UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2020

 

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

For the transition period from __________ to __________

 

Commission File Number 000-32585

 

SUNRISE REAL ESTATE GROUP, INC.

 

(Exact name of registrant as specified in its charter)

 

  Texas   75-2713701  
  (State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 

 

No. 18, Panlong Road,

Shanghai, PRC 201702

(Address of Principal Executive Offices) (Zip Code)

 

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

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes ¨ No x

 

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

 

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

Emerging growth company ¨

 

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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: April 12, 2021–68,691,925 shares of Common Stock

 

 

 

 

 

 

FORM 10-Q

 

For the Quarter Ended September 30, 2020

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 3
  Condensed Consolidated Statements of Operations for The Three Months and Nine Months Ended September 30, 2020 and 2019 4
  Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2020 and 2019 5
  Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2020 and 2019 7
  Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
     
PART II. OTHER INFORMATION 26
Item 1. Legal Proceedings 26
Item 1A Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 27
     
SIGNATURES 27

 

2 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)

 

    September 30,     December 31,  
    2020     2019  
ASSETS                
                 
Current assets                
Cash and cash equivalents   $ 8,675,452     $ 15,900,753  
Restricted cash (Note 3)     49,349,998       8,383,359  
Transactional financial assets (Note 4)     51,876,026       27,818,996  
Accounts receivable     67,698       24,407  
Real estate property under development (Note 6)     143,883,805       85,909,986  
Amount due from an unconsolidated affiliate     272,623       257,633  
Other receivables and deposits, net (Note 7)     12,245,459       7,535,801  
Total current assets     266,371,061       145,830,935  
                 
Property and equipment, net (Note 8)     1,333,496       1,203,850  
Investment properties, net (Note 9)     26,501,636       26,949,046  
Deferred tax assets (Note 15)     871,162       380,627  
Investment in an unconsolidated affiliate (Note 10)     13,087,038       12,775,441  
Goodwill     1,393,626       -  
Other investments     367,102       143,345  
Total assets   $ 309,925,121     $ 187,283,244  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                
                 
Current liabilities                
Promissory notes payable (Note 11)     1,468,407       1,433,445  
Accounts payable (Note 14)     8,390,162       4,347,678  
Amounts due to directors (Note 12)     535,054       1,472,995  
Amount due to an affiliate (Note 15)     516,586       504,802  
Customer deposits (Note 16)     102,177,291       21,702,494  
Other payables and accrued expenses (Note 13)     32,747,563       14,531,098  
Other taxes payable     399,711       382,209  
Income taxes payable (Note 17)     944,007       1,037,349  
Dividends payables     -       -  
Total current liabilities     147,178,781       45,412,070  
                 
Long-term income tax payable (Note 17)     2,674,487       2,933,308  
Deferred government subsidy (Note 18)     4,867,097       4,751,214  
Total liabilities     154,720,365       53,096,592  
                 
Commitments and contingencies (Note 19)                
                 
Shareholders’ equity                
Common stock, par value $0.01 per share; 200,000,000 shares Authorized; 68,691,925 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively     686,919       686,919  
Additional paid-in capital     7,570,008       7,570,008  
Statutory reserve (Note 20)     3,194,604       3,194,604  
Retained Earnings     125,038,699       105,326,252  
Accumulated other comprehensive income     17,339,117       13,676,579  
Total deficit of Sunrise Real Estate Group, Inc.     153,829,347       130,454,362  
Non-controlling interests     1,375,409       3,732,290  
Total shareholders’ equity     155,204,756       134,186,652  
Total liabilities and shareholders’ equity   $ 309,925,121     $ 187,283,244  

 

See accompanying notes to consolidated financial statements.

 

3 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2020     2019     2020     2019  
Net revenues   $ 108,523     $ 724,827     $ 802,194     $ 32,424,073  
Cost of revenues     (578,148 )     (749,236 )     (1,693,591 )     (26,231,257 )
Gross profit (loss)     (469,625 )     (24,409 )     (891,397 )     6,192,816  
                                 
Operating expenses     (651,652 )     (548,691 )     (2,907,602 )     (1,372,674 )
General and administrative expenses     (994,608 )     (1,735,622 )     (2,202,127 )     (9,141,400 )
Operating profit (loss)     (2,115,885 )     (2,308,722 )     (6,001,126 )     (4,321,258 )
                                 
Other income (expenses)                                
Interest income     221,385       48,925       374,897       88,179  
Interest expense     -       -       -       -  
Other income (loss), net     23,682,294       305,426       24,032,423       1,573,414  
Total other Income     23,903,679       354,351       24,407,320       1,661,593  
                                 
Income (loss) before income taxes     21,787,794       (1,954,371 )     18,406,194       (2,659,665 )
                                 
Income tax benefit (expense)     176,864       (362 )     466,590       64,264 )
                                 
Net income (loss)     21,964,658       (1,954,733 )     18,872,784       (2,595,401 )
Less: Net (income) loss attributable to non-controlling interests     360,510       98,297       839,663       2,657,997  
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.   $ 22,325,168     $ (1,856,436 )   $ 19,712,447     $ 62,596  
Net income (loss)     21,964,658       (1,954,733 )     18,872,784       (2,595,401 )
Other comprehensive income
Foreign currency translation adjustment
    6,150,181       (2,466,390 )     2,145,320       (222,297 )
Discontinuation of the equity method for an investment     -       -       -       20,716,042  
Comprehensive income     28,114,839       (4,421,123 )     21,018,104       17,898,344  
Less: Comprehensive income attributable to non-controlling interests     236,489       189,371       2,356,881       (1,306,938 )
Total comprehensive income attributable to shareholders     28,351,328       (4,231,752 )     23,374,985       16,591,406  
Earnings per share – basic and fully diluted   $ 0.33     $ (0.03 )   $ 0.29     $ 0.00  
                                 
Weighted average common shares outstanding                                
Basic and fully diluted     68,691,925       68,691,925       68,691,925       68,691,925  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4 

 

 

SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)

 

    Common Stock                                      
    Number of
shares issued
    Amount    

Additional

 Paid-in
Capital

    Statutory
Reserve
    Retained
Earnings
(Deficits)
   

Accumulated
Other
Comprehensive
Income

    Non-controlling
Interests
   

Total
Stockholders’
 (Deficit)
Equity

 
Balance, December 31, 2019     68,691,925     $ 686,919     $ 7,570,008     $ 3,194,604     $ 105,326,252     $ 13,676,579     $ 3,732,290     $ 134,186,652  
Profit (loss) for the year                                     19,712,447               (839,663 )     18,872,784  
Discontinuation of the equity method for an investment     -       -       -       -       -       -       -       -  
Gain (loss) contribution from newly consolidated subsidiaries     -       -       -       -       -       -       -       -  
Translation of foreign operations     -       -       -       -       -       3,662,538       (1,517,218 )     2,145,320  
Balance, Sept. 30, 2020     68,691,925       686,919       7,570,008       3,194,604       125,038,699       17,339,117       1,375,409       155,204,756  

 

    Common Stock                    
    Number of
shares issued
    Amount    

Additional
 Paid-in
Capital

    Statutory
Reserve
    Retained
Earnings
(Deficits)
   

Accumulated
Other
Comprehensive
Income

  Non-controlling
Interests
 

Total
Stockholders’
 (Deficit)
Equity

Balance, June 30, 2020     68,691,925     $ 686,919     $ 7,570,008     $ 3,194,604     $ 102,589,868     $11,312,957   $1,611,898   $126,966,254
Profit (loss) for the year                                     22,448,831         (360,510 ) 22,088,321
Discontinuation of the equity method for an investment     -                       -       -     -   -   -
Gain (loss) contribution from newly consolidated subsidiaries                     -       -       -     -   -   -
Translation of foreign operations     -       -       -       -       -     6,026,160   124,021   6,150,181
Balance, Sept. 30, 2020     68,691,925       686,919       7,570,008       3,194,604       125,038,699     17,339,117   1,375,409   155,204,756

 

See accompanying notes to consolidated financial statements.

 

5 

 

 

SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)

 

    Common Stock                                      
    Number of
shares issued
    Amount    

Additional
 Paid-in
Capital

    Statutory
Reserve
    Retained
Earnings
(Deficits)
   

Accumulated
Other
Comprehensive
Income

    Non-controlling
Interests
   

Total
Stockholders’
 (Deficit)
Equity

 
Balance, December 31, 2018     68,691,925     $ 686,919     $ 7,570,008     $ 3,194,604     $ 106,727,898     $ (2,790,200 )   $ 1,888,194     $ 117,277,423  
Profit (loss) for the year                                     62,596               (2,657,997 )     (2,595,401 )
Discontinuation of the equity method for an investment     -       -       -       -       -       20,716,042       -       20,716,042  
Gain (loss) contribution from newly consolidated subsidiaries     -       -       -       -       (576,683 )     -       -       (576,683 )
Translation of foreign operations     -       -       -       -       -       (4,187,232 )     3,964,935       (222,297 )
Balance, Sept. 30, 2019     68,691,925       686,919       7,570,008       3,194,604       106,213,811       13,738,610       3,195,132       134,599,084  

 

    Common Stock                                  
    Number of
shares issued
    Amount     Additional
 Paid-in
Capital
    Statutory
Reserve
    Retained
Earnings
(Deficits)
    Accumulated
Other
Comprehensive
Income
  Non-controlling
Interests
  Total
Stockholders’
 (Deficit)
Equity
 
Balance, June 30, 2019     68,691,925     $ 686,919     $ 7,570,008     $ 3,194,604     $ 108,580,558     $16,707,852   $3,384,503   $140,124,444  
Profit (loss) for the year                                     (1,856,436 )       (98,297)   (1,947,985 )
Discontinuation of the equity method for an investment     -                       -       -     -   -   -  
Gain (loss) contribution from newly consolidated subsidiaries                     -       -       (510,311 )   -   -   (510,311 )
Translation of foreign operations     -       -       -       -       -     (2,969,242 ) (91,074 ) (3,060,316 )
Balance, Sept. 30, 2019     68,691,925       686,919       7,570,008       3,194,604       106,213,811     13,738,610   3,195,132   134,599,084  

 

See accompanying notes to consolidated financial statements.

 

6 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

 

    Nine Months Ended Sept. 30,  
    2020     2019  
Cash flows from operating activities                
Net income  (loss)   $ 18,872,784     $ (2,595,401 )
                 
Adjustments to reconcile net income (loss) to net cash used in operating activities                
Depreciation and amortization     2,724,824       1,294,402  
Loss (Gain) on disposal of property, plant and equipment     9,675       15,841  
Bad debts     -       2,481,884  
Equity in net loss (income) of unconsolidated affiliates     -       -  
Changes in assets and liabilities                
Accounts receivable     (41,522 )     184,142  
Real estate property under development     (54,342,367 )     (41,068,227 )
Customer Deposits     77,747,784       (24,617,243 )
Amount due from unconsolidated affiliates     (8,981 )     3,019,171  
Other receivables and deposits     (4,401,443 )     2,015,129  
Deferred tax assets     (468,022 )     (65,240 )
Net cash from directors     (947,096 )     (923,354 )
Accounts payable     3,828,231 )     (2,982,510 )
Other payables and accrued expenses     17,371,024       13,803,548  
Other taxes payable     7,955       (96,457 )
Income taxes payable     (374,203 )     (7,997 )
Net cash provided by  (used in) operating activities     59,978,643       (49,542,312 )
                 
Cash flows from investing activities                
Purchases of property and equipment     (285,205 )     (271,719 )
Net Cash from Transactional financial assets     (22,735,847 )     (21,440,765 )
Acquisition of investment     (1,412,529 )        
Dividend distribution of affiliates     -       39,432,991  
Net cash provided by (used in) investing activities     (24,433,581 )     60,602,037  
                 
Cash flows from financing activities                
Restricted cash     (39,641,623 )     (3,580,461 )
Repayments to directors     -       -  
Advances from directors     -       -  
Advances from an affiliate     -       -  
Repayments to an affiliate     -       -  
Dividends paid to noncontrolling interests     -       (6,869,193 )
Net cash provided by (used  in) financing activities     (39,641,623 )     (10,449,654 )
                 
Effect of exchange rate changes on cash and cash equivalents     (3,128,740 )     1,060,367  
                 
Net increase in cash and cash equivalents     (7,225,301 )     1,670,438  
Cash and cash equivalents at beginning of period     15,900,753       17,656,165  
Cash and cash equivalents at end of period   $ 8,675,452     $ 19,326,603  
                 
Supplemental disclosure of cash flow information                
Income taxes paid   $ -     $ -  
Interest paid     -       -  

 

See accompanying notes to consolidated financial statements.

 

7 

 

 

 

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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

 

As of September 30, 2019, the Company has the following major subsidiaries and equity investment.

 

Company Name   Date of
Incorporation
  Place of
Incorporation
  % of Ownership
held by the
Company
  Relationship
with the
Company
  Principal Activity
Sunrise Real Estate Development Group, Inc. (CY-SRRE)   April 30, 2004   Cayman Islands     100%   Subsidiary   Investment holding
Lin Ray Yang Enterprise Limited (“LRY”)   November 13, 2003   British Virgin Islands     100%   Subsidiary   Investment holding
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)   August 20, 2001   PRC     100%   Subsidiary   Property brokerage services
Shanghai Shang Yang Real Estate consultation Company Limited (“SHSY”)   February 5, 2004   PRC     100%   Subsidiary   Property brokerage services
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”)   November 24, 2006   PRC     75.25%1   Subsidiary   Property brokerage and management services
Suzhou Xi Ji Yang Real Estate Consultation Company Limited (“SZXJY”)   June 25, 2004   PRC     75%   Subsidiary   Property brokerage services
Linyi Shangyang Real Estate Development Company Limited (“LYSY”)   October 13, 2011   PRC     34%2   Subsidiary   Real estate development
Shangqiu Shang Yang Real Estate Consultation Company Limited (“SQSY”)   October 20, 2010   PRC     100%   Subsidiary   Property brokerage services
Wuhan Gao Feng Hui Consultation Company Limited (“WHGFH”)   November 10, 2010   PRC     60%   Subsidiary   Property brokerage services
Sanya Shang Yang Real Estate Consultation Company Limited (“SYSY”)   September 18, 2008   PRC     100%   Subsidiary   Property brokerage services
Shanghai Rui Jian Design Company Limited (“SHRJ”)   August 15, 2011   PRC     100%   Subsidiary   Property brokerage services
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)   March 6, 2012   PRC     100%   Subsidiary   Investment holding
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)   December 28, 2009   PRC     49%   Equity investment   Real estate development
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”)   September 28, 2011   PRC     20%   Equity investment   Property brokerage services
Xin Guang Investment Management and Consulting Company Limited (“XG”)   December 17, 2012   PRC     49%   Equity investment   Investment management and consulting
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)   June 6, 2013   PRC     19.91%3   Equity investment   Import and export trading
Shanghai Hui Tian (“SHHT”)   July 25, 2014   PRC     100%   Subsidiary   Investment holding

Huaian Zhanbao Industrial

Co., Ltd. (“HAZB”)

  December 6, 2018   PRC     78.46%4   Subsidiary   Investment holding

Huaian Tianxi Real Estate

Development Co., Ltd (“HATX”)

  October, 2018   PRC     78.46%4   Subsidiary   Investment holding

 

8 

 

 

1 The Company and a shareholder of SZSY, which holds 12.5% equity interest in SZSY, entered into a voting agreement under which the Company is entitled to exercise the voting rights in respect of the shareholder’s 12.5% equity interest in SZSY. The Company effectively holds 75.25% voting rights in SZSY and therefore considers SZSY as a subsidiary of the Company.

 

2 The Company and a shareholder of LYSY, which holds 46% equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of her 46% equity interest in LYSY. The Company effectively holds 80% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company. On May 27, 2020, LYRL received 10% of the issued and outstanding shares of LYSY from Nanjing Longchang Real Estate Development Group. LYRL owned 34% of LYSY following the purchase.

 

3 In December 2019, SHDEW issued shares to its employees pursuant to an employee stock bonus.  This issuance resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%.

 

4 We established HAZB for the purpose of for real estate development in Huai’an through HATX of which we have 78.46% ownership.

  

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

 

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of September 30, 2020 and the results of operations for the nine months ended September 30, 2020 and 2019, and the cash flows for the nine months ended September 30, 2020 and 2019. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

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

 

9 

 

 

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Principles of Consolidation  

 

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

 

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

 

Foreign Currency Translation and Transactions

 

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

 

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

  

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

 

The exchange rates as of September 30, 2020 and December 31, 2019 are $1: RMB76.8101 and $1: RMB6.9762, respectively.

 

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

 

Real Estate Property under Development

 

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

 

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

 

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

 

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

 

In October 2018, we established HATX for the purpose of for real estate development in Huai’an through HAZB of which we have 78.46% ownership. HAZB purchased the property in Qingjiang Pu District, Huai’an City, Jiangsu Province, with an area of 78,030 square meters and the Company, through HATX, invested 78.46% shares in HAZB. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 679 units. As of March 12, 2021, the Company pre-sold 673 out of 679 units.

 

10 

 

 

In September 2020, LYSY had purchased a land of area 54,314 square meters with amount of RMB228,120,000 (approximately USD32,197,146), which is south to our developed land.

 

Long Term Investments

 

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

  

Investment in Unconsolidated Affiliates

 

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

 

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

 

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

 

Other Investments

 

Where the Company has no significant influence, the investment is classified as other assets in the balance sheet and is carried under the measurement alternative which is measured at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. Investment income is recognized by the Company when the investee declares a dividend and the Company believes it is collectible. The Company periodically evaluates the carrying value of its investment under the measurement alternative method in the case of the investment in SHDEW and any decline in value is included in impairment of cost of the investment.

 

Government Subsidies

 

Government subsidies include cash subsidies received by the Company’s subsidiaries from local governments of the People's Republic of China (“PRC”).

 

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

 

Government subsidy was received in 2012 and the Company recorded it as deferred government subsidy in balance sheets. As of September 30, 2020, and December 31, 2019, the deferred government subsidy amounted to $4,867,097 and $4,751,214, respectively. The subsidy was used to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete the subsidized property development project by the agreed date.

 

Revenue Recognition

 

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

 

11 

 

 

All revenues represent gross revenues less sales and business tax.

 

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

 

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

 

Net Earnings (Loss) per Common Share

 

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

 

Recently Adopted Accounting Standards

 

In June 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets are now presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the former other-than-temporary-impairment model. We adopted this standard as of January 1, 2020, using a modified-retrospective approach. Adoption of the standard did not have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued a new accounting standard update which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new accounting standard on January 1, 2020, using the prospective method, and the adoption did not have a material impact on our consolidated financial statements.

 

In November 2018, the FASB issued Accounting Standards Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, “Revenue from Contracts with Customers” when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018 when we initially adopted Topic 606. The adoption did not have an impact on our consolidated financial statements.

 

New Accounting Pronouncements

 

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

 

NOTE 3– RESTRICTED CASH

 

The Company is required to maintain certain deposits with the bank for those home buyers that have applied for a housing loan from their bank. This deposit is a percentage to each home buyer’s bank loan for the purpose of purchasing a home in our project. Once we complete the transfer h to the buyer, these deposits become unrestricted. As of September 30, 2020 and December 31, 2019, the Company held cash deposits of $49,349,998 and $8,383,359, respectively.

 

12 

 

 

NOTE 4– TRANSACTIONAL FINANCIAL ASSETS

 

As of September 30, 2020, we had $51,876,026 invested in bank wealth management investment products. The investments have short term maturity periods and can be rolled into a maturity date of our choosing or automatically rolled into subsequent maturity periods. The annualized rate of return may range from 3.15% to 4.4% depending on the amount and time period invested.

 

NOTE 5- PROMISSORY DEPOSITS

 

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

 

NOTE 6 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

 

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located at the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The Company acquired the site and commenced construction of this project during the fiscal year of 2012. We sold 118 of 121 Phase 1 villas and pre-sold 82 of 84 Phase 2 villas as of November 30, 2020.

 

On March 13, 2014, the Company signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company obtained a right to develop the Guangxinglu (the “GXL”) project, which is located at 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartment. In 2016, the government issued a regulation prohibiting the by-unit sale of commercial-use buildings. The apartment unit sale for the GXL project was put on hold until the government reviewed our project’s status. During that time, we rented out any unsold apartment units while not recognizing the units previously sold before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in properties in Note 9. We also recognized all the units that were sold before the regulation in our financial statements for the period ended September 30, 2019.

 

In October 2018, HATX purchased the property in Huaian, Qingjiang Pu district with an area of 78,030 square meters. In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huaian property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679 units.

 

As of November 30, 2020, the Company pre-sold 672 out of 679 units of Tianxi Times project. And as of September 30, 2020, land-use rights included in the real estate property under development totaled $143,883,805.

 

NOTE 7 - OTHER RECEIVABLES AND DEPOSITS, NET

 

    September 30,     December 31,  
    2020     2019  
Advances to staff   $ 27,802       19,172  
Rental deposits     42,989       40,575  
Prepaid expense     58,879       318,424  
Prepaid tax     8,339,874       2,378,199  
Other receivables     3,775,915       4,779,431  
    $ 12,245,459     $ 7,535,801  

 

Other receivables and deposits as of September 30, 2020 and December 31, 2019 were stated net of allowance for doubtful accounts of $42,051 and $327,739, respectively.

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

    September 30,     December 31,  
    2020     2019  
Furniture and fixtures   $ 352,100     $ 175,150  
Computer and office equipment     344,807       203,581  
Motor vehicles     602,887       588,532  
Properties     2,221,622       2,168,726  
      3,521,415       3,135,990  
Less: Accumulated depreciation     (2,092,679 )     (1,932,140 )
    $ 1,333,496     $ 1,203,850  

 

13 

 

 

Depreciation and amortization expense for property and equipment amounted to $17,825 and $147,129 for the nine months ended September 30, 2020 and 2019, respectively.

 

NOTE 9 – INVESTMENT PROPERTIES, NET

 

    September 30,     December 31,  
    2020     2019  
Investment properties   $ 34,124,901     $ 33,312,403  
Less: Accumulated depreciation     (7,623,265 )     (6,363,357 )
    $ 26,501,636     $ 26,949,046  

 

Depreciation and amortization expense for investment properties amounted to $1,260,544 and $438,387 for the nine months ended September 30, 2020 and 2019, respectively.

 

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

 

The investments in unconsolidated affiliates primarily consist of WHYYL (49%) and SHDEW (19.91%). As of September 30, 2020, the investment amount in WHYYL and SHDEW were $0 and $13,010,975, respectively.

 

WHYYL is primarily developing a real estate project in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period. SHDEW is a company engaged principally in the manufacture and sales of skincare and cosmetic products. The Company has accounted for these investments using the measurement alternative method for the periods presented in this report as the Company cannot exercise significant influence over their activities

 

In 2011, the Company invested $4,697,686 to acquire a 49% equity interest in WHYYL to expand its operations to the real estate development business. As of September 30, 2020, the investment in WHYYL was $0.

 

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over ten million members as of September 30, 2020. SHDEW is developing its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW operates its own online shopping platform where consumers can purchase its cosmetics and skincare products as well as products imported into China.

 

NOTE 11– PROMISSORY NOTES PAYABLE

 

The promissory notes payable consists of the following unsecured notes to unrelated parties. Included in the balances are promissory notes with outstanding principal and unpaid interest of an aggregate of $1,468,407 and $1,433,445 as of September 30, 2020 and December 31, 2019, respectively.

 

The promissory note with a principal as of September 30, 2020 amounting to $734,204 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2020, and December 31, 2019, the outstanding principal and unpaid interest related to this promissory note amounted to $734,204 and $716,723, respectively.

 

The promissory note with a principal as of September 30, 2020 amounting to $734,204 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2020, and December 31, 2019, the outstanding principal and unpaid interest related to this promissory note amounted to $734,204 and $716,723, respectively.

 

For the nine months ended September 30, 2020, the interest expense related to these promissory notes was $NIL.

 

14 

 

 

 

NOTE 12– AMOUNTS DUE TO DIRECTORS

 

    September 30,     December 31,  
    2020     2019  
Lin Chi-Jung   $ 513,770     $ 1,469,315  
Pan, Yu-Jen     -       (28,669 )
Lin Hsin-Hung     21,283       32,349  
    $ 535,054     $ 1,472,995  

 

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

 

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

 

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

 

NOTE 13- OTHER PAYABLES AND ACCRUED EXPENSES

 

    September 30,     December 31,  
    2020     2019  
Accrued staff commission and bonus   $ 212,976     $ 221,674  
Rental deposits received     94,466       117,328  
Bid bond     127,751       222,184  
Dividends payable to non-controlling interest     197,581       192,877  
Other payables     32,114,789       13,777,035  
    $ 32,747,563     $ 14,531,098  

 

NOTE 14- ACCOUNT PAYABLE

 

Account payable was mostly derived from our property development of the Linyi project and the HATX project. As of September 30, 2020, and December 31, 2019, the Company’s account payable amounted to $8,390,162 and $4,347,678.

 

NOTE 15 – AMOUNT DUE TO AFFILIATES

 

The temporary borrowing, in the amount of $516,586 from JXSY is intercompany transfers for day to day operation.

 

NOTE 16 – CUSTOMER DEPOSITS

 

Customer deposits were mostly derived from our property development of the Linyi project and the HATX project, which was pre-sale collection from our customers. As of September 30, 2020, and December 31, 2019, the Company’s customer deposits amounted to $102,177,291 and $21,702,494.

 

NOTE 17 – INCOME TAX PAYABLE

 

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

 

NOTE 18– DEFERRED GOVERNMENT SUBSIDY

 

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

  

Government subsidy was received in 2012, and as of September 30, 2020 and December 31, 2019, the Company’s deferred government subsidy amounted to $4,867,097 and $4,751,214, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project, and are repayable if the Company fails to complete the subsidized property development project before the agreed date. The entire government subsidy is deferred and included as deferred government subsidy in consolidated balance sheets.

 

15 

 

 

NOTE 19- COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases certain of its office properties under non-cancellable operating lease arrangements. Payments under operating leases are expensed on a straight-line basis over the periods of their respective terms, and the terms of the leases do not contain rent escalation, or contingent rent, renewal, or purchase options. There are no restrictions placed upon the Company by entering into these leases. Rental expenses under operating leases for the nine months ended September 30, 2020 and 2019 were $210,502 and $247,709, respectively.

 

As of September 30, 2020, the Company had the following operating lease obligations.

 

    Amount  
Within one year   $ 1,938  
Two to five years     -  
    $ 1,938  

 

NOTE 20– STATUTORY RESERVE

 

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

 

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

 

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of September 30, 2020, and December 31, 2019, the Company’s statutory reserve fund was $3,194,604 and $3,194,604, respectively.

 

NOTE 21 - SEGMENT INFORMATION

 

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

 

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

 

    Three Months Ended September 30, 2020  
    Property                          
    Brokerage     Real Estate     Investment              
    Services     Development     Transaction     Others     Total  
Net revenues   $ 21,605     $ 86,918     $ -     $ -     $ 108,523  
Cost of revenues     (301,450 )     (276,698 )     -       -       (578,148 )
Gross profit     (279,845 )     (189,780 )     -       -       (469,625 )
                                         
Operating expenses     199,233       (850,885 )     -       -       (651,652 )
General and administrative expenses     (328,554 )     (424,111 )     -       (241,943 )     (994,608 )
Operating loss     (409,166 )     (1,464,776 )             (241,943 )     (2,115,885 )
                                         
Other income (expenses)                                        
Interest income     23,994       194,723       -       2,668       221,385  
Interest expense     -       -       -       -       -  
Other income, Net     38,791       1,321       23,402,495       -       23,682,294  
Total other (expenses) income     62,785       196,044       23,642,182       2,668       23,903,679  
                                         
Income (loss) before income taxes     (346,381 )     (1,268,732 )     23,642,182       (239,275 )     21,787,794  
Income tax     176,864       -       -       -       176,864  
Net Income( loss)   $ (169,517 )   $ (1,268,732 )   $ 23,642,182     $ (239,275 )   $ 21,964,658  

 

16 

 

 

    Nine Months Ended September 30, 2020  
    Property                          
    Brokerage     Real Estate     Investment              
    Services     Development     Transaction     Others     Total  
Net revenues   $ 616,105     $ 186,089     $ -     $ -     $ 802,194  
Cost of revenues     (871,972 )     (821,619 )     -       -       (1,693,591 )
Gross profit     (255,867 )     (635,530 )     -       -       (891,397 )
                                         
Operating expenses     (779,422 )     (2,128,180 )     -       -       (2,907,602 )
General and administrative expenses     (954,158 )     (911,301 )     -       (336,668 )     (2,202,127 )
Operating loss     (1,989,447 )     (3,675,011 )             (336,668 )     (6,001,126 )
                                         
Other income (expenses)                                        
Interest income     50,661       318,622       -       5,614       374,897  
Interest expense     -       -               -          
Other income, Net     22,814       4,370       24,005,239               24,032,423  
Total other (expenses) income     73,475       322,992       24,005,239       5,614       24,407,320  
                                         
Income (loss) before income taxes     (1,915,971 )     (3,352,019 )     24,005,239       (331,054 )     18,406,194  
Income tax     466,590       -       -       -       466,590  
Net Income( loss)   $ (1,449,381 )   $ (3,352,019 )   $ 24,005,239     $ (331,054 )   $ 18,872,784  

 

    Three Months Ended September 30, 2019  
    Property                          
    Brokerage     Real Estate     Investment              
    Services     Development     Transaction     Others     Total  
Net revenues   $ 537,403     $ 247,242     $ -     $ -     $ 784,645  
Cost of revenues     (847,169 )     (294,587 )     -       -       (1,141,756 )
Gross profit     (309,766 )     (47,345 )     -       -       (357,111 )
                                         
Operating expenses     (616,556 )     (419,938 )     -       (67 )     (1,036,561 )
General and administrative expenses     (2,680,324 )     (279,395 )     -       (59,889 )     (3,019,608 )
Operating loss     (3,606,646 )     (746,678 )             (59,956 )     (4,413,280 )
                                         
Other income (expenses)                                        
Interest income     47,045       27,392       -       2,644       77,081  
Interest expense     -       -       -       -       -  
Other income, Net     803,640,       (57,503 )     315,767       -       1,061,904  
Equity in net income (loss) of unconsolidated affiliates     -       -       -       -       -  
Total other (expenses) income     850,685       (30,111 )     315,767       2,644       1,138,985  
                                         
Income (loss) before income taxes     (2,755,961 )     (776,789 )     315,767       (57,312 )     (3,274,295 )
Income tax     34,125       -       -       -       34,125  
Net Income( loss)   $ (2,721,836 )   $ (776,789 )   $ 315,767     $ (57,312 )   $ (3,240,170 )

 

17 

 

 

    Nine Months Ended September 30, 2019  
    Property                          
    Brokerage     Real Estate     Investment              
    Services     Development     Transaction     Others     Total  
Net revenues   $ 588,059     $ 31,836,014     $ -     $ -     $ 32,424,073  
Cost of revenues     (521,301 )     (25,709,956 )     -       -       (26,231,257 )
Gross profit     66,758       6,126,058       -       -       6,192,816  
                                         
Operating expenses     (428,320 )     (944,101 )     -       (253 )     (1,372,674 )
General and administrative expenses     (3,376,886 )     (5,481,622 )     -       (282,892 )     (9,141,400 )
Operating loss     (3,738,448 )     (299,665 )             (283,145 )     (4,321,258 )
                                         
Other income (expenses)                                        
Interest income     24,674       54,962       -       8,543       88,179  
Interest expense     -       -               -          
Other income, Net     35,512       (50,854 )     1,588,756               1,573,414  
Equity in net income (loss) of unconsolidated affiliates     -       -               -       -  
Total other (expenses) income     60,186       4,108       1,588,756       8,543       1,661,593  
                                         
Income (loss) before income taxes     (3,678,262 )     (295,557 )     1,588,756       (274,602 )     (2,659,665 )
Income tax     64,264       -       -       -       64,264  
Net Income( loss)   $ (3,613,998 )   $ (295,557 )   $ 1,588,756     $ (274,602 )   $ (2,595,401 )

  

    Property                          
    Brokerage     Real Estate     Investment              
    Services     Development     Transaction     Others     Total  
As of September 30, 2020                                        
Real estate property under development   $ -     $ 143,883,805     $ -     $ -     $ 143,883,805  
Total assets     5,187,642       172,505,693       65,330,166       66,901,620       309,925,121  
                                         
As of September 30, 2019                                        
Real estate property under development     -       78,919,736       -       -       78,919,736  
Total assets   $ 9,846,321     $ 60,031,914     $ 39,921,016     $ 68,472,011     $ 178,271,262  

 

NOTE 22 – RELATED PARTY TRANSACTIONS

 

On July 15, 2020, SHDEW passed a shareholder resolution to issue a cash dividend to its shareholders. The Company, on August 4, 2020, through its subsidiaries SHSY and LYRL, received RMB 104,600,000 (approximately USD 15,359,540) and RMB 60,509,600 (approximately USD 8,885,273), respectively.

 

We rented an office of nearly 192 square meters in downtown Shanghai for displaying purpose from Mrs. Zhang Shuqing, our related party in the year of 2020.

 

NOTE 23 – SUBSQUENT EVENTS

 

On January 27, 2021, the Company paid RMB100,000,000 in cash to Mr. Lin as part of the bonus of RMB150,000,000 (approximately USD21,167,305) authorized by the Board of Directors on April 27, 2020 for his contributions to the Company, including Mr. Lin’s initiation and supervision of the Company’s investment in Shanghai Da Er Wei Trading Company Limited (“SHDEW”). The Bonus is equivalent to 15% of the annual dividends received from SHDEW from 2016 through 2019. The remaining RMB50,000,000 balance of the Bonus may be paid in cash or common stock of the Company.

 

18 

 

 

 

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

 

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

 

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

 

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

  

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

 

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

 

OVERVIEW

 

In October 2004, the former shareholders of Sunrise Real Estate Development Group, Inc. (Cayman Islands) (“CY-SRRE”) and LIN RAY YANG Enterprise Ltd. (“LRY”) acquired a majority of our voting interests in share exchange. Before the completion of the share exchange, SRRE had no continuing operations, and its historical results would not be meaningful if combined with the historical results of CY-SRRE, LRY and their subsidiaries.

 

As a result of the acquisition, the former owners of CY-SRRE and LRY hold a majority interest in the combined entity. Generally accepted accounting principles require in certain circumstances that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to have purchased SRRE. However, SRRE remains the legal entity and the Registrant for Securities and Exchange Commission reporting purposes. The historical financial statements prior to October 5, 2004 are those of CY-SRRE and LRY and their subsidiaries. All equity information and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of CY-SRRE and LRY.

 

SRRE and its subsidiaries, namely, CY-SRRE, LRY, Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”), Shanghai Shang Yang Real Estate Consultation Company, Ltd. (“SHSY”), Suzhou Gao Feng Hui Property Management Company, Ltd, (“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company (“SZSY”), Suzhou Xin Ji Yang Real Estate Consultation Company, Ltd. (“SZXJY”), Linyi Shang Yang Real Estate Development Company Ltd (“LYSH”), Shangqiu Shang Yang Real Estate Consultation Company, Ltd., (“SQSY”), Wuhan Gao Feng Hui Consultation Company Ltd.(WHGFH), Sanya Shang Yang Real Estate Consultation Company, Ltd. (“SYSH”), Shanghai Rui Jian Design Company, Ltd., (“SHRJ”), Wuhan Yuan Yu Long Real Estate Development Company, Ltd. (“WHYYL”), and Shanghai Da Er Wei Trading Company Limited (“SHDEW”) are sometimes hereinafter collectively referred to as “the Company”, “we”, “our”, or “us”.

 

The principal activities of the Company are real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC.

 

RECENT DEVELOPMENTS

 

Our major business is real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC. Additionally, we expand our business to the field of financial activities such as entity investment, fund management, financial services and so on.

 

19 

 

 

Since we started our agency sales operations in 2001, we have established a reputation as a sales and marketing agency for new projects. With our accumulated expertise and experience, we intend to take a more aggressive role by participating in property investments. We plan to select property developers with outstanding qualifications as our strategic partners, and continue to build strength in design, planning, positioning and marketing services.

 

In October 2011, we established LYSY and own 24% of the company. 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 May 2020. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. The LYSY project has divided into phase 1 and phase 2. The phase 1 has completed construction of 121 units in May 2015 and the phase 2 will complete construction of 84 units at the end of the year of 2020. The sales of phase 1 started in November 2013; we have sold 118 units out of all 121 units by November 30, 2020. We have pre-sold 82 units out of all 84 units during phase 2 by November 30, 2020. In September 2020, LYSY purchased a land of area 54,314 square meters for RMB228,120,000 (approximately USD32,197,146), which is attached to the south border of our developed land.

 

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, 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 building of apartments. 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. Since then, we rented out the unsold apartment units while not recognizing the units previously sold before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in properties in Note 9. We also recognized all the units that were sold before the regulation in our financial statement of the second quarter in 2019.

 

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 develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products from third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW has an online shopping app, “庭秘密,” where consumers can purchase its cosmetics and skincare products as well as products imported into China.

 

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 Qingjiang Pu district, Huai’an city, with an area of 78,030 square meters and the Company, through HATX, invested 78.46% shares in HAZB. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679 units. As of November 30, 2020, the Company pre-sold 672 out of 679 units.

 

In December 2019, SHDEW issued stock to certain employees pursuant to an employee stock bonus. This stock issuance resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%. The financial statements for 2018 will follow the equity method for the accounting treatment regarding our investment in SHDEW and from the beginning of 2019 and going forward, we will be using the measurement alternative method instead. This change in accounting method may have an impact in our financial statements.

 

RECENTLY ADOPTED ACCOUNTING STANDARDS

 

In June 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets are now presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the former other-than-temporary-impairment model. We adopted this standard as of January 1, 2020, using a modified-retrospective approach. Adoption of the standard did not have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued a new accounting standard update which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new accounting standard on January 1, 2020, using the prospective method, and the adoption did not have a material impact on our consolidated financial statements.

 

In November 2018, the FASB issued Accounting Standards Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, “Revenue from Contracts with Customers” when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018 when we initially adopted Topic 606. The adoption did not have an impact on our consolidated financial statements.

 

20 

 

 

NEW ACCOUNTING PRONOUNCEMENTS

 

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

 

APPLICATION OF CRITICAL ACCOUNTING POLICIES

 

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

 

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

 

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. 

 

21 

 

 

Real Estate Property under Development

 

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

 

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

 

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

 

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

 

Government Subsidies

 

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

 

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

 

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

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Deferred tax assets or liabilities were off-set by a 100% valuation allowance; therefore there has been no recognized benefit as of December 31, 2020 and 2019.

 

RESULTS OF OPERATIONS

 

We provide the following discussion and analyses of our changes in financial condition and results of operations for the period ended September 30, 2020 with comparisons to the period ended September 30, 2019.

 

Revenue

 

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

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2020     % to
total
    2019     % to
total
    %
change
    2020     % to
total
    2019     % to
total
    %
change
 
Agency sales     44,708       56       123,152       17       (64 )     282,650       35       231,802       1       22  
Property management     35,503       44       199,432       28       (82 )     519,544       65       390,113       1       33  
House sales     -       0       402,243       55       (100 )     -       0       31,802,159       98       (100 )
Net revenues     80,211       100       724,827       100       (89 )     802,194       100       5,162,387       100       (98 )

 

22 

 

 

The net revenue for the third quarter of 2020 was $80,211, which decreased 89% from $724,827 from the third quarter of 2019. The net revenue for the first three quarters of 2020 was $802,194, which represented a decrease of 98% from $5,162,387 from the first three quarters of 2019. For the third quarter of 2020, agency sales and property management represented 56% and 44% of our net revenues, respectively. For the first three quarters of 2020, agency sales and property management represented 35% and 65% of our net revenues, respectively. The decrease in net revenue for the first three quarters of 2020 was mainly due to the lack of any house sales r.

 

Agency sales

 

For the third quarter and first three quarters of 2020, 56% and 35%, respectively, of our net revenues were attributable to agency sales. As compared with the same period in 2019, net revenue of agency sales decreased 64% and increase 22%, respectively, for the third quarter and the first three quarters of 2020.

 

Property Management

 

Property management represented 44% of our revenue for the first three quarter of 2020 and revenue from property management increased by 33% compared with the same period in 2019.

 

House sales

 

For the first three quarters of 2020, the Company has not recognized any house sales. House sales represented 0% of our revenue for the first three quarters of 2020.

 

Cost of Revenue

 

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

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2020     % to
total
    2019     % to
total
    %
change
    2020     % to
total
    2019     % to
total
    %
change
 
Agency sales     137,119       26       107,118       14       28       395,422       23       185,502       1       113  
Property management     395,502       74       730,626       98       (46 )     1,298,168       77       913,852       3       42  
House sales     -       0       (88,508 )     (12 )     (100 )     -       0       25,131,903       96       (100 )
Cost of revenues     532,622       100       749,236       100       (29 )     1,693,591       100       26,231,257       100       (93 )

  

The cost of revenue for the third quarter of 2020 was $532,622, which decreased 29% from $749,236 during the third quarter of 2019. The cost of revenues for the first three quarters of 2020 was $1,693,591, which decreased 93% from $26,231,257 during the first three quarters of 2019. For the third quarter of 2020, agency sales, property management, and house sales represented 26%, 74% and 0% of our cost of revenue, respectively. For the first three quarters of 2020, agency sales, property management, and house sales represented 23% and 77% and 0% of our cost of revenue, respectively. The decrease in the cost of revenue in the third quarter and in the first three quarters of 2020 was mainly due to none of cost of sales revenue was recognized.

 

Agency sales

 

The cost of revenue for agency sales for the first three quarters of 2020 was $395,422, an increase of 113% from $185,502 in the same period in 2019. This increase was mainly due to the increase in our commissions from the increase in agency sales for the first three quarters of 2020.

 

Property management

 

The cost of revenue for property management for the first three quarters of 2020 was $1,298,168, an increase of 42% from $913,852 in the same period in 2019. This was mainly due to more business for the property management as a whole.

 

Operating Expenses

 

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

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2020     % to
total
    2019     % to
total
    %
change
    2020     % to
total
    2019     % to
total
    %
change
 
Agency sales     22,138       4       23,944       4       (8 )     69,279       2       85,450       6       (19 )
Property management     129,417       23       155,171       28       (17 )     1,260,001       43       454,278       33       177  
House sales     408,022       73       360,576       68       13       1,578,322       54       832,946       61       89  
Operating expenses     559,577       100       548,691       100       4       2,907,602       100       1,372,674       100       112  

 

23 

 

 

The operating expenses for the third quarter of 2020 were $559,577, which increased 4% from $548,691 for the same period in 2019. The total operating expenses for the first three quarters of 2020 were $2,907,602, which increased 112% from $1,372,674 for the same period in 2019. For the third quarter of 2020, agency sales, property management, and house sales represented 4%, 23%, and 73% of the total operating expenses, respectively. For the first three quarters of 2020, agency sales, property management, and house sales represented 2%, 43%, and 54% of the total operating expense, respectively. The increase in the overall operating expense resulted from the increase in house sales and property management for the third quarter and the first three quarters of 2020.

  

Agency sales

 

The operating expenses for agency sales for the first three quarters of 2020 were $69,279, a decrease of 19% from $85,450 in the same period in 2019.

 

Property management

 

The operating expenses for property management for the first three quarters of 2020 were $1,260,001, an increase of 117% from $454,278 in the same period in 2019. The increase is mainly due to the consulting expenses relating to the business.

 

House sales

 

The operating expenses for house sales for the first three quarters of 2020 were $1,578,322 which increased 89% from $832,946 in the same period in 2019. The increase is mainly due to the operations of HATX project.

 

General and Administrative Expenses

 

General and administrative expenses in the first three quarters of 2020 were $2,202,127, a decrease of 76% from $9,141,400, in the same period in 2019.

 

Other income, net

 

Other income for the first three quarters of 2020 was $23,402,495, an increase of 1427% from a gain of $1,573,414 for the same period in 2019. The increase in income was mainly due to the dividend received from SHDEW and the gain of transactional financial assets.

 

Major Related Party Transaction

 

A related party is an entity that can control or significantly influence the management or operating policies of another entity to the extent one of the entities may be prevented from pursuing its own interests. A related party may also be any party the entity deals with that can exercise that control.

 

Amount due to directors

 

The total amount due to directors for September 30, 2020 was $535,054. The amounts due are as follows:

 

Amount due to Lin Chi-Jung

 

The balances due to Lin Chi-Jung consists of temporary advances at the amount of $513,770 and are unsecured, interest-free and have no fixed term of repayment.

 

Amount due to Lin Hsin Hung

 

The amount of $21,283 represents the salary payable to Lin Hsin Hung.

  

Amount due to affiliate

 

The amount due to JXSY, in the amount of $516,586 were intercompany transfers for day to day operation.

 

24 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the first three quarters of 2020, our principal sources of cash were revenues from our house sales collection and property management business, as well as the dividend receipt from the affiliates. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.

 

We ended the period with a cash position of $18,872,784.

 

The Company’s operating activities provided cash in the amount of $59,978,643, which was primarily attributable to the receipts in advance of pre-sale of real estate development.

 

The Company’s investing activities used cash resources of $24,433,581, which was primarily attributable to the investment in transactional financial assets.

 

The Company’s financing activities used cash resources of $39,641,623, which was primarily attributable to the restricted cash of our real estate developments.

 

The potential cash needs for 2020 are for investment in transactional financial assets, construction for our development projects in the Huai’an project (HATX) and the Linyi project.

 

Capital Resources

 

Considering our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months. If our business otherwise grows more rapidly than we currently predict, we plan to raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings. We will also consider raising funds through credit facilities obtained with lending institutions. There can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity or obtain funds that are with terms satisfactory to management and our board of directors.

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

A. Material weaknesses

 

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we are going to undertake the following remediation initiatives:

  

  · hiring additional personnel with sufficient knowledge and experience in U.S. GAAP; and

 

  · providing ongoing training course in U.S. GAAP to existing personnel, including our Chief Financial Officer and Financial Controller.

 

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

 

B. Evaluation of Disclosure Controls and Procedures

 

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

 

25 

 

 

C. Changes in Internal Control over Financial Reporting

 

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

 

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

  

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2019.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

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

 

None.

   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

26 

 

 

ITEM 6. EXHIBITS

 

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

 

* Filed herewith

 

SIGNATURES

 

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

 

SUNRISE REAL ESTATE GROUP, INC.

 

Date: April 12, 2021  
By: /s/ Zhang, Jian  
Zhang, Jian, Chief Executive Officer, Principal Executive Officer  
 
Date: April 12, 2021  
By: /s/ Mi, Yong Jun  
Mi, Yong Jun, Chief Financial Officer, Principal Financial Officer  

 

27 

 

Sunrise Real Estate (PK) (USOTC:SRRE)
Historical Stock Chart
From Aug 2021 to Sep 2021 Click Here for more Sunrise Real Estate (PK) Charts.
Sunrise Real Estate (PK) (USOTC:SRRE)
Historical Stock Chart
From Sep 2020 to Sep 2021 Click Here for more Sunrise Real Estate (PK) Charts.