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, 2019, 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
|
|
|
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 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
|
|
|
19.91
|
%4
|
|
Equity investment
|
|
Import and export trading
|
Shanghai HuiTian (“SHHT”)
|
|
July 25, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Subsidiary
|
|
Investment holding
|
Huai’an 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 75.25% equity interest in SZSY.
|
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.
|
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 60% equity interest in SHXYJB.
|
4.
|
In December 2019, SHDEW had an employee stock bonus where its employees received their issued shares. This resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%.
|
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 10% equity interest
in SZXJY to a company owned by a director of SZXJY and transferred 5% equity interest in SZXJY to CY-SRRE. Following the disposal
and the transfer, CY-SRRE effectively held 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 12.5% equity interest,
SHXJY holding 26% equity interest and the shareholder of SZXJY holding 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 5%
equity interest in SZXJY to a company owned by a director of SZXJY. Following the disposal, CY-SRRE effectively holds 75% equity
interest in SZXJY.
In January 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 40% equity interest
in SHXXY.
In
October 2011, SHXJY purchased 24% interest in Linyi Shang Yang Real Estate Consultation Company Limited (“LYSY”)
and acquired approximately 103,385 square meters of land for the purpose of developing the land into villa-style residential housing.
On March 6, 2012, SHXJY established a wholly-owned subsidiary, namely Linyi Rui Lin Construction and Design Company Limited (“LYRL”).
SHXJY’s 24% equity interest in LYSY was then transferred to LYRL. 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.
The Company and a shareholder of LYSY, Zhang Shu Qin, who 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 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 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 12.6% equity interest and LYRL holds 7.3% equity interest in SHDEW.
As the Company does not have significant influence in SHDEW, we adopted the alternative measurement accounting method for
the SHDEW investment.
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.
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 Jiangsu Province, Huai’an City Qingjiang Pu District, 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 1st phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 347 units.
As of July 31, 2020 the Company pre-sold 513 out of 679 units.
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.
Change in Accounting Policy
In 2019, due to the decrease in level of ownership and degree
of influence. The change in accounting policy for one of our equity investment from equity method to measurement alternative under
ASC 321 without a readily determinable fair value, we elect to measure this investment at the cost minus impairment.
Because of the change in accounting method for our investment in SHDEW from the equity
method to the measurement alternative, we incurred a one-time entry of a discontinuation of the equity method for an investment
in the amount of $21,003,196. This change in accounting method will greatly affect our income statement as we will not account
for SHDEW’s profit in our income statement with the previous equity method. This will affect financial statement line items
for income from investment, net income, and earnings per share.
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, 2019 and 2018, 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, 2019
and December 31, 2018 were $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, 2019 and
2018, 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, 2019 and 2018.
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 years ended December 31, 2019 and 2018,
the Company provided no allowance for impairment loss on investments in unconsolidated affiliates.
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 measurement alternative method. The measurement alternative measures the equity investment at cost less impairment,
adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer.
During
the year ended December 31, 2019 and 2018, the Company provided no allowance for impairment loss on other investments.
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
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, 2019, the Company’s deferred government
subsidy amounted to $4,751,214 (2018: $4,829,440).
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, 2019 and 2018 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, 2019 and 2018.
Recently Adopted Accounting Standards
In August 2018, the SEC issued Release
No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting
will be the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation
S-X to interim periods. We adopted this new rule on January 1, 2019. Upon adoption, the Company includes its Statements of Stockholders’
Deficit with each interim reporting.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The
standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize
in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to
use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting
policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors
are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company
adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.
In June 2018, the FASB issued Accounting Standards Update (“ASU”)
ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the
accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments
to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019.
Early adoption is permitted. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s 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 for those home buyers that has applied for a housing loan from their
bank. This deposit is a percentage to each home buyer’s bank loan for the purpose of purchasing in our project. Once we complete
the handover to the buyer, these deposits become unrestricted. As of December 31, 2019 and December 31, 2018, the Company
held cash deposits of $8,383,359 and $1,550,988, respectively.
NOTE 4 - TRANSACTIONAL FINANCIAL ASSETS
As
of December 31, 2019, we have $27,818,996 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 3.15% to 4.4% 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.
We sold 118 of 121 Phase 1 villas and pre-sold 85 villas out of all 88 units in Phase 2 as of July 31, 2020.
On March 13, 2014, the Company signed a
joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has obtained a right to
develop the Guangxinglu (“GXL”) project, located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project
covers a site area of approximately 2,502 square meters for the development of one apartment building. 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 any unsold apartment units while
not recognizing the units previously sold before the regulation. In March 2018 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 the fiscal year of 2019.
For
the period ended on December 31, 2019, we had recognized the net revenue and cost of revenue of the Linyi project and GXL
project at a certain proportion. In the first quarter of 2019, we purchased the property of HATX with the land use rights. As of
December 31, 2019, land use rights included in real estate property under development totaled $85,909,986.
In
October 2018, we established HATX for real estate development in Huai’an, through HAZB of which we have 78.46% ownership.
HAZB purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters and the Company, through
HATX, purchased 78.46% of the outstanding shares in HAZB. The Huai’an project, named Tianxi Times, started its first phase
development in early 2019 with a GFA of 82,218 square meters totaling 679 units. As of July 31, 2020, the Company pre-sold
513 out of 679 units.
NOTE 7 - OTHER RECEIVABLES AND DEPOSITS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Advances to staff
|
|
$
|
19,172
|
|
|
$
|
22,864
|
|
Rental deposits
|
|
|
40,575
|
|
|
|
39,085
|
|
Prepaid expense
|
|
|
318,424
|
|
|
|
12,033
|
|
Prepaid tax
|
|
|
2,378,199
|
|
|
|
4,620,338
|
|
Other receivables
|
|
|
4,779,431
|
|
|
|
4,080,833
|
|
|
|
$
|
7,535,801
|
|
|
$
|
8,775,153
|
|
Other
receivables and deposits as of December 31, 2019 are stated net of allowance for doubtful accounts of $327,739 (2018: $674,478).
Other receivables of $3,948,578 mainly consists of $2,480,727 from Zhongji Pufa for our GXL project and $1,433,445 from Nanjing
Longchang.
NOTE 8 - PROPERTY AND EQUIPMENT, NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Furniture and fixtures
|
|
$
|
175,150
|
|
|
$
|
161,949
|
|
Computer and office equipment
|
|
|
203,581
|
|
|
|
155,395
|
|
Motor vehicles
|
|
|
588,532
|
|
|
|
535,089
|
|
Properties
|
|
|
2,168,726
|
|
|
|
2,204,433
|
|
|
|
|
3,135,990
|
|
|
|
3,056,867
|
|
Less: Accumulated depreciation
|
|
|
1,932,140
|
|
|
|
1,958,025
|
|
|
|
$
|
1,203,850
|
|
|
$
|
1,098,842
|
|
During
the year ended December 31, 2019, depreciation and amortization expense for property and equipment amounted to $1,674,980.
NOTE 9 - INVESTMENT PROPERTIES, NET
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Investment properties
|
|
$
|
33,312,403
|
|
|
$
|
9,022,150
|
|
Less: Accumulated depreciation
|
|
|
(6,363,357
|
)
|
|
|
(5,314,670
|
)
|
|
|
$
|
26,949,046
|
|
|
$
|
3,707,480
|
|
During
the year ended December 31, 2019, depreciation and amortization expense for investment properties amounted to $1,491,759.
We recognized $24,436,393 of investment
properties from our unsold apartment units in our GXL project.
NOTE 10 - INVESTMENTS IN AND AMOUNT
DUE FROM UNCONSOLIDATED AFFILIATES
The
investments in unconsolidated affiliates primarily consist of WHYYL (49%) and SHDEW (19.91%). As of December 31, 2019, the
investment amount in WHYYL and SHDEW were $0 and $12,701,189, separately.
WHYYL is primarily developing a real estate
project in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period.
SHDEW is a company engaged principally in the R&D and sale of skincare and cosmetic products. The Company has accounted for
these investments using the equity method as the Company has the ability to exercise significant influence over their activities.
In
2011, the Company invested $4,697,686 for acquiring a 49% equity interest in WHYYL to expand its operations to the real estate
development business. As of December 31, 2019, 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 July 12, 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 is developing
its own online shopping platform where consumers can purchase its n cosmetics and skincare products as well as products imported
into China. The online shopping platform was in operation in 2017.
In December 2019, SHDEW had an employee
stock bonus where many of its employee received their vested shares. This resulted in the dilution of our ownership of SHDEW from
20.38% to 19.91% thereby changing out accounting method for the SHDEW investment from the equity method to measurement alternative
method going forward.
NOTE 11 - OTHER INVESTMENTS, NET
According
to ASU 2016-01, where the Company has no significant influence, the investment is classified as other investments in the
balance sheet and is carried under the measurement alternative method. The measurement alternative measures the equity investment
at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of
the same issuer. As of December 31, 2018, the carrying amount of the Company’s cost method investments was $145,705.
After adoption of ASU 2016-01, as of December 31, 2019, the carrying amount of the Company's equity investments measured using
the measurement alternative was $143,345.
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, 2018 and 2019, respectively.
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 $1,433,445 and $1,457,046 as of December 31, 2019
and December 31, 2018, respectively.
The
promissory note with a principal as of December 31, 2019 amounting to $716,723 bears interest at a rate of 0% per annum,
is unsecured and has no fixed term of repayment. As of December 31, 2019, and December 31, 2018, the outstanding principal and
unpaid interest related to this promissory note amounted to $716,723 and $728,523, respectively.
The
promissory note with a principal as of December 31, 2019 amounting to $716,723 bears interest at a rate of 0% per annum,
is unsecured and has no fixed term of repayment. As of December 31, 2019, and December 31, 2018, the outstanding principal and
unpaid interest related to this promissory note amounted to $716,723 and $728,523, respectively.
During
the year ended December 31, 2019 and 2018, there were no interest expenses related to these promissory notes.
NOTE 13 - AMOUNTS DUE TO DIRECTORS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Lin Chi-Jung
|
|
$
|
1,469,315
|
|
|
$
|
1,769,484
|
|
Pan Yu-Jen
|
|
|
(28,669
|
)
|
|
|
(58,282)
|
|
Lin Hsin-Hung
|
|
|
32,349
|
|
|
|
56,407
|
|
|
|
$
|
1,472,995
|
|
|
$
|
1,767,609
|
|
|
(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 balance due from Pan Yu-Jen 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, 2019, and 2018, the balances of accounts payable were $4,347,678 and $5,268,437 respectively. The balance
of accounts payable as of December 31, 2019 included unpaid development fee of Linyi project of $704,281 and HATX project of $2,699,182.
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 (the Linyi project, the HATX project and the GXL project)
which cannot be recognized as revenue at the accounting period and deposits received for rental.
The
Linyi project has started pre-sales in November 2013 and in the year of 2019, the Project has recognized its revenue along
with customer deposit, as of December 31, 2019, the pre-sales amounted to $14,531,098. The HATX project has started pre-sales in
December 2019, as of December 31, 2019 the pre-sales amounted to $6,525,305. The GXL project started pre-sales in March 2016, and
as of December 31, 2019; the pre-sales amounted to $860,709.
NOTE 16 - AMOUNT DUE TO AFFILIATES
As
of December 31, 2019, the amount due to JXSY, in the amount of $504,802 was intercompany transfers for day to day operations.
NOTE 17 - OTHER PAYABLES AND ACCRUED
EXPENSES
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued staff commission and bonus
|
|
$
|
221,674
|
|
|
$
|
285,506
|
|
Rental deposits received
|
|
|
117,328
|
|
|
|
46,331
|
|
Bid bond
|
|
|
222,184
|
|
|
|
203,986
|
|
Other payables
|
|
|
13,777,035
|
|
|
|
198,065
|
|
Dividends payable to non-controlling interest
|
|
|
192,877
|
|
|
|
196,053
|
|
|
|
$
|
14,531,098
|
|
|
$
|
929,941
|
|
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,
|
|
|
|
2019
|
|
|
2018
|
|
Income /(loss) before income tax expense
|
|
|
|
|
|
|
|
|
Income /(loss) from China operations
|
|
$
|
(4,541,266
|
)
|
|
$
|
80,337,786
|
|
Income /(loss) from non-China operations
|
|
|
(362,615
|
)
|
|
|
(503,417
|
)
|
|
|
|
|
|
|
|
|
|
Total income /(loss) before income tax expense
|
|
|
(4,903,881
|
)
|
|
|
79,834,369
|
|
|
|
|
|
|
|
|
|
|
Income tax expense applicable to China operations
|
|
|
|
|
|
|
|
|
Current tax
|
|
|
1,427
|
|
|
|
1,573,573
|
|
Deferred tax
|
|
|
(385,472
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Subtotal income tax expense applicable to China operations
|
|
|
(384,046
|
)
|
|
|
1,573,573
|
|
Non-China income tax expense/(benefit)
|
|
|
-
|
|
|
|
-
|
|
Total income tax expense
|
|
$
|
(384,046
|
)
|
|
$
|
1,573,573
|
|
In
2019, of the -$407,044 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:
|
|
2019
|
|
|
2018
|
|
PRC Statutory rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Effect of the U.S. Transition Tax under the 2017 TCJA
|
|
|
0
|
%
|
|
|
0
|
%
|
Effect of income not taxable for PRC tax purposes
|
|
|
(17.2
|
)%
|
|
|
(23.1
|
)%
|
Under (Over)-provision for income taxes in prior years
|
|
|
0.0
|
%
|
|
|
0
|
%
|
Effective income tax rate
|
|
|
7.83
|
%
|
|
|
1.96
|
%
|
Deferred Tax Assets and Liabilities
Significant components of the Company’s
deferred tax assets and liabilities consist of the following:
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss from operations
|
|
$
|
380,627
|
|
|
$
|
-
|
|
Total deferred tax assets
|
|
|
380,627
|
|
|
|
-
|
|
Less: Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
380,627
|
|
|
$
|
-
|
|
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 $380,627 as of December 31, 2019 (2018: $NIL).
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 $4,751,214 as of December 31, 2019. 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, 2019, the Company’s statutory reserve fund was $3,194,604, which remained the same as 2018.
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, 2019 and 2018 were $460,617 and$119,90,
respectively.
As
of December 31, 2019, the Company had the following operating lease obligations falling due.
|
|
Amount
|
|
Year Ending
|
|
|
|
Within one year
|
|
$
|
198,262
|
|
Two to five years
|
|
|
-
|
|
|
|
$
|
198,262
|
|
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, 2019
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
Net revenues
|
|
$
|
721,491
|
|
|
$
|
32,268,287
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,989,778
|
|
Cost of revenues
|
|
|
(695,952
|
)
|
|
|
(26,115,163
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,811,115
|
)
|
Gross profit
|
|
|
25,539
|
|
|
|
6,153,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,178,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(1,215,372
|
)
|
|
|
(1,864,438
|
)
|
|
|
-
|
|
|
|
(251
|
)
|
|
|
(3,080,061
|
)
|
General and administrative expenses
|
|
|
(3,867,873
|
)
|
|
|
(5,798,119
|
)
|
|
|
-
|
|
|
|
(381,013
|
)
|
|
|
(10,047,005
|
)
|
Operating loss
|
|
|
(5,057,706
|
)
|
|
|
(1,509,433
|
)
|
|
|
-
|
|
|
|
(381,264
|
)
|
|
|
(6,948,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
41,269
|
|
|
|
99,224
|
|
|
|
-
|
|
|
|
11,267
|
|
|
|
151,760
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Other income, Net
|
|
|
128,338
|
|
|
|
(45,978
|
)
|
|
|
1,810,402
|
|
|
|
-
|
|
|
|
1,892,762
|
|
Equity in net income (loss) of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Total other (expenses) income
|
|
|
169,607
|
|
|
|
53,246
|
|
|
|
1,810,402
|
|
|
|
11,267
|
|
|
|
2,044,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,888,100
|
)
|
|
|
(1,456,187
|
)
|
|
|
1,810,402
|
|
|
|
(369,997
|
)
|
|
|
(4,519,835
|
)
|
Income tax
|
|
|
384,046
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
384,046
|
|
Net Income (loss)
|
|
$
|
(4,504,054
|
)
|
|
$
|
(1,456,187
|
)
|
|
$
|
1,810,402
|
|
|
$
|
(369,997
|
)
|
|
$
|
(4,519,835
|
)
|
|
|
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
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
Real Estate
|
|
|
Investment*
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Development
|
|
|
Transaction
|
|
|
Others
|
|
|
Total
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property under development
|
|
$
|
-
|
|
|
$
|
85,909,986
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
85,909,986
|
|
Total assets
|
|
|
9,756,530
|
|
|
|
70,345,062
|
|
|
|
40,737,782
|
|
|
|
66,443,870
|
|
|
|
187,283,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
NOTE
23 – RELATED PARTY TRANSACTIONS
A related party is an entity that can control
or significantly influence the management or operating policies of another entity to the extent one of the entities may be prevented
from pursuing its own interests. A related party may also be any party the entity deals with that can exercise that control.
The Company has received dividends from
SHDEW in an amount of $38,659,729 in 2019.
We paid a cash dividend on our common stock
on January 28, 2019 of $0.1 per share, which was a total amount of $6,869,193.
We rented an office of nearly 192 square
meters in downtown Shanghai for displaying purpose from Mrs. Zhang Shuqing, our related party, for $174,203 in 2019.
HAZB has performed a consulting service
for SHSYTX , for $14,517 in 2019.
WHGFH has received revenue of sales service
fee from WHYYL of $ 35,235 in 2019.
SHDEW has rented three apartment units
from the SHGXL project, with $ 8,318 due as of December 31, 2019.
NOTE
24 - SUBSEQUENT EVENTS
On May 27, 2020, LYRL received 10% of the
shares of LYSY from Nanjing Longchang Real Estate Development Group. LYRL owns 34% of LYSY as of December 31, 2019.