Quarterly Report (10-q)

0.020.470.010.45686919256869192568691925686919250001083490--12-312022Q2falsesrreCommon Stock, Par Value: 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

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

For the transition period from __________ to __________

Commission File Number 000-32585

SUNRISE REAL ESTATE GROUP, INC.

(Exact name of registrant as specified in its charter)

Texas

75-2713701

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

No. 18, Panlong Road

Shanghai, PRC 201702

(Address of Principal Executive Offices) (Zip Code)

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

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


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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

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

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

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

Table of Contents

FORM 10-Q

For the Quarter Ended June 30, 2022

INDEX


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for The Six Months Ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for The Six Months and Three Months Ended June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for The Six Months and Three Months Ended June 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for The Six Months Ended June 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION		28
Item 1.	Legal Proceedings	28
Item 1A	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

SIGNATURES		30

Table of Contents

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)


	June 30,		December 31,
	2022		2021
ASSETS

Current assets
Cash and cash equivalents	$	13,271,661	$	24,901,044
Restricted cash (Note 3)		54,787,756		73,010,575
Transactional financial assets (Note 4)		14,229,784		13,890,946
Accounts receivable		50,233		65,850
Real estate property under development (Note 5)		144,238,751		178,685,026
Amount due from an unconsolidated affiliate		17,202,429		15,837,851
Other receivables and deposits, net (Note 6)		14,441,733		15,241,563
Total current assets		258,222,347		321,632,855

Property and equipment, net (Note 7)		1,195,907		1,238,416
Investment properties, net (Note 8)		24,275,825		26,340,669
Deferred tax assets (Note 18)		—		853,364
Investment in an unconsolidated affiliate (Note 9)		13,232,118		14,320,943
Goodwill (Note 11)		1,493,353		1,855,655
Other investments (Note 10)		677,317		712,981
Total assets	$	299,096,867	$	366,954,883

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Promissory notes payable (Note 12)		1,490,002		1,568,455
Accounts payable (Note 15)		23,149,217		25,120,074
Amounts due to directors (Note 13)		453,607		525,396
Amount due to an affiliate (Note 16)		22,038,668		20,489,304
Customer deposits (Note 17)		72,062,492		126,175,201
Other payables and accrued expenses (Note 14)		7,940,286		8,819,132
Other taxes payable		250,799		404,833
Income taxes payable (Note 18)		1,417,374		683,957
Dividends payable		10,303,789		10,303,789
Total current liabilities		139,106,234		194,090,141

Long-term income tax payable (Note 18)		1,509,791		2,243,118
Total liabilities		140,616,025		196,333,259

Commitments and contingencies (Note 19)

Shareholders’ equity
Common stock, par value $0.01 per share; 200,000,000 shares Authorized; 68,691,925 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		686,919		686,919
Additional paid-in capital		8,050,008		8,050,008
Statutory reserve (Note 20)		3,986,618		3,986,618
Retained Earnings		117,281,967		117,729,224
Accumulated other comprehensive income		15,850,175		24,738,423
Total deficit of Sunrise Real Estate Group, Inc.		145,855,687		155,191,192
Non-controlling interests		12,625,155		15,430,432
Total shareholders’ equity		158,480,842		170,621,624
Total liabilities and shareholders’ equity	$	299,096,867	$	366,954,883

See accompanying notes to consolidated financial statements.

Table of Contents

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenues	$	34,639,531	$	5,912,564	$	45,879,936	$	8,366,933
Cost of revenues		(30,085,259)		(5,129,429)		(40,745,054)		(7,430,487)
Gross profit (loss)		4,554,272		783,135		5,134,882		936,446

Operating expenses		(223,156)		(813,429)		(952,585)		(1,912,086)
General and administrative expenses		113,603		(748,504)		(1,788,700)		(1,615,702)
Operating profit (loss)		4,444,719		(778,798)		2,393,597		(2,591,342)

Other income (expenses)
Interest income		211,659		252,810		467,131		523,474
Interest expense		(582,736)		—		(2,344,872)		—
Equity in net gain (loss) of an affiliate		(434)		33,578,636		22,079		33,109,692
Other income (loss), net		(1,805,235)		356,327		(1,776,436)		502,985
Total other income		(2,176,746)		34,187,773		(3,632,098)		34,136,151

Income (loss) before income taxes		2,267,973		33,408,975		(1,238,501)		31,544,809
Income tax benefit (expense)		(1,333,194)		(775,912)		(1,333,212)		(603,593)
Net income (loss)		934,779		32,633,063		(2,571,713)		30,941,216
Less: Net (income) loss attributable to non-controlling interests		484,077		(328,054)		2,124,456		(77,644)
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.	$	1,418,856	$	32,305,009	$	(447,257)	$	30,863,572

Net Income (loss)		934,779		32,633,063		(2,571,713)		30,941,216
Other comprehensive Income (loss) Foreign currency translation adjustment		(10,412,132)		2,491,395		(9,569,069)		1,425,097
Discontinuation of the equity method for an investment		—		—		—		—
Comprehensive Income (loss)		(9,477,353)		35,124,458		(12,140,782)		32,366,313

Less: Comprehensive Income (loss) attributable to non-controlling interests		1,248,496		(392,605)		2,805,277		(1,834,462)
Total comprehensive Income (loss) attributable to shareholders		(8,228,857)		34,731,853		(9,335,505)		30,531,851
Earnings per share – basic and fully diluted	$	(0.02)	$	0.47	$	(0.01)	$	0.45

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.

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SUNRISE REAL ESTATE GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


											Accumulated				Total
	Common Stock				Additional				Retained		Other				Stockholders’
	Number of				Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued		Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, December 31, 2021		68,691,925	$	686,919	$	8,050,008	$	3,986,618	$	117,729,224	$	24,738,423	$	15,430,432	$	170,621,624
Profit (loss) for the year										(447,257)		—		(2,124,456)		(2,571,713)
Discontinuation of the equity method for an investment		—		—		—		—		—		—		—		—
Capital contribution from non-controlling interests of new consolidated subsidiaries		—		—		—		—		—		—		—		—
Dividend		—		—		—		—		—		—		—		—
Translation of foreign operations		—		—		—		—		—		(8,888,248)		(680,821)		(9,569,069)
Balance, June 30, 2022		68,691,925		686,919		8,050,008		3,986,618		117,281,967		15,850,175		12,625,155		158,480,842


										Accumulated				Total
	Common Stock			Additional				Retained		Other				Stockholders’
	Number of			Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued	Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, March 31, 2022	68,691,925	$	686,919	$	8,050,008	$	3,986,618	$	115,928,818	$	25,497,888	$	13,873,651	$	168,023,902
Profit (loss) for the year	—		—		—		—		1,353,149		—		(484,077)		869,072
Translation of foreign operations	—		—		—		—		—		(9,647,713)		(764,419)		(10,412,132)
Discontinuation of the equity method for an investment	—		—		—		—		—		—		—		—
Dividend	—		—		—		—		—		—		—		—
Capital contribution to a new consolidated subsidiary	—		—		—		—		—		—		—		—
Balance, June 30, 2022	68,691,925		686,919		8,050,008		3,986,618		117,281,967		15,850,175		12,625,155		158,480,842

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


											Accumulated				Total
	Common Stock				Additional				Retained		Other				Stockholders’
	Number of				Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued		Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, December 31, 2020		68,691,925	$	686,919	$	7,570,008	$	3,986,618	$	100,291,529	$	22,981,737	$	2,261,537	$	137,778,348
Profit (loss) for the year		—		—		—		—		30,863,572		—		77,644		30,941,216
Discontinuation of the equity method for an investment		—		—		—		—		—		—		—		—
Capital contribution from non-controlling interests of new consolidated subsidiaries		—		—		—		—		—		—		—		—
Dividend		—		—		—		—		(6,869,193)		—		—		(6,869,193)
Translation of foreign operations		—		—		—		—		—		(331,732)		1,756,818		1,425,097
Balance, June 30, 2021		68,691,925		686,919		7,570,008		3,986,618		124,285,908		22,650,016		4,095,999		163,275,468


										Accumulated				Total
	Common Stock			Additional				Retained		Other				Stockholders’
	Number of			Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued	Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, March 31, 2021	68,691,925	$	686,919	$	7,570,008	$	3,986,618	$	98,896,316	$	20,223,172	$	3,703,394	$	135,066,427
Profit (loss) for the year	—		—		—		—		32,258,785		—		328,054		32,586,839
Translation of foreign operations	—		—		—		—		—		2,426,844		64,551		(6,869,193)
Discontinuation of the equity method for an investment	—		—		—		—		—		—		—		—
Dividend	—		—		—		—		(6,869,193)		—		—		(6,869,193)
Capital contribution to a new consolidated subsidiary	—		—		—		—		—		—		—		—
Balance, June 30, 2021	68,691,925		686,919		7,570,008		3,986,618		124,285,908		22,650,016		4,095,999		163,275,468

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net Income (loss)	$	(2,571,713)	$	30,941,216

Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		820,935		3,354,029
Loss (Gain) on disposal of property, plant and equipment		16,660		6,577
Equity loss (gain) from investments in unconsolidated affiliate		—		(33,901,955)
Changes in assets and liabilities
Accounts receivable		12,768		32,662
Real estate property under development		26,428,443		(15,189,068)
Customer Deposits		(49,525,305)		42,451,371
Amount due from unconsolidated affiliates		432,503		653,333
Other receivables and deposits		38,807		(51,583,755)
Deferred tax assets		839,914		(281,677)
Net cash from directors		(47,150)		(23,077,991)
Accounts payable		(740,128)		(3,437,334)
Other payables and accrued expenses		(453,503)		(429,214)
Dividends		533,975		—
Other taxes payable		(138,609)		(271,713)
Income taxes payable		61,983		(352,695)
Net cash provided by (used in) operating activities		(24,290,420)		(51,086,214)

Cash flows from investing activities
Purchases of property and equipment		(85,166)		(29,144)
Net Cash from Transactional financial assets		(1,070,930)		(4,116,473)
Acquisition of investment		—		—
Dividend distribution of affiliate		—		16,469,255
Net cash provided by (used in) investing activities		(1,156,096)		12,323,638

Cash flows from financing activities
Restricted cash		15,096,326		25,243,758
Dividends paid to noncontrolling interests		—		(6,869,193)
Net cash provided (used in) financing activities		15,096,326		18,374,565

Effect of exchange rate changes on cash and cash equivalents		(1,279,193)		(2,140,394)

Net increase in cash and cash equivalents		(11,629,383)		(22,528,405)
Cash and cash equivalents at beginning of period		24,901,044		40,369,612
Cash and cash equivalents at end of period	$	13,271,661	$	17,841,207

Supplemental disclosure of cash flow information
Income taxes paid	$	1,333,212	$	345,095
Interest paid		—		—

See accompanying notes to consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

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

As of June 30, 2022, the Company has the following major subsidiaries and equity investment.


			% of Ownership	Relationship
	Date of	Place of	held by the	with the
Company Name	Incorporation	Incorporation	Company	Company	Principal Activity
Sunrise Real Estate Development Group, Inc. (CY-SRRE)	April 30, 2004	Cayman Islands	100%	Subsidiary	Investment holding
Lin Ray Yang Enterprise Limited (“LRY”)	November 13, 2003	British Virgin Islands	100%	Subsidiary	Investment holding
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)	August 20, 2001	PRC	100%	Subsidiary	Property brokerage services
Shanghai Shang Yang Real Estate consultation Company Limited (“SHSY”)	February 5, 2004	PRC	100%	Subsidiary	Property brokerage services
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”)	November 24, 2006	PRC	75.25%¹	Subsidiary	Property brokerage and management services
Suzhou Xi Ji Yang Real Estate Consultation Company Limited (“SZXJY”)	June 25, 2004	PRC	75%	Subsidiary	Property brokerage services
Linyi Shangyang Real Estate Development Company Limited (“LYSY”)	October 13, 2011	PRC	34%²	Subsidiary	Real estate development
Sanya Shang Yang Real Estate Consultation Company Limited (“SYSY”)	September 18, 2008	PRC	100%	Subsidiary	Property brokerage services
Shanghai Rui Jian Design Company Limited (“SHRJ”)	August 15, 2011	PRC	100%	Subsidiary	Property brokerage services
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)	March 6, 2012	PRC	100%	Subsidiary	Investment holding
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)	December 28, 2009	PRC	49%	Equity investment	Real estate development
Zhong Ji Pu Fa Real Estate Company Limited (SHGXL)	March 13, 2012	PRC	100%	Equity investment	Real estate development.
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)	June 6, 2013	PRC	19.91%³	Equity investment	Import and export trading
Shanghai Hui Tian (“SHHT”)	July 25, 2014	PRC	100%	Subsidiary	Investment holding
Shanghai Taobuting Media Co., Ltd (TBT)	July 1, 2020	PRC	7.5%	Subsidiary	Streaming platform
Huai’an Zhanbao Industrial Co., Ltd. (“HAZB”)	December 6, 2018	PRC	78.46%⁴	Subsidiary	Investment holding
Huai’an Tianxi Real Estate Development Co., Ltd (“HATX”)	October, 2018	PRC	78.46%⁴	Subsidiary	Investment holding

1	After an equity transaction in February 2015, the Company held equity in subsidiaries of SZSY as follows: SZXJY: 49%, SHXJY: 26% and Sunrise Real Estate Development Group, Inc. (CY-SRRE): 12.5%, totaling 75.25% equity interest in SZSY.

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

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

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

The accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, 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.

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In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Sunrise Real Estate as of June 30, 2021 and the results of operations for the six months ended June 30, 2022 and 2021, and the cash flows for the six months ended June 30, 2022 and 2021. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results which may be expected for the entire fiscal year.

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

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

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

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

Foreign Currency Translation and Transactions

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

Foreign currency transactions during the period are translated into each company’s denominated currency at the exchange rates ruling at the transaction dates. 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 June 30, 2022 and December 31, 2021 are $1: RMB6.7114 and $1: RMB6.3757, respectively.

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

Real Estate Property under Development

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

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.

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

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

In October 2011, we established LYSY and own 34% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. The LYSY project has divided into three phases. Phase 1 has completed construction of 121 units in May 2015 and sold 119 units out of all 121 units at the end of July 31, 2022. Phase 2 was divided into north and south area and completed construction of 84 units at the end of 2020. All units have been sold during phase 2. As of July 31, 2022. Phase 3 began construction in first quarter of 2021 and pre-sold 20 units out of 51 units as of July 31, 2022. In September 2020, the Company expanded the Linyi project by purchasing additional 54,312 square meters in the amount of 228 million RMB for future development.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters (“sqm”). In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment, and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of July 31, 2022, the Company sold and pre-sold 506 units and 163 units, respectively, out of 679 units of the first phase and pre-sold 364 out of 873 of the second phase

Long Term Investments

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

Investment in Unconsolidated Affiliates

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

When the Company’s share of losses in an affiliate equals or exceeds its interest in the affiliate, the Company did 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.

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Revenue Recognition

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

All revenues represent gross revenues less sales and business tax.

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

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

Net Earnings (Loss) per Common Share

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

Recently Adopted Accounting Standards

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

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

New Accounting Pronouncements

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

NOTE 3 – RESTRICTED CASH

The Company is required to maintain certain deposits with the bank for those home buyers that has applied for a housing loan from their bank. This deposit is a percentage to each home buyer’s bank loan for the purpose of purchasing in our project. Once we complete the handover to the buyer, these deposits become unrestricted. As of June 30, 2022, and December 31, 2021, the Company held cash deposits of $54,787,756 and $73,010,575, respectively.

NOTE 4 – TRANSACTIONAL FINANCIAL ASSETS

As of June 30, 2022, we have $14,229,784 invested in bank wealth management investment products. The investments are short termed with maturity periods and can be rolled into a maturity date of our choosing or automatically rolled into subsequent maturity period. The annualized rate of return may range from 3.15% to 4.4% depending on the amount and time period invested.

NOTE 5 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The Company acquired the site and commenced construction of this project during the fiscal year of 2012. We sold 119 of 121 Phase 1 villas and sold all 84 units in Phase 2 as of July 31, 2022. For the Phase 3, we pre-sold 20 units out of 50 units as of July 31, 2022.

In the first quarter of 2019, we purchased the property of HATX with the land use rights. As of June 30, 2022, land use rights included in real estate property under development totaled $144,238,751.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters. In December 2018 we established HAZB with a 78.46% ownership for the purpose of real estate investment and in March 2019, HAZB purchased 100% of HATX and tis land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679 units, and started its second phase in middle 2020 with a GFA of 99,123 sqm totaling 873 units. As of July 31, 2022, the Company sold and pre-sold 506 and 163, respectively, out of 679 units of first phase and pre-sold 364 out of 873 of second phase.

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NOTE 6 - OTHER RECEIVABLES AND DEPOSITS, NET


	June 30,		December 31,
	2022		2021
Advances to staff	$	427,931		37,573
Rental deposits		763,622		803,515
Prepaid expense		27,524		21,332
Prepaid tax		11,009,498		12,610,075
Other receivables		2,213,159		1,769,258
	$	14,441,733	$	15,241,563

Other receivables and deposits as of June 30, 2022 and December 31, 2021 were stated net of allowance for doubtful accounts of $489,814 and $515,604, respectively.

NOTE 7 – PROPERTY AND EQUIPMENT, NET


	June 30,		December 31,
	2022		2021
Furniture and fixtures	$	255,175	$	233,678
Computer and office equipment		356,655		368,165
Motor vehicles		582,180		737,987
Properties		2,254,294		2,372,989
		3,448,303		3,712,820
Less: Accumulated depreciation		(2,252,396)		(2,474,404)
	$	1,195,907	$	1,238,416

Depreciation and amortization expense for property and equipment amounted to $820,935 and $104,824 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 8 – INVESTMENT PROPERTIES, NET


	June 30,		December 31,
	2022		2021
Investment properties	$	34,626,752	$	36,449,956
Less: Accumulated depreciation		(10,350,927)		(10,109,287)
	$	24,275,825	$	26,340,669

Depreciation and amortization expense for investment properties amounted to $774,249 and $3,212,964 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 9 – INVESTMENT IN AND AMOUNT DUE FROM AN UNCONSOLIDATED AFFILIATE

The investments in unconsolidated affiliates primarily consist of SHDEW (19.91)%. As of June 30, 2022, the investment amount in SHDEW was $13,202,318 and SHTX was $29,800.

SHDEW was established in June 2013 as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over ten million members as of June 30, 2022. SHDEW is developing its own skincare products. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW is improving its own online shopping platform where consumers can purchase its cosmetics and skincare products as well as products imported into China. The online shopping platform has been in operation since 2017.

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NOTE 10 - OTHER INVESTMENTS, NET

According to ASU 2016-01, where the Company has no significant influence, the investment is classified as other investments in the balance sheet and is carried under the measurement alternative method. The measurement alternative measures the equity investment at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. As of June 30, 2022 and December 31, 2021, the carrying amount of the Company’s measurement alternative investments was $677,317 and $712,981, respectively.

The Company performs impairment assessment of its investments under the measurement alternative whenever events or changes in circumstances indicate that the carrying value of the investment may not be fully recoverable. Impairment charges in connection with the measurement alternative investments of nil were recorded in others, net in the Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended June 30, 2022 and 2021, respectively.

NOTE 11 - GOODWILL

On April 4, 2020, the Company purchased 10% of LYSY from Nanjing Longchang Real Estate Development Group for 22.17 million RMB (approximately $3,398,213). As of June 30, 2022, the amount of $1,493,353 of goodwill represents the difference between the investment cost and book value.

NOTE 12– PROMISSORY NOTES PAYABLE

The promissory notes payable consists of the following unsecured notes to unrelated parties. Included in the balances are promissory notes with outstanding principal and unpaid interest of an aggregate of $1,490,002 and $1,568,455 as of June 30, 2022 and December 31, 2021, respectively.

The promissory note with a principal as of June 30, 2022 amounting to $745,001 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of June 30, 2022, and December 31, 2021, the outstanding principal and unpaid interest related to this promissory note amounted to $745,001 and $784,228, respectively.

For the six months ended June 30, 2022, the interest expense related to these promissory notes was $NIL.

NOTE 13– AMOUNTS DUE TO DIRECTORS


	June 30,		December 31,
	2022		2021
Lin Chi-Jung	$	432,001	$	502,663
Lin Hsin-Hung		21,596		22,733
	$	453,607	$	525,396

(a)	The balances due to Lin Chi-Jung consist 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.

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NOTE 14- OTHER PAYABLES AND ACCRUED EXPENSES


	June 30,		December 31,
	2022		2021
Accrued staff commission and bonus	$	267,810	$	272,025
Rental deposits received		152,799		110,171
Bid bond		95,360		103,518
Dividends payable to non-controlling interest		200,487		211,043
Other payables		7,223,830		8,122,375
	$	7,940,286	$	8,819,132

NOTE 15 - ACCOUNT PAYABLE

As of June 30, 2022, and December 31, 2021, the balances of accounts payable were $23,149,217 and $25,120,074 respectively. The balance of accounts payable as of June 30, 2022 included unpaid development fee of Linyi project of $488,543 and HATX project of $21,421,178. The remaining balance was due to agents of the operating business.

NOTE 16 – AMOUNT DUE TO AFFILIATES

As of June 30, 2022, the amount due to Shanghai Shengji (“SHSJ”), a shareholder of HATX,was $21,510,187 and JXSY was $528,481, was an intercompany transfer for day-to-day operations.

NOTE 17 – CUSTOMER DEPOSITS

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

The Linyi project started pre-sales in November 2013 and in 2019, the Project recognized its revenue along with customer deposit; as of June 30, 2022, the pre-sales amounted to $4,379,553. The HATX project started pre-sales in December 2019; as of June 30, 2022 the pre-sales amounted to $67,661,233.

NOTE 18 – 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 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 six months ended June 30, 2022 and 2021 were $115,172 and $28,288, respectively.

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As of June 30, 2022, the Company had the following operating lease obligations.


	Amount
Within one year	$	151,202
Two to five years		16,277
	$	167,479

NOTE 20 – STATUTORY RESERVE

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

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

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of June 30, 2022, and December 31, 2021, the Company’s statutory reserve fund was $3,986,618 and $3,986,618, respectively.

NOTE 21 - SEGMENT INFORMATION

The Company’s Chief Executive Officer and Chief Financial Officer have been identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

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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 June 30, 2022
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	14,496	$	34,625,035	$	—	$	—	$	34,639,531
Cost of revenues		153,943		(30,239,202)		—		—		(30,085,259)
Gross profit		168,440		4,385,832		—		—		4,554,272

Operating expenses		(1,986)		(221,170)		—		—		(223,156)
General and administrative expenses		(410,539)		(529,976)		—		(5,834)		113,603
Operating loss		(244,085)		4,694,638		—		(5,834)		4,444,719

Other income (expenses)
Interest income		(8,383)		218,526		—		1,516		211,659
Interest expense		678,941		(1,261,677)		—		—		(582,736)
Other income, Net		(1,951,556)		(45,358)		191,245		—		(1,805,669)
Total other (expenses) income		(1,280,998)		(1,088,509)		191,245		1,516		(2,176,746)

Income (loss) before income taxes		(1,525,084)		3,606,129		191,245		(4,318)		2,267,973
Income tax		(1,333,194)		—		—		—		(1,333,194)
Net Income(loss)	$	(2,858,278)	$	3,606,129	$	191,245	$	(4,318)	$	934,779


	Six Months Ended June 30, 2022
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	202,264	$	45,677,672	$	—	$	—	$	45,879,936
Cost of revenues		(520,197)		(40,224,857)		—		—		(40,745,054)
Gross profit		(317,933)		5,452,815		—		—		5,134,882

Operating expenses		(408,210)		(544,375)		—		—		(952,585)
General and administrative expenses		(593,154)		(893,967)		—		(301,579)		(1,788,700)
Operating loss		(1,319,297)		4,014,473		—		(301,579)		2,393,597

Other income (expenses)

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