Attached files

file filename
EX-31.2 - EXHIBIT 31.2 - SUNRISE REAL ESTATE GROUP INCtm2019555d1_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - SUNRISE REAL ESTATE GROUP INCtm2019555d1_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - SUNRISE REAL ESTATE GROUP INCtm2019555d1_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2019

 

¨ 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

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value: $0.01

 

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

 

Yes ¨ No x

 

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

 

Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x Smaller reporting company x
Emerging growth company ¨  

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: June 16, 2020 – 68,691,925 shares of Common Stock

 

 

 

 

 

 

 

FORM 10-Q

 

For the Quarter Ended March 31, 2019

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 3
  Condensed Consolidated Statements of Operations for The Three Months Ended March 31, 2019 and 2018 4
  Condensed Consolidated Statements of Comprehensive Gain for The Three Months Ended March 31, 2019 and 2018 5
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for The Three  Months Ended March 31, 2019 and 2018 6
  Condensed Consolidated Statements of Cash Flows for The Three Months Ended March 31, 2019 and 2018 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 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

 

 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)

 

    March 31,     December 31,  
    2019     2018  
ASSETS                
                 
Current assets                
Cash and cash equivalents   $ 16,282,422     $ 17,656,165  
Restricted cash (Note 3)     1,029,968       1,550,988  
Transactional financial assets (Note 4)     87,596,130       49,451,172  
Accounts receivable     196,357       234,358  
Promissory deposits (Note 5)     117,209       114,751  
Real estate property under development (Note 6)     82,206,640       64,423,978  
Amount due from an unconsolidated affiliate (Note 10)     -       5,818,440  
Other receivables and deposits, net (Note 7)     5,877,085       8,775,153  
Total current assets     193,305,811       148,025,005  
                 
Property and equipment, net (Note 8)     1,230,856       1,098,842  
Investment properties, net (Note 9)     22,645,054       3,707,480  
Deferred tax assets     31,074       -  
Investment in an unconsolidated affiliate (Note 10)     13,186,796       30,857,551  
Other investments     148,825       145,705  
Total assets   $ 230,548,416     $ 183,834,583  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                
                 
Current liabilities                
Promissory notes payable (Note 11)     1,488,250       1,457,046  
Accounts payable (Note 14)     1,492,395       5,268,437  
Amounts due to directors (Note 12)     44,202       1,767,609  
Amount due to an affiliate (Note 15)     60,213,962       513,551  
Customer deposits (Note 16)     14,836,245       40,698,987  
Other payables and accrued expenses (Note 13)     938,804       929,941  
Other taxes payable     399,843       214,502  
Income taxes payable (Note 17)     805,250       730,051  
Dividends payables     -       6,869,193  
Total current liabilities     80,218,951       58,449,317  
                 
Long term income tax payable (Note 17)     3,192,130       3,278,403  
Deferred government subsidy (Note 18)     4,932,867       4,829,440  
Total liabilities     88,343,948       66,557,160  
                 
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 March 31, 2019 and December 31, 2018, respectively     686,919       686,919  
Additional paid-in capital     7,570,008       7,570,008  
Statutory reserve (Note 20)     3,194,604       3,194,604  
Retained Earnings     109,389,240       106,727,898  
Accumulated other comprehensive income     21,531,005       (2,790,200)  
Total Equity of Sunrise Real Estate Group, Inc.     142,371,776       115,389,229  
Non-controlling interests     (167,308)       1,888,194  
Total shareholders’ equity     142,204,468       117,277,423  
                 
Total liabilities and shareholders’ equity   $ 230,548,416     $ 183,834,583  

 

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 March 31, 
   2019   2018 
         
Net revenues  $32,163,303   $1,578,795 
Cost of revenues   (25,504,925)   (1,083,447)
Gross profit   6,658,378    495,348 
           
Operating expenses   (341,678)   (793,517)
General and administrative expenses   (6,223,155)   (485,150)
Operating profit (loss)   93,545    (783,319)
           
Other income (expenses)          
Interest income   11,282    10,848 
Equity in net gain of an affiliate   -    21,783,932 
Other income, net   519,979    150,732 
Total Other Income   531,261    21,945,512 
           
Income before income taxes   624,806    21,162,193 
Income tax benefit   30,638    (31,676)
Net income   655,444    21,130,517 
Less: Net (income) loss attributable to non-controlling Interests   2,092,488    50,310 
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.  $2,747,932   $21,180,827 
           
Earnings per share – basic and fully diluted  $0.04   $0.31 
           
Weighted average common shares outstanding          
- Basic and fully diluted   68,691,925    68,691,925 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

 

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Expressed in U.S. Dollars)

 

   Three Months Ended March 31, 
   2019   2018 
         
Net Income  $655,444   $21,130,517 
           
Other comprehensive income (loss)          
- Foreign currency translation adjustment   (3,785,254)   3,695,050 
-    Discontinuation of the equity method for an investment   21,806,214    - 
Total comprehensive income   18,676,404    24,825,567 
Less: Comprehensive (income) loss attributable to  
non-controlling interests
   2,507,064    (40,661)
           
Total comprehensive income attributable to stockholders of Sunrise Real Estate Group, Inc.  $21,183,468   $24,784,906 

 

See accompanying notes to consolidated financial statements.

 

 5 

 

 

SUNRISE REAL ESTATE GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)

 

    Common Stock                                      
    Number of
shares issued
    Amount    

Additional

 Paid-in
Capital

    Statutory
Reserve
    Retained
Earnings
(Deficits)
   

Accumulated

Other

Comprehensive
Income

    Non-controlling
Interests
   

Total

Stockholders’

 (Deficit)
Equity

 
                                                 
Balance, December 31, 2018     68,691,925     $ 686,919     $ 7,570,008     $ 3,194,604     $ 106,727,898     $ (2,790,200)     $ 1,888,194     $ 117,277,423  
Profit (loss) for the year                                     2,747,932               (2,091,488)       655,444  
Discontinuation of the equity method for an investment                             -       21,806,214        -       21,806,214  
Capital contribution from non-controlling interests of new consolidated subsidiaries     -       -       -       -       (86,589)       -       -       (86,589)  
Translation of foreign operations     -       -       -       -       -       2,514,991       36,986       2,551,977  
Balance, March 31, 2019     68,691,925       686,919       7,570,008       3,194,604       109,389,240       21,531,005       (167,308)       142,204,468  

 

 

 

    Common Stock                                      
    Number of
shares issued
    Amount    

Additional

 Paid-in
Capital

    Statutory
Reserve
    Retained
Earnings
(Deficits)
   

Accumulated

Other

Comprehensive
Income

    Non-controlling
Interests
   

Total

Stockholders’

 (Deficit)
Equity

 
                                                 
Balance, December 31, 2017     68,691,925     $ 686,919     $ 7,570,008     $ 931,510     $ 68,975,118     $ 3,095,469     $ 2,339,756     $ 83,598,780  
Profit (loss) for the year                                 21,180,827             (50,310)       21,130,517  
Discontinuation of the equity method for an investment                             -       -       -       -  
Capital contribution from non-controlling interests of new consolidated subsidiaries     -       -       -       -       -       -       -       -  
Translation of foreign operations     -       -       -       -       -       3,604,079       90,971       3,695,050  
Balance, March 31, 2018     68,691,925       686,919       7,570,008       931,510       90,155,945       6,699,548       2,380,417       108,424,347  

  

 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)

 

   Three Months Ended March 31, 
   2019   2018 
Cash flows from operating activities          
Net income  $655,444   $21,130,517 
           
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Depreciation and amortization   146,838    126,765 
Loss on disposal of property, plant and equipment   -    4,288 
Bad debts   2,612,491    - 
Equity in net loss (income) of unconsolidated affiliates   -    (21,783,930)
Changes in assets and liabilities          
Accounts receivable   42,964    (113,890)
Real estate property under development   (35,327,717)   (831,134 
Customer Deposits   (26,699,778)   (1,460,171)
Amount due from unconsolidated affiliates   62,935,099    (2,829 
Other receivables and deposits   3,082,005    (26,745)
Deferred tax assets   31,034    - 
Accounts payable   (3,883,842)   (1,535,249)
Other payables and accrued expenses   (11,038)   (44,534)
Interest payable on amount due to directors   (1,758,984)   - 
Other taxes payable   180,514    (13,886)
Income taxes payable   (26,786)   12,280 
Net cash provided by (used in) operating activities   1,916,176    (4,538,518)
           
Cash flows from investing activities          
Acquisition of property, plant and equipment   (100,581)   - 
Capital injection to unconsolidated affiliates   -    - 
Net cash from transactional financial assets   (37,037,960)   (4,086,568)
Dividend distribution of affiliates   40,085,910    - 
Net cash provided by (used in) investing activities   2,947,369    (4,086,568)
           
Cash flows from financing activities          
Restricted cash   553,519    (650)
Bank loan repayments   -    - 
Advances from directors   -    (26,708)
Repayments of advances from directors   -    (3,911,988)
Advances from an affiliate   -    11,997,265 
Repayments to an affiliate   -    (3,817)
Dividends paid to noncontrolling interests   (7,007,230)   - 
Repayments of promissory notes   -    - 
Net cash provided by (used in) financing activities   (6,453,711)   8,054,102 
           
Effect of exchange rate changes on cash and cash equivalents   216,423    1,364,498 
           
Net increase in cash and cash equivalents   (1,373,743)   793,514 
Cash and cash equivalents at beginning of period   17,656,165    5,869,944 
Cash and cash equivalents at end of period  $16,282,422   $6,663,458 
           
Supplemental disclosure of cash flow information          
Income taxes paid  $-   $52,512 
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 March 31, 2019, the Company has the following major subsidiaries and equity investment.

 

 

 

 

Company Name

 

 

 

Date of Incorporation

 

 

 

Place of Incorporation

  % of Ownership held by the Company 

 

Relationship with the Company

 

 

 

 

Principal Activity

Sunrise Real Estate Development

Group, Inc. (CY-SRRE)

  April 30, 2004 

Cayman

Islands

  100%  Subsidiary  Investment holding

Lin Ray Yang Enterprise Limited

(“LRY”)

  November 13, 2003  British Virgin Islands  100%  Subsidiary  Investment holding

Shanghai Xin Ji Yang Real Estate

Consultation Company Limited (“SHXJY”)

  August 20, 2001  PRC  100%  Subsidiary  Property brokerage services

Shanghai Shang Yang Real Estate

consultation Company Limited (“SHSY”)

  February 5, 2004  PRC  100%  Subsidiary  Property brokerage services

Suzhou Shang Yang Real Estate

Consultation Company Limited (“SZSY”)

  November 24, 2006  PRC  75.25%1  Subsidiary  Property brokerage and management services

Suzhou Xi Ji Yang Real Estate

Consultation Company Limited (“SZXJY”)

  June 25, 2004  PRC  75%  Subsidiary  Property brokerage services

Linyi Shangyang Real Estate Development

Company Limited (“LYSY”)

  October 13, 2011  PRC  24%2  Subsidiary  Real estate development

Shangqiu Shang Yang Real Estate

Consultation Company Limited (“SQSY”)

  October 20, 2010  PRC  100%  Subsidiary  Property brokerage services

Wuhan Gao Feng Hui Consultation

Company Limited (“WHGFH”)

  November 10, 2010  PRC  60%  Subsidiary  Property brokerage services

 

 8 

 

 

Sanya Shang Yang Real Estate

Consultation Company Limited (“SYSY”)

  September 18, 2008  PRC  100%  Subsidiary  Property brokerage services

Shanghai Rui Jian Design Company

Limited (“SHRJ”)

  August 15, 2011  PRC  100%  Subsidiary  Property brokerage services

Linyi Rui Lin Construction and Design 

Company Limited (“LYRL”)

  March 6, 2012  PRC  100%  Subsidiary  Investment holding
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)  December 28, 2009  PRC  49%  Equity investment  Real estate development
Shanghai Xin Xing Yang Real Estate Brokerage Company Limited (“SHXXY”)  September 28, 2011  PRC  20%  Equity investment  Property brokerage services

Xin Guang Investment Management and

Consulting Company Limited (“XG”)

  December 17, 2012  PRC  49%  Equity investment  Investment management and consulting

Shanghai Da Er Wei Trading

Company Limited (“SHDEW”)

  June 6, 2013  PRC  19.91%3  Equity investment  Import and export trading
Shanghai Hui Tian (“SHHT”)  July 25, 2014  PRC  100%  Subsidiary  Investment holding

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  100%4  Subsidiary  Investment holding

   

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

 

2 The Company and a shareholder of LYSY, which holds 51% equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of her 51% equity interest in LYSY. The Company effectively holds 75% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company.

 

3In December 2019, SHDEW had 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, 2018, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

 

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Sunrise Real Estate as of March 31, 2019 and the results of operations for the three months ended March 31, 2019 and 2018, and the cash flows for the three months ended March 31, 2019 and 2018. 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, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

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

 

 9 

 

 

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Principles of Consolidation

 

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

 

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

 

We change our evaluation of SHDEW investment from the equity method to the measurement alternative method due to our ownership of SHDEW was decreased to 19.91% and the Company does not have significant control of SHDEW. This change in the evaluation method will negatively affect our financial statement in items such as equity in net gain of an affiliate, the net profit in our statement of operations and the investment in unconsolidated affiliate in our balance sheet statement. Our equity in net gain of an affiliate decreased to $0 which lowered our net profit and thus lowering our earning per share. One one-time effect in our financial line item is discontinuation of equity method for an investment as of April 30, 2020 in our statement of operations which increased by $21,806,214 from $0 in 2018.

 

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. Gain and loss resulting from foreign currency transactions are included in the consolidated statement of operations. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into each company’s denominated currency at 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 March 31, 2019 and December 31, 2018 are $1: RMB 6.7335 and $1: RMB 6.8632, respectively.

 

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

 

Real Estate Property under Development

 

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

 

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

 

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

 

 10 

 

 

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

 

For the three months ended March 31, 2019, the Company had recognized the net revenue and cost of revenue of ZJPF project at a certain proportion.

 

In October 2018 we established HATX for the purpose of for real estate development in Huai’an through HAZB of which we have 78.46% ownership. HAZB purchased the property in Jiangsu Pronvince, Huaian City Qingjiang Pu District, with an area of 78,030 square meters and the Company, through HATX, invested 78.46% shares in HAZB. The Huai’an project, named Tianxi Times, started its 1st phase development in early 2019 with a GFA of 41,795 sqm totaling 347 units. As of March 31, 2019, the Company pre-sold 255 out of 347 units.

 

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 value of the investment that is other than temporary. The Company did not record any impairment losses in any of the periods reported.

 

Other Investments

 

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

  

Government Subsidies

 

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

 

 11 

 

 

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

 

Government subsidy was received in 2012 and the company recorded it as deferred government subsidy in balance sheets. As of March 31, 2019, and December 31, 2018, the balance of deferred government subsidy was $4,932,867 and $4,829,440, respectively. The subsidy was given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project in Linyi, and are repayable if the Company fails to complete the subsidized property development project by the agreed date.

 

Revenue Recognition

 

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

 

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 August 2018, the SEC issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting will be the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods. We adopted this new rule beginning with its financial reporting for the quarter ending January 1, 2019. Upon adoption, the Company include its Statements of Stockholders’ Deficit with each interim reporting.

 

 12 

 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments granted to non-employees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

New Accounting Pronouncements

 

There were no new accounting pronouncements related to the Company.

 

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 March 31, 2019, and December 31, 2018, the Company held cash deposits of $1,029,968 and $1,550,988, respectively.

 

NOTE 4 - TRANSACTIONAL FINANCIAL ASSETS

 

As of March 31, 2019, we have $87,596,130 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 - PROMISSORY DEPOSITS

 

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

 

 13 

 

 

NOTE 6 - REAL ESTATE PROPERTY UNDER DEVELOPMENT

 

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiemen 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 121 of 124 Phase 1 villas and sold 42 villas in Phase 2 North and 42 villas in Phase 2 South as of March 31, 2019.

 

On March 13, 2014, the Company signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has obtained a right to develop the Guangxinglu (“GXL”) project, which is located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartments. In 2016, the government issued a regulation prohibiting the by-unit sale of commercial-use buildings. The apartment unit sale for the GXL project was put on hold until the government reviewed our project’s status. Since then, we rented out the unsold apartment units while not recognizing the units previously sold before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in properties in Note 9. We also recognized all the units that were sold before the regulation in our 2019 Q1 financial statement.

 

For the period ended of March 31, 2019, the company had recognized the net revenue and cost of revenue of Linyi project and the GXL project at a certain the number of units sold. In the first quarter of 2019, we purchased the property of HATX with the land use rights. As of March 31, 2019, land use rights included in real estate property under development totaled $82,206,640.

 

In October 2018, we established HATX for the purpose of real estate development in Huai’an through HAZB of which we have 78.46% ownership. HAZB purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters. The Huai’an project, named Tianxi Times, started its 1st phase development in early 2019 with a GFA of 41,795 sqm totaling 347 units. As of March 31, 2019, the Company pre-sold 255 out of 347 units.

 

NOTE 7 - OTHER RECEIVABLES AND DEPOSITS, NET

        

   March 31,   December 31, 
   2019   2018 
     
Advances to staff  $34,000    22,864 
Rental deposits   37,797    39,085 
Prepaid expense   9,960    12,033 
Prepaid tax   1,384,189    4,620,338 
Other receivables   4,411,139    4,080,833 
   $5,877,085   $8,775,153 

 

Other receivables and deposits as of March 31, 2019 and December 31, 2018 were stated net of allowance for doubtful accounts of $340,269 and $674,478, respectively.

 

 14 

 

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

   March 31,   December 31, 
   2019   2018 
     
Furniture and fixtures  $222,849   $161,949 
Computer and office equipment   183,652    155,395 
Motor vehicles   607,331    535,089 
Properties   2,251,643    2,204,433 
    3,265,476    3,056,867 
Less: Accumulated depreciation   (2,034,620)   (1,958,025)
   $1,230,856   $1,098,842 

 

Depreciation and amortization expense for property and equipment amounted to $147,129 and $126,765 for the three months ended March 31, 2019 and 2018, respectively.

 

NOTE 9 – INVESTMENT PROPERTIES, NET

 

   March 31,   December 31, 
   2019   2018 
     
Investment properties  $28,161,333   $9,022,150 
Less: Accumulated depreciation   (5,516,279)   (5,314,670)
   $22,645,054   $3,707,480 

 

Depreciation and amortization expense for investment properties amounted to $438,387 and $834,335 for the three months ended March 31, 2019 and 2018, respectively.

 

We recognized $19,364,708 of investment properties from our unsold apartment units in our GXL project.

 

NOTE 10 – INVESTMENT IN AND AMOUNT DUE FROM UNCONSOLIDATED AFFILIATES

 

The investments in unconsolidated affiliates primarily consist of WHYYL (49%) and SHDEW (19.91%) As of March 31, 2019, the investment amount in WHYYL and SHDEW were $0 and $13,186,796 , respectively.

 

WHYYL is primarily developing a real estate project in Wuhan, the PRC on a parcel of land covering approximately 27,950 square meters with a 3-year planned construction period.

 

SHDEW is a company engaged principally in the manufacture and sales of skincare and cosmetic products. The Company has accounted for these investments using the measurement alternative method for the periods presented in this report as the Company cannot exercise significant influence over their activities.

 

In 2011, the Company invested $4,697,686 for acquiring a 49% equity interest in WHYYL to expand its operations to real estate development business. As of March 31, 2019, the investment in WHYYL was $0.

 

As of March 31, 2019, we wrote off the amount due from an unconsolidated affiliate in the amount of $2,557,716.

 

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW’s has over five million members as of March 31, 2019. SHDEW develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices, and children’s apparel. SHDEW developed 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.

 

In December 2019, SHDEW had a stock bonus where its employees received and vested their shares. This resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91% thereby changing out accounting method for the SHDEW investment from the equity method to the alternative measurement going forward.

 

 15 

 

 

NOTE 11– PROMISSORY NOTES PAYABLE

 

The promissory notes payable consist 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 $1,488,250 and $1,457,046 as of March 31, 2019 and December 31, 2018, respectively.

 

The promissory note with a principal as of March 31, 2019 amounting to $744,125 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2019, and December 31, 2018, the outstanding principal and unpaid interest related to this promissory note amounted to $744,125 and $728,523, respectively.

 

The promissory note with a principal as of March 31, 2019 amounts to $744,125 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of March 31, 2019, and December 31, 2018, the outstanding principal and unpaid interest related to this promissory note amounted to $744,125 and $728,523, respectively.

 

For the three months ended March 31, 2019, the interest expense related to these promissory notes was $0.

  

NOTE 12– AMOUNTS DUE TO DIRECTORS

 

   March 31,   December 31, 
   2019   2018 
     
Lin Chi-Jung  $52,124   $1,769,484 
Pan Yu-Jen   (59,530)   (58,282)
Lin Hsin-Hung   51,607    56,407 
   $44,202   $1,767,609 

 

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

 

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

  

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

 

(c) The balances due from Pan Yu-jen are unsecured, interest-free and have no fixed term of repayment.

  

NOTE 13- OTHER PAYABLES AND ACCRUED EXPENSES

 

   March 31,   December 31, 
   2019   2018 
     
Accrued staff commission and bonus  $233,206   $285,506 
Rental deposits received   77,040    46,331 
Bid bond   208,355    203,986 
Dividends payable to no controlling interest   200,251    196,053 
Other payables   219,952    198,065 
   $938,804   $929,941 

 

NOTE 14- ACCOUNT PAYABLE

 

Account payable was mostly derived from our property development of Linyi project and the GXL project. As of March 31, 2019 and December 31, 2018, the company’s account payable amounted to $1,492,395 and $5,268,437.

 

 16 

 

 

NOTE 15 – AMOUNT DUE TO AFFILIATES

 

The total balance is $60,213,962. Of that total balance, the entity transaction of HATX project, in the amount of $59,689,413 due to SHDEW is unsecured, interest free with no fixed payment terms. The amount due to JXSY, in the amount of $524,549 was an intercompany transfer for day to day operation.

 

NOTE 16 – CUSTOMER DEPOSITS

 

Customer deposits were mostly derived from our property development of the Linyi project and the GXL project, which were pre-sale collections from our customers. As of March 31, 2019, and December 31, 2018, the Company’s customer deposits amounted to $14,836,245 and $40,698,987, respectively.

 

NOTE 17 - INCOME TAXES PAYABLE

 

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

 

NOTE 18– DEFERRED GOVERNMENT SUBSIDY

 

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

 

Government subsidy was received in 2012, and as of March 31, 2019 and December 31, 2018, the Company’s deferred government subsidy amounted to $4,932,867 and $4,829,440, respectively. The subsidy is given to reimburse the land acquisition costs and certain construction costs incurred for the Company’s property development project and is repayable if the Company fails to complete the subsidized property development project before the agreed date. The entire government subsidy is deferred and included as deferred government subsidy in consolidated balance sheets.

 

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 three months ended March 31, 2019 and 2018 were $205,743 and $31,943, respectively.

 

As of March 31, 2019, the Company had the following operating lease obligations.

 

   Amount 
     
Within one year  $205,743 
Two to five years   - 
   $205,743 

 

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.

 

 17 

 

 

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 March 31, 2019, and December 31, 2018, the Company’s statutory reserve fund was $3,194,604 and $3,194,604, respectively.

 

NOTE 21 - SEGMENT INFORMATION

 

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

 

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

  

   Three Months Ended March 31, 2019 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues   193,815   $31,969,488   $-   $-   $32,163,303 
Cost of revenues   (166,097)   (25,338,828)   -    -    (25,504,925)
Gross profit   27,718    6,330,660    -    -    6,658,378 
                          
Operating expenses   (92,649)   (248,935)   -    (94)   (341,678)
General and administrative expenses   (1,195,498)   (4,925,669)   -    (101,988)   (6,223,155)
Operating loss   (1,260,429)   1,456,056    -    (102,082)   93,545 
                          
Other income (expenses)                         
Interest income   3,696    7,515    -    71    11,282 
Interest expense   -    -    -    -    - 
Other income, Net   7,111    7,432    505,436    -    519,979 

Equity in net income (loss) of

unconsolidated affiliates

   -    -    -    -    - 
Total other (expenses) income   10,807    14,947    505,436    71    531,261 
                          
Income (loss) before income taxes   (1,249,622)   1,471,003    505,436    (102,011)   624,806 
Income tax   30,638    -    -    -    30,638 
Net Income( loss)  $(1,218,984)  $1,471,003   $505,436   $(102,011)  $655,444 

 

 18 

 

 

   Three Months Ended March 31, 2018 
   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
Net revenues       $1,150,325   $-   $-   $1,578,795 
Cost of revenues   (226,006)   (857,441)   -    -    (1,083,447)
Gross profit   202,464    292,884    -    -    495,348 
                          
Operating expenses   (513,610)   (279,808)   -    (99)   (793,517)
General and administrative expenses   (322,982)   (156,418)   -    (5,750)   (485,150)
Operating loss   (634,128)   (143,342)   -    (5,849)   (783,319)
                          
Other income (expenses)                         
Interest income   5,051    2,490    -    3,307    10,848 
Interest expense   -    -    -    -    - 
Other income, Net   (39)   (145,330)   296,101    -    150,732 

Equity in net income (loss) of

unconsolidated affiliates

   -    -    21,783,932    -    21,783,932 
Total other (expenses) income   5,012    (142,840)   22,080,033    3,307    21,945,512 
                          
Income (loss) before income taxes   (629,116)   (286,182)   22,080,033    (2,542)   21,162,193 
Income tax   (95,415)   67,739    -    -    (31,676)
Net Income( loss)  $724,531   $(222,443)  $22,080,033   $(2,542)  $21,130,517 

  

   Property                 
   Brokerage   Real Estate   Investment         
   Services   Development   Transaction   Others   Total 
As of March 31, 2019                         
Real estate property under development  $-   $82,206,640   $-   $-   $82,206,640 
Total assets   10,497,121    118,069,611    100,931,751    1,049,933    230,548,416 
                          
As of March 31, 2018                         
Real estate property under development  $-   $70,156,329   $-   $-   $70,156,329 
Total assets   9,757,072    84,874,568    103,057,883    10,477    197,700,000 

  

NOTE 22 – RELATED PARTY TRANSACTIONS

 

In January 18, 2019, SHDEW passed a shareholder resolution to issue a cash dividend to its shareholders. The Company, in March 13, 2019, through its subsidiaries SHSY and LYRL received 170,839,500 RMB and 98,858,500 RMB respectively.

 

In January 28, 2019, Sunrise Real Estate Group, Inc. paid a cash dividend in the amount of $6,869,192 ($0.10 per share) to shareholders of record as of December 28, 2018. The ex-dividend date was December 26, 2018.

 

In January 2019 the Company rented a property unit from a related party for office use.

 

NOTE 23 – SUBSEQUENT EVENT

 

In December 2019, SHDEW had an employee stock bonus where employees received their vested shares. This issuance resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%. As the Company does not have significant influence in SHDEW and the ownership declined to 19.91%, we changed our accounting method for the SHDEW investment from the equity method to the measurement alternative method going forward.

 

 19 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

OVERVIEW

 

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

 

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

 

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

 

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

 

 20 

 

 

RECENT DEVELOPMENTS

 

Our major business is agency sales, whereby our Chinese subsidiaries contracted with property developers to market and sell their newly developed property units. For these services we earn a commission fee calculated as a percentage of the sales prices. We have focused our sales on the whole China market, especially in second-tier cities. To expand our agency business, we have established subsidiaries or branches in Shanghai, Suzhou, Kunshan and Hainan, and branches in Wuhan and Shangqiu.

 

In mid-2011, we established a project company in Wuhan in which we have a 49% ownership. We commenced the construction of Phase 1 of the project in the third quarter of 2012 and the pre-sale of Phase 1 in the first quarter of 2013. We have begun Phase 2 construction of the project in the second quarter of 2013 and the pre-sale of Phase 2 was started in mid-August. The Wuhan project is planned to include seven residential buildings with three buildings being part of Phase 1 and four buildings in Phase 2. As of March 31, 2018, the project has sold 755 apartment units with an area of 81,221 square meters.

 

In August 2017, the Wuhan project has reached a dispute settlement with the construction contractor, Hubei Fifth Constructions Co. (“HFCC”), which settled the expenses of construction and the project company could go through the handover progress. For the period ended of March 31, 2019, the company had recognized the net revenue and cost of revenue of WHYYL project at a certain proportion.

 

In October 2011, we established LYSY and own 24% 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. We began construction in mid-2012 and as of December 31, 2016 have constructed 121 units, which encompasses all units in phase 1. The phase 1 has completed construction in May 2015. The sales started in November 2013; we have made sales of 104 units at the end of December 2017. Proceeds from sales will be used to finance the constructions of the subsequent phases of the project. The phase 2 has begun construction of 17,000 sqm in October 2017. For the period ended of March 31, 2019, the company had recognized the net revenue and cost of revenue of Linyi project at a certain proportion.

 

On March 13, 2014, the Company signed a joint development agreement with Zhongji Pufa Real Estate Co. According to this agreement, the Company has obtained a right to develop the Guangxinglu (“GXL”) project, which is located on 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one building of apartments. In 2016, the government issued a regulation prohibiting the by-unit sale of commercial-use buildings. The apartment unit sale for the GXL project was put on hold until the government reviewed our project’s status. Since then, we rented out the unsold apartment units while not recognizing the units previously sold before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in properties in Note 9. We also recognized all the units that were sold before the regulation in our 2019 Q1 financial statement.

 

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over a million members as of December 31, 2017. SHDEW develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products from third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW has an online shopping app, “庭秘密,” where consumers can purchase its cosmetics and skincare products as well as products imported into China.

 

In October 2018, we established HATX for real estate development in Huai’an through HAZB of which we have 78.46% ownership. HAZB purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters and the Company, through HATX, invested 78.46% shares in HAZB. The Huai’an project, named Tianxi Times, started its 1st phase development in early 2019 with a GFA of 41,795 sqm totaling 347 units. As of March 31, 2019, the Company pre- sold 255 out of 347 units.

 

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

 

 21 

 

 

RECENTLY ADOPTED ACCOUNTING STANDARDS

 

In August 2018, the SEC issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting will be the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods. We adopted this new rule beginning with its financial reporting for the quarter ending January 1, 2019. Upon adoption, the Company include its Statements of Stockholders’ Deficit with each interim reporting.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted this ASU on January 1, 2019 with no material impact on the Company’s financial statements.

 

NEW ACCOUNTING PRONOUNCEMENTS

  

APPLICATION OF CRITICAL ACCOUNTING POLICIES

 

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

 

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

 

 22 

 

 

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.

 

Real Estate Property under Development

 

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

 

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

 

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

 

 23 

 

 

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

 

Government Subsidies

 

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

 

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

 

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

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Deferred tax assets or liabilities were off-set by a 100% valuation allowance; therefore there has been no recognized benefit as of March 31, 2019 and December 31, 2018.

 

RESULTS OF OPERATIONS

 

We provide the following discussion and analyses of our changes in financial condition and results of operations for the period ended March 31, 2019 with comparisons to the period ended March 31, 2018.

 

Revenue

 

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

 

   Three months ended March 31 
   2019   % to total   2018   % to total   % change 
Agency sales   94,701    0.29    243,960    15    (61)
Property management   99,113    0.31    184,511    12    (46)
House Sales   31,969,488    99.4    1,150,325    73    2,679 
Net revenue   32,163,303    100    1,578,795    100    1,937 

  

 24 

 

 

The net revenue in the first quarter of 2019 was $32,163,303, which increased by 1,937% from $1,578,795 in the first quarter of 2018. In the first quarter of 2019, agency sales represented 0.29% of net revenue, house sales represented 99.4% and property management represented 0.31%. The increase in net revenue in the first quarter of 2019 was mainly due to the increase in the recognition of the sales revenue of the GXL project.

 Agency sales

 

Agency sales represented 0.29% of our net revenue in the first quarter of 2019 and revenue from agency sales decreased by 61% compared with the same period in 2018. The decrease in agency sales was due to less projects sales collection.

 

Because of our diverse market locations, the risk of market fluctuations has been decreased on our business operations in agency sales in 2019, and we are continually seeking stable growth in our agency sales business in 2019. However, there can be no assurance that we will be able to do so.

 

Property Management

 

Property management represented 0.31% of our revenue in the first quarter of 2019 and revenue from property management decreased by 46% compared with the same period in 2018.

 

House sales

 

House sales represented 99.4% of our revenue in the first quarter of 2019. The company has recognized its revenue from the GXL project.

 

Cost of Revenue

 

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

 

   Three months ended March 31, 
   2019   % to total   2018   % to total   % change 
Agency sales   57,614    0.23    107,598    10    (46)
Property management   108,483    0.43    118,408    11    (8)
House sales   25,338,828    99.4    857,441    79    2,855 
Cost of Revenue   25,504,925    100    1,083,447    100    2,254 

 

The cost of revenue in the first quarter of 2019 was $25,504,925, increased of 2,254% from $1,083,447 in the same period in 2018. In the first quarter of 2019, cost of agency sales represented 0.23% of cost of revenue, cost of house sales represented 99.4% and cost of property management represented 0.43%. The increase in cost of revenue in first quarter of 2018 was mainly due to the recognizing of the cost of revenue from the GXL project.

 

Agency sales

 

The cost of revenue for agency sales in the first quarter in 2019 was $57,614, a decrease of 46% from $107,598 in the same period in 2018. This decrease was mainly due to the decrease in salary expenses, office expenses and so on.

 

Property management

 

The cost of revenue for property management in the first quarter of 2019 was $108,483, decreased by 8% from $118,408 in the same period in 2018.

 

House sales

 

House sales represented 99.4% of our cost of revenue in the first quarter of 2019. The company has recognized its cost of revenue from the GXL project.

 

 25 

 

 

Operating Expenses

 

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

 

   Three months ended March 31, 
   2019   % to total   2018   % to total   % change 
Agency sales   32,341    9    98,500    12    (67)
Property management   115,676    34    415,110    52    (72)
House sales   193,661    57    279,808    35    (30)
Service sales   -    -    99    1    (100)
Operating expenses   341,678    100    793,517    100    (57)

 

The operating expenses in the first quarter of 2019 were $341,678, a decrease of 57% from $793,517 in the same period of 2018. This was mainly due to the decrease in expenses in property management. In the first quarter of 2019, agency sales represented 9% of operating expenses, property management represented 34% and house sales represented 57% of operating expenses.

 

Agency sales

 

The operating expenses for agency sales in the first quarter of 2019 were $32,341, which decreased by 67% from $98,500 in the same period in 2018.

 

Property management

 

The operating expenses for property management in the first quarter of 2019 were $115,676, which decreased 72% from $415,110 in the same period in 2018.

 

House sales

 

The operating expenses for house sales in the first quarter of 2019 were $193,661, which decreased 30% from $279,808 in the same period in 2018.

 

General and Administrative Expenses

 

The general and administrative expenses in the first quarter of 2019 were $6,223,155, which increased by 1,182% from $485,150 in the same period in 2018. This decrease was mainly due to the write off the amount of $2,612,491 due from WHYYL and the expense of delayed house handover of the GXL project.

 

Equity in Net Gain of Affiliates

 

Equity in net gain in the first quarter of 2019 was $0. The equity in net gain of affiliates was mainly the investment value variety of WHYYL and SHDEW.

 

In December 2019, SHDEW had an employee stock bonus where many of its employees received their vested shares. This resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%, thereby has changed our accounting method for the SHDEW investment from the equity method to the measurement alternative method since 2019.

 

Major Related Party Transaction

 

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

 

Amounts Due To Directors

 

The amounts due to directors as of March 31, 2019 were $44,202. The amounts due are as follows:

 

Amount Due to Lin Chi-Jung

 

The amount due to Lin Chi-Jung as of March 31, 2019 was $52,124, which includes unsecured advances and unpaid interest.

 

Amount Due from Pan Yu-Jen

 

The balance due from Pan Yu-Jen as of March 31, 2019 was $59,530. This balance is an advance to Mr. Pan for business expenses related to SZXJY and our project in Huaian.

 

Amount Due to Lin Hsin-Hung

 

The balance due to Lin Hsin-Hung as of March 31, 2019 was $51,607, which is unsecured, interest-free and payable on demand.

  

 26 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

In the first quarter of 2019, our principal sources of cash were revenues from our house sales collection and property management business, as well as the dividend receipt from the affiliates. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.

 

We ended the period with a cash position of $16,282,422.

 

The Company’s operating activities provided cash in the amount of $1,916,176, which was primarily attributable to the purchase of 78.46% HAZB from an affiliate.

 

The Company’s investing activities provided cash resources of $2,947,369, which was primarily attributable to the investment of transactional financial assets.

 

The Company’s financing activities used cash resources of $6,453,711, which was primarily attributable to dividends paid to the Company’s shareholders.

 

The potential cash needs for 2019 would include the investment of transactional financial assets, the rental guarantee payments and promissory deposits for various property projects as well as our development of the GXL project, Linyi project and Huai’an Tianxi project.

 

Capital Resources 

 

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

 

OFF BALANCE SHEET ARRANGEMENTS

 

The Company has no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

A. Material weaknesses

 

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we are going to undertake the following remediation initiatives:

 

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

 

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

 

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

 

 27 

 

 

B. Evaluation of Disclosure Controls and Procedures

 

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

 

C. Changes in Internal Control over Financial Reporting

 

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

 

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

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2018.

 

ITEM 1A. RISK FACTORS

 

Not applicable. 

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 28 

 

 

ITEM 6. EXHIBITS

 

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

 

* Filed herewith

 

 29 

 

 

SIGNATURES

 

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

  

  SUNRISE REAL ESTATE GROUP, INC.
   
  Date: June 17, 2020
  By: /s/ Zhang, Jian  
  Zhang, Jian, Chief Executive Officer, Principal Executive Officer
   
  Date: June 17, 2020
  By: /s/ Mi, Yong Jun  
  Mi, Yong Jun, Chief Financial Officer, Principal Financial Officer

 

 

 30