NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
Sunrise Real Estate Group, Inc. (“SRRE”)
and its subsidiaries (collectively referred to as “the Company”, “our” or “us”) was incorporated
in Texas on October 10, 1996, under the name of Parallax Entertainment, Inc. (“Parallax”). On December 12, 2003,
Parallax changed its name to Sunrise Real Estate Development Group, Inc. On April 25, 2006, Sunrise Estate Development Group, Inc.
filed Articles of Amendment with the Texas Secretary of State, changing its name to Sunrise Real Estate Group, Inc., effective
May 23, 2006.
As of December 31, 2018, the Company has
the following major subsidiaries and equity investments.
Company Name
|
|
Date of
Incorporation
|
|
Place of
Incorporation
|
|
% of
Ownership
held by the
Company
|
|
|
Relationship
with the
Company
|
|
Principal activity
|
Sunrise Real Estate Development Group, Inc. (“CY-SRRE”)
|
|
April 30, 2004
|
|
Cayman Islands
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Lin Ray Yang Enterprise Limited (“LRY”)
|
|
November 13, 2003
|
|
British Virgin Islands
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Shanghai XinJi Yang Real Estate Consultation Company Limited (“SHXJY”)
|
|
August 20, 2001
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Shanghai Shang Yang Investment Management 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
|
|
|
24
|
%2
|
|
Subsidiary
|
|
Real estate development
|
Shangqiu Shang Yang Real Estate Consultation Company Limited (“SQSY”)
|
|
October 20, 2010
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Wuhan GaoFengHui 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 RuiJian Design Company Limited (“SHRJ”)
|
|
August 15, 2011
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Property brokerage services
|
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)
|
|
March 6, 2012
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Company Name
|
|
Date of
Incorporation
|
|
Place of
Incorporation
|
|
% of
Ownership
held by the
Company
|
|
|
Relationship
with the
Company
|
|
Principal activity
|
Shanghai XinJi Yang Real Estate Brokerage Company Limited (“SHXJYB”)
|
|
January 28, 2013
|
|
PRC
|
|
|
75
|
%3
|
|
Subsidiary
|
|
Property brokerage services
|
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)
|
|
December 28, 2009
|
|
PRC
|
|
|
49
|
%
|
|
Equity investment
|
|
Real estate development
|
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”)
|
|
September 28, 2011
|
|
PRC
|
|
|
40
|
%
|
|
Equity investment
|
|
Property brokerage services
|
Xin Guang Equity Investment Management (Shanghai) Company Limited (“SHXG”)
|
|
December 17, 2012
|
|
PRC
|
|
|
49
|
%
|
|
Equity investment
|
|
Equity investment and consultancy
|
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)
|
|
June 6, 2013
|
|
PRC
|
|
|
20.63
|
%4
|
|
Equity investment
|
|
Import and export trading
|
Shanghai HuiTian (“SHHT”)
|
|
July 25, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Huaian Zhanbao Industrial Co., Ltd
|
|
December 6, 2018
|
|
PRC
|
|
|
60
|
%
|
|
Subsidiary
|
|
Investment holding
|
|
1.
|
After an equity transaction in February 2015, the Company held equity in subsidiaries of
SZSY as follows: SZXJY 49%, SHXJY 26% and Sunrise Real Estate Development Group, Inc. (CY-SRRE) 12.5%, totaling a 75.25%
equity interest in SZSY.
|
|
2.
|
The Company and a shareholder of LYSY, which holds a 51% equity interest in LYSY, entered
into a voting agreement whereby the Company is entitled to exercise the voting rights in respect of her 51% equity interest
in LYSY. The Company effectively holds 75% voting rights in LYSY and as a result considers LYSY to be a subsidiary of the
Company.
|
|
3.
|
On January 28, 2013, CY-SRRE, SZXJY and an unrelated party established a subsidiary in the PRC,
SHXJYB, with CY-SRRE holding a 15% equity interest and SZXJY holding a 60% equity interest in SHXYJB.
|
4.
|
On June 20, 2018 and December 16, 2018, SHDEW sold additional shares of capital stock to increase its registered capital, which diluted the Company’s equity interest in SHDEW from 23.08% to 20.63%.
|
CY-SRRE was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly owned by Ace Develop Properties
Limited (“Ace Develop”), a corporation, of which Lin Chi-Jung, an individual, is the principal and
controlling shareholder. SHXJY was established in the People’s Republic of China (“PRC”) on August 20, 2001
as a limited liability company. SHXJY was originally owned by a Taiwanese company, of which the principal and
controlling shareholder was Lin Chi-Jung. On June 8, 2004, all the fully paid up capital of SHXJY was transferred to CY-SRRE.
On June 25, 2004, SHXJY and two individuals established a subsidiary, SZXJY in the PRC, at which point in time,
SHXJY held a 90% equity interest in SZXJY. On August 9, 2005, SHXJY sold a 10% equity interest in SZXJY to a company owned by
a director of SZXJY and transferred a 5% equity interest in SZXJY to CY-SRRE. Following the disposal and the transfer,
CY-SRRE effectively held an 80% equity interest in SZXJY.
LRY was established in the British Virgin Islands on November
13, 2003 as a limited liability company. LRY was owned by Ace Develop, Planet Technology Corporation (“Planet Tech”)
and Systems & Technology Corporation (“Systems Tech”). On February 5, 2004, LRY established a wholly owned subsidiary,
SHSY in the PRC as a limited liability company.
On August 31, 2004, SRRE, CY-SRRE and Lin Chi-Jung, an individual
and agent for the beneficial shareholder of CY-SRRE, i.e., Ace Develop, entered into an exchange agreement under which SRRE issued
5,000,000 shares of common stock to the beneficial shareholder or its designees, in exchange for all outstanding capital stock
of CY-SRRE. The transaction closed on October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the President
of CY-SRRE and the principal and controlling shareholder of Ace Develop.
Also on August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual
and agent for beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and SystemsTech, entered into an exchange agreement
under which SRRE issued 10,000,000 shares of common stock to the beneficial shareholders, or their designees, in exchange for all
outstanding capital stock of LRY. The transaction was closed on October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors
of SRRE, the President of LRY and the principal and controlling shareholder of Ace Develop. Regarding the 10,000,000 shares of
common stock of SRRE issued in this transaction, SRRE issued 8,500,000 shares to Ace Develop, 750,000 shares to Planet Tech and
750,000 shares to Systems Tech.
As a result of the acquisition, the former owners of CY-SRRE
and LRY hold a majority interest in the combined entity. Generally accepted accounting principles require in certain circumstances
that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial
reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” arrangement whereby
CY-SRRE and LRY are deemed to have purchased SRRE. However, SRRE remains the legal entity and the Registrant for Securities and
Exchange Commission reporting purposes. All shares and per share data prior to the acquisition have been restated to reflect the
stock issuance as a recapitalization of CY-SRRE and LRY.
On January 10, 2005, LRY and a PRC third party established a
subsidiary, SZGFH, a limited liability company in the PRC, with LRY holding 80% of the equity interest in SZGFH. On May 8, 2006,
LRY acquired 20% of the equity interest in SZGFH from the third party. Following the acquisition, LRY effectively held 100% of
the equity interest in SZGFH. The Company sold SZGFH in 2017.
On November 24, 2006, CY-SRRE, SHXJY, a shareholder of SZXJY
and a third party established a subsidiary, SZSY in the PRC, with CY-SRRE holding a12.5% equity interest, SHXJY holding a 26% equity
interest and the shareholder of SZXJY holding a 12.5% equity interest in SZSY. At the date of incorporation, SRRE and the shareholder
of SZXJY entered into a voting agreement that SRRE is entitled to exercise the voting right in respect of its 12.5% equity interest
in SZSY. Following that, SRRE effectively holds 51% of the voting rights in SZSY.
On September 24, 2007, CY-SRRE sold a
5% equity interest in SZXJY to a company owned by a director of SZXJY. Following the disposal, CY-SRRE effectively holds a
75% equity interest in SZXJY.
In January 2011, SYSY acquired 49% equity interest in a project
company in the PRC, WHYYL to expand its operations to real estate development business. WHYYL is developing a real estate project
in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with an estimated construction period of 3 years.
The Company accounts for this investment using the equity method.
On September 28, 2011, SRRE and four individual investors established
a company, SHXXY, in the PRC to provide real estate brokerage services. SRRE holds a 40% equity interest in SHXXY.
On October 13, 2011, SHXJY, four individual investors and an
unrelated company established a project company in the PRC, namely LYSY to develop villa style residential housing buildings with
an estimated construction period of 4 years. SHXJY holds 24% equity interest in LYSY. At the date of its incorporation, SRRE and
an individual shareholder holding 51% equity interest in LYSY entered into a voting agreement that the Company is entitled to exercise
the voting right of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and considers LYSY
as a subsidiary of the Company.
On March 6, 2012, SHXJY established a
subsidiary in the PRC - LYRL. The equity interest in LYRL is held by three Chinese individuals in trust for SHXJY. At the
date of its incorporation, SHXJY transferred its 24% equity interest in LYSY to LYRL. On August 2014, all the equity interest
in LYRL was transferred to SHRJ.
On December 17, 2012, LRY, together with two corporate investors,
established a company, SHXG, in the PRC to provide investment management and consulting services. LRY holds a 49% equity interest
SHXG. SHXG has not commenced its operations.
On June 6, 2013, SHSY and LYRL
together with 4 investors established a company, Shanghai Daerwei (“SHDEW”), in the PRC focusing on the cosmetics
and skincare business. SHSY holds a 13.07% equity interest and LYRL holds a 7.56% equity interest in SHDEW. For the year
ended December 31, 2018, SHDEW had a net profit of $287,627,574.
On July 25, August 19 and October 15, 2014 respectively, the
Company established three investment holding company separately, namely SHHT, SHSYTX and SZSYHT. These three company were wholly
owned subsidiary to the Company and have not commenced their operations. In the year 2017, SHSYTX has transferred its shares of
76.92% to other shareholders and SZSYHT has transferred its 100% shares to other shareholders as well.
On December 6, 2018, the Company established 60% ownership of
an investment holding company, Huaian Zhanbao (“HAZB”), for the purpose of possible future real estate development
project in Huaian. In March 2019, HAZB purchased 100% of Huaian Tianxi Real Estate Development (“Huaian Tianxi”)
for $0 from SHDEW. The Company, indirectly through Huaian Tianxi, holds a property of 78,027 sqm with an above-ground constructible
area of 195,000 sqm.
The principal activities of the Company are property brokerage
services, including property marketing, leasing and management services, and real estate development in the PRC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Accounting and Principles of
Consolidation
The Company’s consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.
GAAP”).
The 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 can exercise significant influence over operating and financial policies, are accounted
for using the equity method.
Certain amounts presented in the consolidated
financial statements of 2017 have been reclassified to conform to the current period presentation to facilitate comparison, including
the addition of restricted cash to cash and cash equivalents in the consolidated statements of cash flows as a result of the adoption
of new accounting guidance of ASU 2016-18.
Use of Estimates
The preparation of financial statements
in accordance with U.S GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows the provisions of Accounting
Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”).
It clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy
to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The Company values its investments in wealth
management products using alternative pricing sources and models utilizing market observable inputs, and accordingly the Company
classifies the valuation techniques that use these inputs as Level 2.
The carrying amounts reported in the accompanying
consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, promissory deposits, amount due
from an unconsolidated affiliate, other receivables and deposits, deferred tax assets, bank loans, promissory notes payable, accounts
payable, customer deposits, amounts due to directors, other payables and accrued expenses, other taxes payable and income taxes
payable approximate their fair value based on the short-term maturity of these instruments.
Concentrations of Credit Risk
Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable,
other receivables and deposits, and amount due from an unconsolidated affiliate. The Company places its cash and cash equivalents
with reputable financial institutions with high credit ratings.
The Company conducts credit evaluations
of customers and generally does not require collateral or other security from customers. The Company establishes an allowance for
doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific
customers. The amount of receivables ultimately not collected by the Company has generally been consistent with management's expectations
and the allowance established for doubtful accounts.
Major Customers
During the year ended December 31, 2018 and
2017, there was no single customer that represented more than 10% of our net revenues.
Cash and Cash Equivalents
Cash and cash equivalents include cash
on hand and all highly liquid investments with an original maturity of three months or less.
The
Company maintains cash and cash equivalents with various banks in the PRC which are not insured or otherwise protected. Should
any of these banks holding the Company’s cash deposits become insolvent, or if the Company is otherwise unable to withdraw
funds for any reason, the Company could lose the cash on deposit with that particular bank.
Foreign Currency Translation and Transactions
The functional currency of SRRE, CY-SRRE
and LRY is U.S. dollars (“$”) and their financial records are maintained and the financial statements prepared
in U.S. dollars. The functional currency of the Company’s subsidiaries and affiliates in China is Renminbi (“RMB”)
and their financial records and statements are maintained and prepared in RMB.
Foreign currency transactions during the
year 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 year-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, year-end exchange rates are applied to the 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 are included as a component of accumulated other comprehensive income in
shareholders’ equity.
The exchange rates as of December 31, 2018
and December 31, 2017 are $1: RMB6.8632 and $1: RMB6.5364 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.
Expenditures for land development, including
cost of land use rights, deed tax, and pre-development costs and engineering costs, are capitalized and allocated to development
projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the
sales value of units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers
are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For
amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results
of operations of amenities retained by the Company are included in current operating results.
In accordance with ASC 360, “Property,
Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments
when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not
recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to be generated by the assets.
For the years ended December 31, 2018 and
2017, the Company had not recognized any impairment for real estate property under development.
Capitalization of Interest
Interest incurred during and directly related
to real estate development projects is capitalized to the related real estate property under development during the active
development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties
are substantially complete or the property becomes inactive. Interest is capitalized based on the interest rate applicable to specific
borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest capitalized to real
estate property under development is expensed as a component of cost of real estate sales when related units are sold. All
other interest is expensed as incurred.
Property and Equipment, Net
Property and equipment are stated at cost
less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method to allocate the
cost of depreciable assets over the estimated useful lives of the assets as follows:
|
Estimated
Useful Life
(in years)
|
|
|
|
|
Furniture and fixtures
|
5-10
|
|
Computer and office equipment
|
3-5
|
|
Motor vehicles
|
5
|
|
Properties
|
20
|
|
Maintenance, repairs and minor renewals
are charged directly to the statement of operations as incurred. Additions and improvements are capitalized. When assets are disposed
of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included
in the statement of operations.
Investment Properties, Net
Investment properties are stated at cost
less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method to allocate the
cost of depreciable assets over their respective estimated useful lives of 20 years.
Significant additions that extend property
lives are capitalized and are depreciated over their respective estimated useful lives. Routine maintenance and repair costs are
expensed as incurred.
Impairment of Long-lived Assets
In accordance with ASC 360, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (“ASC 360”), the Company is required to review its
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the
assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds
the fair value.
The Company tests long-lived assets, including
property and equipment, investment properties and other assets, for recoverability when events or circumstances indicate that the
net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable
cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance
and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the
future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated
expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the
asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash
flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections,
and other available information as considered necessary. There is no impairment of long-lived assets during the years ended December
31, 2018 and 2017.
Customer Deposits
Customer deposits consist of amounts received
from customers relating to the sale of residential units in the PRC. In the PRC, customers will generally obtain permanent financing
for the purchase of their residential unit prior to the completion of the project. The lending institution will provide the funding
to the Company upon the completion of the financing rather than the completion of the project. The Company receives these funds
and recognizes them as a liability until the revenue can be recognized.
Long Term Investments
The Company accounts for long term investments
in equities as follows.
Investments in Unconsolidated Affiliates
Affiliates are entities over which the
Company has significant influence, but which it does not control. The Company generally considers an ownership interest of 20%
or higher to represent significant influence. Investments in unconsolidated affiliates are accounted for by the equity method of
accounting. Under this method, the Company’s share of the post-acquisition profits or losses of affiliates is recognized
in the income statement and its shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive
income. Unrealized gains on transactions between the Company and its affiliates are eliminated to the extent of the Company’s
interest in the affiliates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of
the asset transferred.
When the Company’s share of losses
in an affiliate equals or exceeds its interest in the affiliate, the Company does not recognize further losses, unless the Company
has incurred obligations or made payments on behalf of the affiliate.
The Company is required to perform an impairment
assessment of its investments whenever events or changes in business circumstances indicate that the carrying value of the investment
may not be fully recoverable. An impairment loss is recorded when there has been a loss in value of the investment that is other
than temporary.
During the year ended December 31, 2018
and 2017, the Company provided no allowance for impairment loss on investments in unconsolidated affiliates. As of December 31,
2018, the allowance for impairment loss on investments in unconsolidated affiliates amounted to $ 702,283 (2017: $236,028).
Other Investments
Where the Company has no significant influence,
the investment is classified as other investments in the balance sheet and is carried under the cost method. Investment income
is recognized by the Company when the investee declares a dividend and the Company believes it is collectible. The Company periodically
evaluates the carrying value of its investment under the cost method and any decline in value is included in impairment of cost
of the investment.
During the year ended December 31, 2018
and 2017, the Company provided no allowance for impairment loss on other investments. As of December 31, 2018, the allowance for
impairment loss on other investments amounted to $$76,922 (2017: $76,922).
Government Subsidies
Government subsidies include cash subsidies
received by the Company’s subsidiaries in the PRC from local governments.
In recognizing the benefit of government
subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements
for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities
such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated
statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs
are matched with those costs and recorded as a reduction in costs. Those benefits that are more general in nature or driven by
business performance measures are classified as revenue.
During the year of 2012, the Company received
no refundable government subsidy amount of $4,829,440 (RMB33, 175,416). The subsidy is given to reimburse the land acquisition
costs and certain construction cost incurred for the Company’s property development project in Linyi, and is repayable if
the Company fails to complete the subsidized property development project before the agreed date. The Company recorded the subsidy
received as a deferred government subsidy. As of December 31, 2018, the Company’s deferred government subsidy amounted to
$4,829,440 (2017: $5,072,605).
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.
Comprehensive Income (Loss)
In accordance with ASC 220-10-55, comprehensive
income (loss) is defined as all changes in equity except those resulting from investments by owners and distributions to owners.
The Company’s only components of comprehensive loss during the years ended December 31, 2018 and 2017 were net loss and foreign
currency translation adjustments.
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.
Income Taxes
The Company accounts for income taxes in
accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company recognizes tax benefits that
satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for such tax benefits.
The Company did not incur any interest or penalties related to potential underpaid income tax expenses during the years ended December
31, 2018 and 2017.
Recently Adopted Accounting Standards
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The amendments in this ASU, among other things, required that equity investments (except those accounted for under the equity method
of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized
in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at
cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical
or a similar investment of the same issuer. This ASU also simplified the impairment assessment of equity investments without readily
determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates
that impairment exists, an entity is required to measure the investment at fair value. For public business entities, the amendments
in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
We have adopted the amendments in this ASU on January 1, 2018 and the adoption of this ASU did not have a material impact on our
consolidated financial position and results of operations.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model to use in accounting
for revenue arising from contracts with customers and supersedes and replaces nearly all existing GAAP revenue recognition guidance,
including industry-specific guidance. The authoritative guidance provides a five-step analysis of transactions to determine when
and how revenue is recognized. The five steps are: (i) identify the contract with the customer; (ii) identify the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and
(v) recognize revenue when or as each performance obligation is satisfied. The authoritative guidance applies to all contracts
with customers except those that are within the scope of other topics in the FASB ASC. The authoritative guidance requires significantly
expanded disclosures about revenue recognition and was initially effective for fiscal years and the interim periods within these
fiscal years beginning on or after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts
with Customers (Topic 606): Deferral of the Effective Date.” This standard defers for one year the effective date of ASU
2014-09. The Company adopted ASC 606 from January 1, 2018. The adoption had no material impact on the Group’s in previous
years’ retained earnings and the Group’s accompanying consolidated financial statements for the year ended December
31, 2018.
In January 2017,
the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after
December 15, 2017 and should be applied prospectively on or after the effective date. The Company adopted this ASU beginning
January 1, 2018 with no material impact in its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents
on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted
cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods
beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU beginning January 1, 2018 on a retrospective
basis. The adoption of this standard does not have a material impact on the Company’s consolidated financial statements,
but resulted in restricted cash being included with cash and cash equivalents when reconciling the beginning-of-year and end-of-year
total amounts shown on the statements of cash flows. As a result of this ASU adoption, the impact of the retrospective reclassification
on cash flow of financing activities for the year ended December 31, 2017 and 2018 were an increase of $722,337 and an increase
of $552,505, respectively.
In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments
(a consensus of the Emerging Issues Task Force). The ASU is intended to reduce diversity in practice in the presentation and classification
of certain cash receipts and cash payments by providing guidance on eight specific cash flow issues. The ASU is effective for interim
and annual periods beginning after December 15, 2017 and early adoption is permitted, including adoption during an interim period.
The Company adopted this ASU beginning January 1, 2018 with no material impact in its consolidated financial statements.
New Accounting Pronouncements Not Yet
Adopted
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)”, which introduces a new standard related to leases to increase transparency and comparability
among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance
sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those
leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective
of enabling users of financial statements to assess the amount, timing, and uncertainty of cashflows arising from leases. In July
2018, the FASB issued ASU 2018-11, and provided another transition method by allowing entities to initially apply the new leases
standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period
of adoption. The ASU will be effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years, with early adoption permitted. The Company is currently evaluating the impact that the standard will have in its
consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
“Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for
financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets
measured at amortized cost. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have in its consolidated
financial statements.
NOTE 3 - RESTRICTED CASH
The Company is required to maintain certain
deposits with the bank that provide mortgage loans to the Company. As of December 31, 2018, the Company held cash deposits of $1,550,988
(2017: $1,068,805) as guarantee to the banks which provides mortgage loan to individual customers of our construction products.
These balances are subject to withdrawal restrictions and were not covered by insurance.
NOTE 4 - TRANSACTIONAL FINANCIAL ASSETS
As of December 31, 2018, we have $49,451,172
invested in bank wealth management investment products. The investments have short 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 4.8%
to 5.0% depending on the amount and time period invested.
NOTE 5 - PROMISSORY DEPOSITS
Promissory deposits were paid to property
developers in respect of the real estate projects were the Company has been appointed as sales agent. The balances were unsecured,
interest free and recoverable on completion of the respective projects.
NOTE 6 - REAL ESTATE PROPERTY UNDER
DEVELOPMENT
Real estate property under development
represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located
on the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project
covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The
Company acquired the site and commenced construction of this project during the fiscal year of 2012.
In March
13, 2014, the Company had signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the
Company obtained the right to develop the GXL project, which is located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC.
This project covers a site area of approximately 2,502 square meters for the development of one apartment building.
For the fiscal year ended December 31,
2018, the company had recognized the net revenue and cost of revenue of Linyi project at a certain proportion. As of December 31,
2018, the real estate property under development totaled $64,423,978 compared to $67,974,281 as of December 31, 2017.
NOTE 7 - OTHER RECEIVABLES AND DEPOSITS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Advances to staff
|
|
$
|
22,864
|
|
|
$
|
118,835
|
|
Rental deposits
|
|
|
39,085
|
|
|
|
72,531
|
|
Prepaid expense
|
|
|
12,033
|
|
|
|
22,572
|
|
Prepaid tax
|
|
|
4,620,338
|
|
|
|
4,687,947
|
|
Other receivables
|
|
|
4,080,833
|
|
|
|
1,817,193
|
|
|
|
$
|
8,775,153
|
|
|
$
|
6,719,078
|
|
Other receivables and deposits as of December
31, 2018 are stated net of allowance for doubtful accounts of $674,478 (2017: $674,478). Other receivables of $3,948,578 mainly
consists of $2,491,532 from Zhongji Pufa for our GXL project and $1,457,046 from Nanjing Longchang.
NOTE 8 - PROPERTY AND EQUIPMENT,
NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
161,949
|
|
|
$
|
166,660
|
|
Computer and office equipment
|
|
|
155,395
|
|
|
|
163,969
|
|
Motor vehicles
|
|
|
535,089
|
|
|
|
602,260
|
|
Properties
|
|
|
2,204,433
|
|
|
|
2,315,428
|
|
|
|
|
3,056,867
|
|
|
|
3,248,317
|
|
Less: Accumulated depreciation
|
|
|
1,958,025
|
|
|
|
1,964,416
|
|
|
|
$
|
1,098,842
|
|
|
$
|
1,283,901
|
|
During the year ended December 31, 2018,
depreciation and amortization expense for property and equipment amounted to $128,351.
NOTE 9 - INVESTMENT PROPERTIES, NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Investment properties
|
|
$
|
9,022,150
|
|
|
$
|
9,476,420
|
|
Less: Accumulated depreciation
|
|
|
(5,314,670
|
)
|
|
|
(5,221,155
|
)
|
|
|
$
|
3,707,480
|
|
|
$
|
4,255,265
|
|
During the year ended December
31, 2018, depreciation and amortization expense for investment properties amounted to $1,068,308.
NOTE 10 - INVESTMENTS IN AND AMOUNT
DUE FROM UNCONSOLIDATED AFFILIATES
The investments in unconsolidated affiliates
primarily consist of WHYYL (49%), SHDEW (20.63%). As of December 31, 2018, the investment amount in WHYYL and SHDEW were $0 and
$30,857,551 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 trading company with cosmetics. The Company has accounted for these investments using the equity method as the Company
has the ability to exercise significant influence over their activities.
In 2011, the Company invested $4,697,686
for acquiring 49% equity interest in WHYYL to expand its operations to real estate development business. As of December 31, 2018,
the investment in WHYYL was $0, which included its equity in loss of WHYYL, net of income taxes, totaling $660,610 as of December
31, 2018.
For the year ended of December 31, 2018,
the company had recognized the net revenue and cost of revenue of WHYYL project at a certain proportion. The following table sets
forth the financial information of WHYYL.
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Revenues
|
|
$
|
11,092,339
|
|
|
$
|
53,638,709
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(793,624
|
)
|
|
$
|
(6,920,837
|
)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Current assets
|
|
$
|
9,097,536
|
|
|
$
|
19,066,691
|
|
Non-current assets
|
|
|
8,025
|
|
|
|
9,736
|
|
Total assets
|
|
|
9,105,561
|
|
|
|
19,076,427
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
9,766,171
|
|
|
|
18,965,514
|
|
Total equity
|
|
$
|
(660,610
|
)
|
|
$
|
110,914
|
|
As of December 31, 2018, the Company
had a balance of $2,557,716 (2017: $2,686,498) due from WHYYL, which has not charged interest since September
1, 2014
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 five million members as of December 31, 2018. 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 began to operate its own online shopping platform in 2017, where consumers can
purchase its cosmetics and skincare products as well as products imported into China.
For the fiscal year ended December 31, 2018, the net profit
for SHDEW was $287,627,574 with total equity in the amount of $150,134,466 as of December 31, 2018.
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Revenues
|
|
$
|
732,521,705
|
|
|
$
|
743,253,100
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
287,627,574
|
|
|
$
|
342,843,033
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Current assets
|
|
$
|
501,775,990
|
|
|
$
|
647,287,630
|
|
Non-current assets
|
|
|
40,700,549
|
|
|
|
19,471,756
|
|
Total assets
|
|
|
542,476,539
|
|
|
|
666,759,387
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
391,123,793
|
|
|
|
447,406,389
|
|
Total equity
|
|
$
|
151,352,745
|
|
|
$
|
219,337,694
|
|
NOTE 11 - OTHER INVESTMENTS, NET
Equity investments measured at fair value
without readily determinable fair value were accounted as cost method investments prior to adopting ASU 2016-01. As of December 31,
2017, the carrying amount of the Company’s cost method investments was $153,041. After adoption of ASU 2016-01, as of December 31,
2018, the carrying amount of the Company's equity investments measured at fair value using the measurement alternative was $145,705.
During the year ended December 31, 2018, fair value changes recognized for certain equity investments which were measured
using the measurement alternative were not significant.
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, 2017 and 2018, respectively. As of December 31, 2018, the accumulated impairment of the Company's measurement
alternative investments was $76,922.
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 $1,457,046 and $1,530,409 as of December 31, 2018 and December
31, 2017, respectively.
The
promissory note with a principal as of December 31, 2018 amounting to $728,523 bears interest at a rate of 0% per annum, is unsecured
and has no fixed term of repayment. As of December 31, 2018, and
December 31, 2017, the outstanding principal and unpaid interest related to this promissory note amounted to $728,523 and
$765,205, respectively.
The
promissory note with a principal as of December 31, 2018 amounting to $728,523 bears interest at a rate of 0% per annum, is unsecured
and has no fixed term of repayment. As of December 31, 2018, and
December 31, 2017, the outstanding principal and unpaid interest related to this promissory note amounted to $728,523 and
$765,205, respectively.
During the year ended December 31, 2018
and 2017, there were no interest expenses related to these promissory notes.
NOTE 13 - AMOUNTS DUE TO DIRECTORS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Lin Chi-Jung
|
|
$
|
1,769,484
|
|
|
$
|
5,154,329
|
|
Pan Yu-Jen
|
|
|
(58,282
|
)
|
|
|
-
|
|
Lin Hsin-Hung
|
|
|
56,407
|
|
|
|
108,842
|
|
|
|
$
|
1,767,609
|
|
|
$
|
5,263,171
|
|
|
(a)
|
The balance due to Lin Chi-Jung, President and Chairman of the Company, consisted of a balance
of unpaid salaries and reimbursements totaling $NIL (2017: $105,445) and advances together with unpaid interest totaling $1,769,484
(2017: $5,154,329).
|
|
(b)
|
The balance due to Pan Yu-Jen, the Company’s CEO, was unsecured, interest-free and have no
fixed term of repayment.
|
|
(c)
|
The balances due to Lin Hsin-Hung was unsecured, interest-free and have no fixed term of repayment.
|
NOTE 14 - ACCOUNTS PAYABLE
As of December 31, 2018, and 2017, the
balances of accounts payable were $5,268,437 and $3,767,578 respectively. The balance of accounts payable as of December 31, 2018
included unpaid development fee of Linyi project of $1,570,010 and GXL project of 3,320,654. The remaining balance was due to agents
of the operating business.
NOTE 15 -
CUSTOMER DEPOSITS
Customer deposits consisted of the sales
from real estate development project (Linyi project and GXL project) which cannot be recognized as revenue at the accounting period
and deposits received for rental.
Linyi project has started pre-sales in
November 2013 and in the year of 2018, the Project has recognized its revenue along with customer deposit, as of December 31, 2018,
the pre-sales amounted to $7,434,610. GXL project has started pre-sales in March 2016, and as of December 31, 2018; the pre-sales
amounted to $33,239,346.
NOTE 16 - AMOUNT DUE TO AFFILIATES
As of December 31, 2018, the amount due
to JXSY, in the amount of $513,551 was intercompany transfers for day to day operations.
NOTE 17 - OTHER PAYABLES AND ACCRUED
EXPENSES
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
Accrued staff commission and bonus
|
|
$
|
285,506
|
|
|
$
|
302,710
|
|
Rental deposits received
|
|
|
46,331
|
|
|
|
161,055
|
|
Bid bond
|
|
|
203,986
|
|
|
|
-
|
|
Other payables
|
|
|
198,065
|
|
|
|
291,546
|
|
Dividends payable to non-controlling interest
|
|
|
196,053
|
|
|
|
205,924
|
|
|
|
$
|
929,941
|
|
|
$
|
961,235
|
|
Other payables are advances from unrelated
parties are unsecured, interest-free and have no fixed term of repayment.
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.
The Tax Legislation significantly revises
the U.S. corporate income tax by, among other things, lowering the corporate income tax rate to 21%, implementing a modified
territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign
subsidiaries (the Toll Charge). As a fiscal-year taxpayer, certain provisions of the Tax Legislation impacted the Company in fiscal
2018, including the change in the corporate income tax rate and the Toll Charge, while other provisions will be effective starting
at the beginning of fiscal 2019, including the implementation of a modified territorial tax system. The U.S. federal income tax
rate reduction was effective as of January 1, 2018.
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income /(loss) before income tax expense
|
|
|
|
|
|
|
|
|
Income /(loss) from China operations
|
|
$
|
80,337,786
|
|
|
$
|
67,182,830
|
|
Income /(loss) from non-China operations
|
|
|
(503,417
|
)
|
|
|
(171,322
|
)
|
|
|
|
|
|
|
|
|
|
Total income /(loss) before income tax expense
|
|
|
79,834,369
|
|
|
|
67,011,508
|
|
|
|
|
|
|
|
|
|
|
Income tax expense applicable to China operations
|
|
|
|
|
|
|
|
|
Current tax
|
|
|
1,573,573
|
|
|
|
56,803
|
|
Deferred tax
|
|
|
-
|
|
|
|
(225,766
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal income tax expense applicable to China operations
|
|
|
1,573,573
|
|
|
|
(168,963
|
)
|
Non-China income tax expense/(benefit)
|
|
|
-
|
|
|
|
4,313,689
|
|
Total income tax expense
|
|
$
|
1,573,573
|
|
|
$
|
4,144,726
|
|
In 2018, of the $1,573,573 income tax benefit,
was for PRC tax, mainly attributable to the non-U.S. subsidiaries of the Company’s business operations and $0 was for U.S.
corporate income tax, resulting primarily from a one-time transition tax recognized in the fourth quarter of 2017 that represented
management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of
the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S.
Tax Reform. The Company may make an election to pay the one-time transition tax over eight years commencing in April 2020 or pay
in a single lump sum.
Effective Tax Rate
The following is reconciliation between
the U.S. federal statutory rate and the Company’s effective tax rate:
|
|
2018
|
|
|
2017
|
|
PRC Statutory rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Effect of the U.S. Transition Tax under the 2017 TCJA
|
|
|
0
|
%
|
|
|
6.4
|
%
|
Effect of income not taxable for PRC tax purposes
|
|
|
(23.1)
|
%
|
|
|
(25.3)
|
%
|
Under (Over)-provision for income taxes in prior years
|
|
|
0.0
|
%
|
|
|
0
|
%
|
Effective income tax rate
|
|
|
1.97
|
%
|
|
|
6.2
|
%
|
Deferred Tax Assets and Liabilities
Significant components of the Company’s
deferred tax assets and liabilities consist of the following:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss from operations
|
|
$
|
-
|
|
|
$
|
591,300
|
|
Total deferred tax assets
|
|
|
-
|
|
|
|
591,300
|
|
Less: Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
591,300
|
|
In assessing the reliability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible or are utilized. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are tested whether they are deductible or can be utilized, the Company recorded the deferred
tax assets resulting from net operating loss carry forwards of $NIL as of December 31, 2018 (2016: $591,300).
The Company adopted ASC 740-10-25 Accounting
for Uncertainty in Income Taxes and such adoption did not have any material impact on the accompanying consolidated financial statements.
The Company is subject to income taxes in the PRC. Tax regulations are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely
than not ultimately settled at the full amount claimed. The Company’s tax filings are subject to the PRC tax bureau’s
examination for a period up to 5 years. The Company is not currently under any examination by the PRC tax bureau.
NOTE 19- DEFERRED GOVERNMENT SUBSIDY
Deferred government subsidy consists of
the cash subsidy provided by the local government.
Government subsidies include cash subsidies
received by the Company’s subsidiaries in the PRC from local governments.
In recognizing the benefit of government
subsidies in accordance with U.S. GAAP, the Company considers intended use of and restrictions of the subsidy, the requirements
for the receipt of funds, and whether or not the incentive is given for immediate financial support, or to encourage activities
such as land development in specified area. Each grant is evaluated to determine the propriety of classification on the consolidated
statements of operations and consolidated balance sheets. Those grants that are substantively reimbursements of specified costs
are matched with those costs and are recorded as a reduction in costs. Those benefits that are more general in nature or driven
by business performance measures are classified as revenue.
The Company has received refundable government
subsidy of $4,829,440 as of December 31, 2018. The subsidy is given to reimburse the land acquisition costs and certain construction
costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete
the subsidized property development project according to the agreed schedules. The Company recorded the subsidy received as a deferred
government subsidy.
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 December 31, 2018, the
Company’s statutory reserve fund was $3,194,604 (2017: 931,510).
NOTE 21- 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 year ended December 31, 2018 were $119,900 (2017: $198,158).
As of December 31, 2018, the Company had
the following operating lease obligations falling due.
|
|
Amount
|
|
Year Ending
|
|
|
|
Within one year
|
|
$
|
218,048
|
|
Two to five years
|
|
|
-
|
|
|
|
$
|
218,048
|
|
NOTE 22- 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:
|
|
Year Ended December 31, 2018
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
1,461,382
|
|
|
$
|
6,782,184
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,243,566
|
|
Cost of revenues
|
|
|
(848,967
|
)
|
|
|
(5,840,978
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,689,945
|
)
|
Gross profit
|
|
|
612,415
|
|
|
|
941,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,553,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(886,428
|
)
|
|
|
(950,665
|
)
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
(1,837,458
|
)
|
General and administrative expenses
|
|
|
(1,800,289
|
)
|
|
|
(622,086
|
)
|
|
|
-
|
|
|
|
(498,001
|
)
|
|
|
(2,920,376
|
)
|
Operating loss
|
|
|
(2,074,302
|
)
|
|
|
(631,545
|
)
|
|
|
-
|
|
|
|
(498,366
|
)
|
|
|
(3,204,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
21,315
|
|
|
|
12,343
|
|
|
|
-
|
|
|
|
8,560
|
|
|
|
42,218
|
|
Interest expense
|
|
|
6
|
|
|
|
(155,496
|
)
|
|
|
(1,986,792
|
)
|
|
|
-
|
|
|
|
(2,142,282
|
)
|
Other income, Net
|
|
|
(126,906
|
)
|
|
|
(1,045,862
|
)
|
|
|
1,268,417
|
|
|
|
(8,256
|
)
|
|
|
87,393
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
53,323,968
|
|
|
|
|
|
|
|
53,323,968
|
|
Total other (expenses) income
|
|
|
(105,585
|
)
|
|
|
(1,189,015
|
)
|
|
|
52,605,593
|
|
|
|
304
|
|
|
|
51,311,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,179,887
|
)
|
|
|
(1,820,560
|
)
|
|
|
52,605,593
|
|
|
|
(498,062
|
)
|
|
|
48,107,084
|
|
Income tax
|
|
|
(57,183
|
)
|
|
|
(583,099
|
)
|
|
|
|
|
|
|
(933,291
|
)
|
|
|
(1,573,573
|
)
|
Net Income (loss)
|
|
$
|
(2,237,070
|
)
|
|
$
|
(2,403,659
|
)
|
|
$
|
52,605,593
|
|
|
$
|
(1,431,353
|
)
|
|
$
|
46,533,511
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
4,172,870
|
|
|
$
|
23,382,975
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
27,555,845
|
|
Cost of revenues
|
|
|
(1,118,377
|
)
|
|
|
(21,455,775
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,574,152
|
)
|
Gross profit
|
|
|
3,054,493
|
|
|
|
1,927,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,981,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(699,534
|
)
|
|
|
(485,170
|
)
|
|
|
-
|
|
|
|
(374
|
)
|
|
|
(1,185,078
|
)
|
General and administrative expenses
|
|
|
(1,929,700
|
)
|
|
|
(1,414,037
|
)
|
|
|
-
|
|
|
|
(310,930
|
)
|
|
|
(3,654,667
|
)
|
Operating loss
|
|
|
425,259
|
|
|
|
27,993
|
|
|
|
-
|
|
|
|
(311,304
|
)
|
|
|
141,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
24,213
|
|
|
|
11,392
|
|
|
|
-
|
|
|
|
3,864
|
|
|
|
39,469
|
|
Interest expense
|
|
|
(423,864
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(423,864
|
)
|
Other income, Net
|
|
|
483,687
|
|
|
|
(611,537
|
)
|
|
|
1,008,896
|
|
|
|
138,542
|
|
|
|
1,019,588
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
66,234,367
|
|
|
|
|
|
|
|
66,234,367
|
|
Total other (expenses) income
|
|
|
84,036
|
|
|
|
(600,145
|
)
|
|
|
67,243,263
|
|
|
|
142,406
|
|
|
|
66,869,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
509,295
|
|
|
|
(572,152
|
)
|
|
|
67,243,263
|
|
|
|
(168,898
|
)
|
|
|
67,011,508
|
|
Income tax
|
|
|
(56,803
|
)
|
|
|
225,766
|
|
|
|
(4,313,689
|
)
|
|
|
-
|
|
|
|
168,963
|
|
Net Income (loss)
|
|
$
|
452,492
|
|
|
$
|
(346,386
|
)
|
|
$
|
62,929,574
|
|
|
$
|
(168,898
|
)
|
|
$
|
67,180,471
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment*
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
64,423,978
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
64,423,978
|
|
Total assets
|
|
|
14,126,067
|
|
|
|
81,270,916
|
|
|
|
80,454,428
|
|
|
|
7,983,172
|
|
|
|
183,834,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
67,974,281
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
67,974,281
|
|
Total assets
|
|
|
9,283,409
|
|
|
|
81,625,107
|
|
|
|
73,982,908
|
|
|
|
11,609
|
|
|
|
164,903,033
|
|
NOTE 23 - SUBSEQUENT EVENTS
We declared a dividend of $0.1 per share
to shareholders on record on December 28, 2018. The dividend was paid on January 28, 2019.
On December 6, 2018, the Company established 60% ownership of
an investment holding company, Huaian Zhanbao (“HAZB”), for the purpose of possible future real estate development
project in Huaian. On March of 2019, HAZB purchased 78.46% of Huaian Tianxi Real Estate Development (“Huaian Tianxi”)
for $0 from SHDEW. Huaian Tianxi holds a land property of 78,027 sqm with an above-ground constructible area of 195,000 sqm.