
|
194,723
|
|
|
|
-
|
|
|
|
2,668
|
|
|
|
221,385
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income, Net
|
|
|
38,791
|
|
|
|
1,321
|
|
|
|
23,402,495
|
|
|
|
-
|
|
|
|
23,682,294
|
|
Total other (expenses) income
|
|
|
62,785
|
|
|
|
196,044
|
|
|
|
23,642,182
|
|
|
|
2,668
|
|
|
|
23,903,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(346,381
|
)
|
|
|
(1,268,732
|
)
|
|
|
23,642,182
|
|
|
|
(239,275
|
)
|
|
|
21,787,794
|
|
Income tax
|
|
|
176,864
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
176,864
|
|
Net Income( loss)
|
|
$
|
(169,517
|
)
|
|
$
|
(1,268,732
|
)
|
|
$
|
23,642,182
|
|
|
$
|
(239,275
|
)
|
|
$
|
21,964,658
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
616,105
|
|
|
$
|
186,089
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
802,194
|
|
Cost of revenues
|
|
|
(871,972
|
)
|
|
|
(821,619
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,693,591
|
)
|
Gross profit
|
|
|
(255,867
|
)
|
|
|
(635,530
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(891,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(779,422
|
)
|
|
|
(2,128,180
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,907,602
|
)
|
General and administrative expenses
|
|
|
(954,158
|
)
|
|
|
(911,301
|
)
|
|
|
-
|
|
|
|
(336,668
|
)
|
|
|
(2,202,127
|
)
|
Operating loss
|
|
|
(1,989,447
|
)
|
|
|
(3,675,011
|
)
|
|
|
|
|
|
|
(336,668
|
)
|
|
|
(6,001,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
50,661
|
|
|
|
318,622
|
|
|
|
-
|
|
|
|
5,614
|
|
|
|
374,897
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Other income, Net
|
|
|
22,814
|
|
|
|
4,370
|
|
|
|
24,005,239
|
|
|
|
|
|
|
|
24,032,423
|
|
Total other (expenses) income
|
|
|
73,475
|
|
|
|
322,992
|
|
|
|
24,005,239
|
|
|
|
5,614
|
|
|
|
24,407,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1,915,971
|
)
|
|
|
(3,352,019
|
)
|
|
|
24,005,239
|
|
|
|
(331,054
|
)
|
|
|
18,406,194
|
|
Income tax
|
|
|
466,590
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
466,590
|
|
Net Income( loss)
|
|
$
|
(1,449,381
|
)
|
|
$
|
(3,352,019
|
)
|
|
$
|
24,005,239
|
|
|
$
|
(331,054
|
)
|
|
$
|
18,872,784
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
537,403
|
|
|
$
|
247,242
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
784,645
|
|
Cost of revenues
|
|
|
(847,169
|
)
|
|
|
(294,587
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,141,756
|
)
|
Gross profit
|
|
|
(309,766
|
)
|
|
|
(47,345
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(357,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(616,556
|
)
|
|
|
(419,938
|
)
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
(1,036,561
|
)
|
General and administrative expenses
|
|
|
(2,680,324
|
)
|
|
|
(279,395
|
)
|
|
|
-
|
|
|
|
(59,889
|
)
|
|
|
(3,019,608
|
)
|
Operating loss
|
|
|
(3,606,646
|
)
|
|
|
(746,678
|
)
|
|
|
|
|
|
|
(59,956
|
)
|
|
|
(4,413,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
47,045
|
|
|
|
27,392
|
|
|
|
-
|
|
|
|
2,644
|
|
|
|
77,081
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income, Net
|
|
|
803,640,
|
|
|
|
(57,503
|
)
|
|
|
315,767
|
|
|
|
-
|
|
|
|
1,061,904
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other (expenses) income
|
|
|
850,685
|
|
|
|
(30,111
|
)
|
|
|
315,767
|
|
|
|
2,644
|
|
|
|
1,138,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,755,961
|
)
|
|
|
(776,789
|
)
|
|
|
315,767
|
|
|
|
(57,312
|
)
|
|
|
(3,274,295
|
)
|
Income tax
|
|
|
34,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,125
|
|
Net Income( loss)
|
|
$
|
(2,721,836
|
)
|
|
$
|
(776,789
|
)
|
|
$
|
315,767
|
|
|
$
|
(57,312
|
)
|
|
$
|
(3,240,170
|
)
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
588,059
|
|
|
$
|
31,836,014
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,424,073
|
|
Cost of revenues
|
|
|
(521,301
|
)
|
|
|
(25,709,956
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,231,257
|
)
|
Gross profit
|
|
|
66,758
|
|
|
|
6,126,058
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,192,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(428,320
|
)
|
|
|
(944,101
|
)
|
|
|
-
|
|
|
|
(253
|
)
|
|
|
(1,372,674
|
)
|
General and administrative expenses
|
|
|
(3,376,886
|
)
|
|
|
(5,481,622
|
)
|
|
|
-
|
|
|
|
(282,892
|
)
|
|
|
(9,141,400
|
)
|
Operating loss
|
|
|
(3,738,448
|
)
|
|
|
(299,665
|
)
|
|
|
|
|
|
|
(283,145
|
)
|
|
|
(4,321,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
24,674
|
|
|
|
54,962
|
|
|
|
-
|
|
|
|
8,543
|
|
|
|
88,179
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Other income, Net
|
|
|
35,512
|
|
|
|
(50,854
|
)
|
|
|
1,588,756
|
|
|
|
|
|
|
|
1,573,414
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total other (expenses) income
|
|
|
60,186
|
|
|
|
4,108
|
|
|
|
1,588,756
|
|
|
|
8,543
|
|
|
|
1,661,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(3,678,262
|
)
|
|
|
(295,557
|
)
|
|
|
1,588,756
|
|
|
|
(274,602
|
)
|
|
|
(2,659,665
|
)
|
Income tax
|
|
|
64,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,264
|
|
Net Income( loss)
|
|
$
|
(3,613,998
|
)
|
|
$
|
(295,557
|
)
|
|
$
|
1,588,756
|
|
|
$
|
(274,602
|
)
|
|
$
|
(2,595,401
|
)
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
As of September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
143,883,805
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,883,805
|
|
Total assets
|
|
|
5,187,642
|
|
|
|
172,505,693
|
|
|
|
65,330,166
|
|
|
|
66,901,620
|
|
|
|
309,925,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
|
-
|
|
|
|
78,919,736
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78,919,736
|
|
Total assets
|
|
$
|
9,846,321
|
|
|
$
|
60,031,914
|
|
|
$
|
39,921,016
|
|
|
$
|
68,472,011
|
|
|
$
|
178,271,262
|
|
NOTE 22 – RELATED PARTY TRANSACTIONS
On July 15, 2020, SHDEW passed a shareholder resolution
to issue a cash dividend to its shareholders. The Company, on August 4, 2020, through its subsidiaries SHSY and LYRL, received RMB 104,600,000
(approximately USD 15,359,540) and RMB 60,509,600 (approximately USD 8,885,273), respectively.
We rented an office of nearly 192 square meters in downtown Shanghai
for displaying purpose from Mrs. Zhang Shuqing, our related party in the year of 2020.
NOTE 23 – SUBSQUENT EVENTS
On January 27, 2021, the Company paid RMB100,000,000
in cash to Mr. Lin as part of the bonus of RMB150,000,000 (approximately USD21,167,305) authorized by the Board of Directors on April
27, 2020 for his contributions to the Company, including Mr. Lin’s initiation and supervision of the Company’s investment
in Shanghai Da Er Wei Trading Company Limited (“SHDEW”). The Bonus is equivalent to 15% of the annual dividends received from
SHDEW from 2016 through 2019. The remaining RMB50,000,000 balance of the Bonus may be paid in cash or common stock of the Company.