Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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 September 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: + 86-21-6139-8018

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 ☒

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, 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 ☒	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: November 14, 2021–68,691,925 shares of Common Stock

Table of Contents

FORM 10-Q

For the Quarter Ended September 30, 2023

INDEX


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations for The Three Months and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 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

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)


	September 30,		December 31,
	2023		2022
ASSETS

Current assets
Cash and cash equivalents	$	26,704,900	$	33,201,354
Restricted cash (Note 3)		37,442,318		43,869,156
Transactional financial assets (Note 4)		7,897,585		10,960,511
Accounts receivable		127,503		204,518
Real estate property under development (Note 5)		115,543,857		120,302,022
Amount due from an unconsolidated affiliate		15,983,760		16,502,409
Other receivables and deposits, net (Note 6)		11,056,855		10,733,460
Total current assets		214,756,778		235,773,430

Property and equipment, net (Note 7)		771,440		1,001,077
Investment properties, net (Note 8)		20,945,736		22,673,139
Investment in an unconsolidated affiliate (Note 9)		12,368,874		12,751,061
Goodwill (Note 11)		1,044,450		1,243,194
Other investments (Note 10)		633,131		652,693
Total assets	$	250,520,409	$	274,094,594

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Promissory notes payable (Note 12)		1,392,796		1,435,833
Accounts payable (Note 15)		24,274,026		22,372,938
Amounts due to directors (Note 13)		528,394		480,109
Amount due to an affiliate (Note 16)		50,281,597		49,251,273
Customer deposits (Note 17)		27,199,652		34,742,361
Other payables and accrued expenses (Note 14)		7,273,304		7,587,515
Other taxes payable		245,815		255,175
Income taxes payable (Note 18)		1,657,239		1,848,666
Dividends payables		—		10,303,789
Total current liabilities		112,852,823		128,277,659

Long-term income tax payable (Note 18)		269,606		1,078,422
Total liabilities		113,122,429		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 September 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		107,084,787		109,300,636
Accumulated other comprehensive income		5,359,260		9,447,265
Total deficit of Sunrise Real Estate Group, Inc.		125,227,592		131,531,446
Non-controlling interests		12,170,388		13,207,067
Total shareholders’ equity		137,397,980		144,738,513
Total liabilities and shareholders’ equity	$	250,520,409	$	274,094,594

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenues	$	5,396,884	$	22,343,689	$	18,173,550	$	69,107,749
Cost of revenues		(4,655,403)		(19,303,768)		(15,792,338)		(60,833,995)
Gross profit (loss)		741,481		3,039,921		2,381,212		8,273,754

Operating expenses		(510,739)		(533,435)		(1,451,338)		(1,504,377)
General and administrative expenses		(713,444)		(790,049)		(2,254,036)		(2,613,218)
Operating profit (loss)		(482,702)		1,716,437		(1,324,162)		4,156,159

Other income (expenses)
Interest income		238,756		98,159		734,176		574,292
Interest expense		(344,822)		(253,912)		(1,708,866)		(2,598,784)
Other income (loss), net		(416,345)		(1,196,173)		(31,549)		(2,984,763)
Total other Income		(522,411)		(1,351,926)		(1,006,239)		(5,009,255)

Income (loss) before income taxes		(1,005,113)		364,511		(2,330,401)		(853,096)

Income tax benefit (expense)		(178,281)		(722,928)		(539,596)		(2,081,832)
Net income (loss)		(1,183,394)		(358,417)		(2,869,997)		(2,934,928)
Less: Net (income) loss attributable to non-controlling interests		276,876		(150,003)		654,148		1,974,453
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(906,518)	$	(508,420)	$	(2,215,849)	$	(960,475)
Net income (loss)		(1,183,394)		(358,417)		(2,869,997)		(2,934,928)
Other comprehensive income (loss) Foreign currency translation adjustment		856,355		(9,933,799)		(4,470,536)		(19,502,868)
Discontinuation of the equity method for an investment		—		—		—		—
Comprehensive income (loss)		(327,039)		(10,292,216)		(7,340,533)		(22,437,796)
Less: Comprehensive income (loss) attributable to non-controlling interests		195,492		587,955		1,036,679		3,393,232
Total comprehensive income (loss) attributable to shareholders		(131,547)		(9,704,261)		(6,303,854)		(19,044,564)
Earnings per share – basic and fully diluted	$	(0.01)	$	(0.01)	$	(0.03)	$	(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.

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SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


	Common Stock
											Accumulated				Total
					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										(2,215,849)				(654,148)		(2,869,997)
Dividend										—						—
Translation of foreign operations		—		—		—		—		—		(4,088,005)		(382,531)		(4,470,536)
Balance, Sept. 30, 2023		68,691,925		686,919		8,110,008		3,986,618		107,084,787		5,359,260		12,170,388		137,397,980


	Common Stock
										Accumulated				Total
				Additional				Retained		Other				Stockholders’
	Number of			Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued	Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
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
Profit (loss) for the year									(906,518)				(276,876)		(1,183,394)
Dividend															—
Translation of foreign operations	—		—		—		—		—		774,971		81,384		856,355
Balance, Sept. 30, 2023	68,691,925		686,919		8,110,008		3,986,618		107,084,787		5,359,260		12,170,388		137,397,980

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


	Common Stock
										Accumulated				Total
				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									(960,475)				(1,974,453)		(2,934,928)
Dividend									—						—
Translation of foreign operations	—		—		—		—		—		(18,084,089)		(1,418,779)		(19,502,858)
Balance, Sept. 30, 2022	68,691,925		686,919		8,050,008		3,986,618		116,768,749		6,654,334		12,037,200		148,183,828


	Common Stock
											Accumulated				Total
					Additional				Retained		Other				Stockholders’
	Number of				Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued		Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
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
Profit (loss) for the year										(513,218)				(334,074)		(847,292)
Dividend																—
Translation of foreign operations		—		—		—		—		—		(9,195,841)		(253,881)		(9,449,722)
Balance, Sept. 30, 2022		68,691,925		686,919		8,050,008		3,986,618		116,768,749		6,654,334		12,037,200		148,183,828

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)


	Nine Months Ended Sept. 30,
	2023		2022
Cash flows from operating activities
Net income (loss)	$	(2,869,997)	$	(2,934,928)

Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		1,305,903		1,338,556
Loss (Gain) on disposal of property, plant and equipment		34,088		39,255
Changes in assets and liabilities
Accounts receivable		72,476		(158,455)
Real estate property under development		1,178,217		41,996,130
Customer Deposits		(6,647,288)		(74,110,690)
Amount due from unconsolidated affiliates		2,587,348		31,094,696
Other receivables and deposits		(659,587)		172,090
Deferred tax assets		—		824,263
Net cash from directors		64,082		(23,632)
Accounts payable		2,629,388		(1,279,071)
Other payables and accrued expenses		(88,738)		(493,470)
Dividend		(10,219,272)		1,130,314
Other taxes payable		(1,750)		(145,185)
Income taxes payable		(947,886)		146,768
Net cash provided by (used in) operating activities		(13,563,016)		(2,403,359)

Cash flows from investing activities
Purchases of property and equipment		(5,487)		(192,668)
Net Cash from Transactional financial assets		2,795,775		(28,312,335)
Dividend distribution of affiliates		—		—
Net cash provided by (used in) investing activities		2,790,288		(28,505,003)

Cash flows from financing activities
Dividends paid to shareholders		—		—
Net cash provided by (used in) financing activities		—		—

Effect of exchange rate changes on cash and cash equivalents		(2,150,564)		(9,043,543)

Net increase in cash and cash equivalents		(12,923,292)		(39,951,905)
Cash and cash equivalents at beginning of period		77,070,510		97,911,619
Cash and cash equivalents at end of period	$	64,147,218	$	57,959,714

Supplemental disclosure of cash flow information
Income taxes paid	$	1,539,747	$	2,081,832
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, 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, 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
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)	August 20, 2001	PRC	100%	Subsidiary	Property brokerage services
Shanghai Shang Yang Investment Management and 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 12, 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
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
Shanghai Taobuting Media Co., Ltd. (“TBT”)	July 1, 2020	PRC	7.5%	Subsidiary	Streaming platform
Shangyang International Pte. Ltd	August 19, 2022	SINGAPORE	100%	Subsidiary	Investment holding

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.

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, 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 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 the Company as of September 30, 2023 and the results of operations for the nine months ended September 30, 2023 and 2022, and the cash flows for the nine months ended September 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 nine months ended September 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 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, 2023 and December 31, 2022 are $1: RMB7.1798 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.

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 at this moment. Phase 1 has completed construction of 121 units in May 2015 and sold 119 units out of all 121 units at the end of October 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. Phase 3 began construction in the first quarter of 2021 and pre-sold 21 units out of 51 units as of October 31, 2023. In September 2020, the Company expanded the Linyi project by purchasing an additional 54,312 square meters for 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 October 31, 2023, the Company sold 665 out of 679 units of the first phase and sold 457 units, respectively, 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 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.

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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 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, 2023 and December 31, 2022, the Company held cash deposits of $37,442,318 and $43,869,156, respectively.

NOTE 4 – TRANSACTIONAL FINANCIAL ASSETS

As of September 30, 2023, we had $7,897,585 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 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, 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, sold 84 villas out of all 84 units in Phase 2, and pre-sold 21 units out of 51 units in Phase 3 as of October 31, 2023.

In the first quarter of 2019, we purchased the property of HATX with the land use rights. As of September 30, 2023, land use rights included in real estate property under development totaled $115,543,857.

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 October 31, 2023, the Company sold 665 out of 679 units of the first phase and pre-sold 457 units, respectively, out of 873 of the second phase.

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NOTE 6 – OTHER RECEIVABLES AND DEPOSITS, NET


	September 30,		December 31,
	2023		2022
Advances to staff	$	52,195		372,262
Rental deposits		709,626		735,860
Prepaid expense		22,603		28,153
Prepaid tax		7,143,966		7,783,185
Other receivables		3,128,466		1,859,000
	$	11,056,855	$

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