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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, 2023

   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: July 31, 2023 –68,691,925 shares of Common Stock

FORM 10-Q

For the Quarter Ended June 30, 2023

INDEX

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Operations for The Six Months Ended June 30, 2023 and 2022

4

Condensed Consolidated Statements of Stockholders’ Equity for The Six Months and Three Months Ended June 30, 2023 and 2022

5

Condensed Consolidated Statements of Stockholders’ Equity for The Six Months and Three Months Ended June 30, 2023 and 2022

6

Condensed Consolidated Statements of Cash Flows for The Six Months Ended June 30, 2023 and 2022

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

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

SIGNATURES

31

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)

    

June 30, 

    

December 31, 

2023

2022

ASSETS

Current assets

Cash and cash equivalents

$

18,359,017

$

33,201,354

Restricted cash (Note 3)

 

45,789,248

 

43,869,156

Transactional financial assets (Note 4)

 

10,282,449

 

10,960,511

Accounts receivable

 

179,325

 

204,518

Real estate property under development (Note 5)

117,569,883

 

120,302,022

Amount due from an unconsolidated affiliate

15,882,006

 

16,502,409

Other receivables and deposits, net (Note 6)

13,259,147

 

10,733,460

Total current assets

221,321,075

 

235,773,430

Property and equipment, net (Note 7)

819,133

 

1,001,077

Investment properties, net (Note 8)

21,159,443

 

22,673,139

Deferred tax assets (Note 18)

 

Investment in an unconsolidated affiliate (Note 9)

12,290,133

 

12,751,061

Goodwill (Note 11)

1,003,503

1,243,194

Other investments (Note 10)

629,100

 

652,693

Total assets

$

257,222,387

$

274,094,594

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities

Promissory notes payable (Note12)

1,383,930

 

1,435,833

Accounts payable (Note 15)

26,341,832

 

22,372,938

Amounts due to directors (Note 13)

504,273

 

480,109

Amount due to an affiliate (Note 16)

49,131,392

 

49,251,273

Customer deposits (Note 17)

32,760,936

 

34,742,361

Other payables and accrued expenses (Note 14)

7,214,997

 

7,587,515

Other taxes payable

233,298

 

255,175

Income taxes payable (Note 18)

1,387,499

 

1,848,666

Dividends payable

10,303,789

Total current liabilities

118,958,157

 

128,277,659

Long-term income tax payable (Note 18)

 

539,211

 

1,078,422

Total liabilities

 

119,497,368

 

129,356,081

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, 2023 and December 31, 2022, respectively

686,919

 

686,919

Additional paid-in capital

 

8,110,008

 

8,110,008

Statutory reserve (Note 20)

 

3,986,618

 

3,986,618

Retained Earnings

 

107,991,305

 

109,300,636

Accumulated other comprehensive income

 

4,584,289

 

9,447,265

Total deficit of Sunrise Real Estate Group, Inc.

 

125,359,139

 

131,531,446

Non-controlling interests

 

12,365,880

 

13,207,067

Total shareholders’ equity

 

137,725,019

 

144,738,513

Total liabilities and shareholders’ equity

$

257,222,387

$

274,094,594

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 June 30, 

    

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Net revenues

$

7,042,904

$

34,639,531

$

12,776,666

$

45,879,936

Cost of revenues

 

(5,956,385)

(30,085,259)

(11,136,935)

(40,745,054)

Gross profit (loss)

 

1,086,519

4,554,272

1,639,731

5,134,882

Operating expenses

 

(490,120)

(223,156)

(940,599)

(952,585)

General and administrative expenses

 

(728,734)

113,603

(1,540,592)

(1,788,700)

Operating profit (loss)

 

(132,335)

4,444,719

(841,460)

2,393,597

Other income (expenses)

Interest income

 

248,416

211,659

495,420

467,131

Interest expense

 

(782,378)

(582,736)

(1,364,044)

(2,344,872)

Equity in net gain (loss) of an affiliate

(434)

22,079

Other income (loss), net

 

1,117,937

(1,805,235)

384,796

(1,776,436)

Total other Income

 

583,975

(2,176,746)

(483,828)

(3,632,098)

Income (loss) before income taxes

 

451,640

2,267,973

(1,325,288)

(1,238,501)

Income tax benefit (expense)

 

(250,864)

(1,333,194)

(361,315)

(1,333,212)

Net income (loss)

 

200,776

934,779

(1,686,603)

(2,571,713)

Less: Net (income) loss attributable to non-controlling interests

 

141,219

484,077

377,272

2,124,456

Net income attributable to shareholders of Sunrise Real Estate Group, Inc.

$

341,995

$

1,418,856

$

(1,309,331)

$

(447,257)

Net income (loss)

 

200,776

934,779

(1,686,603)

(2,571,713)

Other comprehensive income (loss) Foreign currency translation adjustment

(7,240,930)

(10,412,132)

(5,326,891)

(9,569,069)

Discontinuation of the equity method for an investment

Comprehensive income (loss)

 

(7,040,154)

 

(9,477,353)

 

(7,013,494)

 

(12,140,782)

 

Less: Comprehensive income (loss) attributable to non-controlling interests

782,428

1,248,496

841,187

2,805,277

Total comprehensive income (loss) attributable to shareholders

 

(6,257,726)

(8,228,857)

(6,172,307)

(9,335,505)

Earnings per share – basic and fully diluted

$

0.00

$

0.02

$

(0.02)

$

(0.01)

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.

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, 2022

68,691,925

$

686,919

$

8,110,008

$

3,986,618

$

109,300,636

$

9,447,265

$

13,207,067

$

144,738,513

Profit (loss) for the year

 

 

 

(1,309,331)

 

 

(377,272)

 

(1,686,603)

Discontinuation of the equity method for an investment

Capital contribution from non-controlling interests of new consolidated subsidiaries

Dividend

Translation of foreign operations

 

 

 

 

 

 

(4,862,976)

 

(463,915)

 

(5,326,891)

Balance, June 30, 2023

 

68,691,925

 

686,919

 

8,110,008

 

3,986,618

 

107,991,305

 

4,584,289

 

12,365,880

 

137,725,019

    

    

    

    

    

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, 2023

 

68,691,925

$

686,919

$

8,110,008

$

3,986,618

$

107,649,310

$

11,184,010

$

13,148,308

$

144,765,173

Profit (loss) for the year

 

 

341,995

 

 

(141,219)

 

200,776

Translation of foreign operations

(6,599,721)

(641,209)

(7,240,930)

Discontinuation of the equity method for an investment

Dividend

Capital contribution to a new consolidated subsidiary

 

 

 

 

 

 

 

 

Balance,June 30, 2023

 

68,691,925

 

686,919

 

8,110,008

 

3,986,618

 

107,991,305

 

4,584,289

 

12,365,880

 

137,725,019

See accompanying notes to consolidated financial statements.

5

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.

6

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)

    

Six Months Ended June 30,

    

2023

    

2022

Cash flows from operating activities

Net income (loss)

$

(1,686,603)

$

(2,571,713)

Adjustments to reconcile net income (loss) to net cash used in operating activities

Depreciation and amortization

 

1,179,643

 

820,935

Loss (Gain) on disposal of property, plant and equipment

 

32,902

 

16,660

Equity loss (gain) from investments in unconsolidated affiliate

 

 

Changes in assets and liabilities

Accounts receivable

 

18,513

 

12,768

Real estate property under development

 

(1,681,300)

 

26,428,443

Customer Deposits

 

(754,602)

 

(49,525,305)

Amount due from unconsolidated affiliates

 

1,751,782

 

432,503

Other receivables and deposits

 

(3,030,354)

 

38,807

Deferred tax assets

 

 

839,914

Net cash from directors

43,182

(47,150)

Accounts payable

 

4,968,945

 

(740,128)

Dividends

(10,329,001)

533,975

Other payables and accrued expenses

 

(102,177)

 

(453,503)

Other taxes payable

 

(13,160)

 

(138,609)

Income taxes payable

 

(949,342)

 

61,983

Net cash provided by (used in) operating activities

 

(10,551,572)

 

(24,290,420)

Cash flows from investing activities

Purchases of property and equipment

(4,164)

(85,166)

Net Cash from Transactional financial assets

 

293,145

 

(1,070,930)

Acquisition of investment

Dividend distribution of affiliate

 

 

Net cash provided by (used in) investing activities

 

288,981

 

(1,156,096)

Cash flows from financing activities

Restricted cash

 

 

Dividends paid to noncontrolling interests

 

 

Net cash provided (used in) financing activities

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(2,659,654)

 

(4,405,686)

Net increase in cash, cash equivalents and restricted cash

 

(12,922,245)

 

(29,852,202)

Cash, cash equivalents and restricted cash at beginning of period

 

77,070,510

 

97,911,619

Cash, cash equivalents and restricted cash at end of period

$

64,148,265

$

68,059,417

Supplemental disclosure of cash flow information

Income taxes paid

$

1,361,466

$

1,333,212

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 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, 2023, 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

Shangyang International Pte.Ltd (“SYSG”)

August 19, 2022

Singapore

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

1After 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.
2The 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.
3In 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%.
4We 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, 2022, 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

8

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 Sunrise Real Estate as of June 30, 2022 and the results of operations for the six months ended June 30, 2023 and 2022, and the cash flows for the six months ended June 30, 2023 and 2022. 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, 2022. The results of operations for the six months ended June 30, 2023 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, 2023 and December 31, 2022 are $1: RMB7.2258 and $1: RMB6.9646, 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.

9

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 2011, we established LYSY and own 34% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters(“sqm”) for the purpose of developing villa-style residential housing. The LYSY project is divided into three phases. Phase 1 completed construction of 121 units in May 2015 and sold 119 units by the end of July 31, 2023. Phase 2 was divided into north and south areas and completed construction of 84 units as of the end of 2020. All units were sold during phase 2 by the end of July 31, 2023. Phase 3 began construction in the first quarter of 2021 and pre-sold 21 units out of 51 units as of the end of July 31, 2023. In September 2020, the Company expanded the Linyi project by purchasing an additional 54,312 sqm for 228 million RMB for future development.

In October 2018, HATX purchased property in Huai’an, Qingjiang Pu district with an area of 78,030sqm. 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, 2023, the Company sold 665 units, respectively, out of 679 units of the first phase and sold 453 units out of 873 units 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

10

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.

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.

11

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 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 in our project. Once we complete the handover to the buyer, these deposits become unrestricted. As of June 30, 2023, and December 31, 2022, the Company held cash deposits of $45,789,248 and $43,869,156, respectively.

NOTE 4 – TRANSACTIONAL FINANCIAL ASSETS

As of June 30, 2023, we had $10,282,449 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 2.08% to 2.7% 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 (“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 sqm 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, 2023. As to Phase 3, we pre-sold 21 units out of 51 units as of July 31, 2023.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030sqm. 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 gross floor area (“GFA”) of