UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10−Q10-Q
(Mark One)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017June 30, 2023
¨OR
☐ 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: 001-34864
CHINA HGS REAL ESTATE,GREEN GIANT INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
Florida | 33-0961490 | |
(State or incorporation or organization) | (I.R.S. Employer Identification |
6 Xinghan Road, 19th Floor, Hanzhong City
Shaanxi Province, PRC 723000
(Address(Address of Principal Executive Offices, Zipprincipal executive offices) (Zip Code)
+(86) 091 - 62622612
(Registrant’s Telephone Number,telephone number, including Area Code)area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | GGE | The NASDAQ Capital Market |
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 pastpreceding 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. Yesx ☒ No¨ ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ ☐ No x☒
The numberAs of June 30, 2023, there were 55,793,268 shares outstanding of each of the issuer’s classes of common equity, as of February 12, 2018 is as follows:Common Stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTSGREEN GIANT INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2023
Contents
i
GREEN GIANT INC.
PART I: FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, | September 30, | |||||||
2017 | 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 2,694,175 | $ | 2,109,043 | ||||
Restricted cash | 2,829,885 | 2,607,561 | ||||||
Cost and earnings in excess of billings | 13,824,303 | 12,673,349 | ||||||
Real estate property development completed | 74,949,264 | 79,233,948 | ||||||
Real estate property under development | 85,651,923 | 87,126,402 | ||||||
Other current assets | 1,324,113 | 1,529,698 | ||||||
Total current assets | 181,273,663 | 185,280,001 | ||||||
Property, plant and equipment, net | 822,449 | 825,833 | ||||||
Real estate property development completed, net of current portion | 1,417,879 | 1,386,552 | ||||||
Security deposits | 8,758,019 | 8,564,517 | ||||||
Real estate property under development, net of current portion | 192,625,450 | 180,667,276 | ||||||
Due from local government for real estate property development completed | 2,994,573 | 2,928,410 | ||||||
Total Assets | $ | 387,892,033 | $ | 379,652,589 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Other loans | $ | 40,190,277 | $ | 28,545,233 | ||||
Accounts payable | 22,844,020 | 24,047,980 | ||||||
Other payables | 4,226,994 | 3,897,093 | ||||||
Construction deposits | 2,010,536 | 1,966,115 | ||||||
Billings in excess of cost and earnings | 4,779,693 | 4,247,477 | ||||||
Customer deposits | 25,671,051 | 24,613,864 | ||||||
Shareholder loan | 2,191,312 | 2,304,632 | ||||||
Accrued expenses | 3,131,407 | 3,158,432 | ||||||
Taxes payable | 17,587,026 | 17,259,202 | ||||||
Total current liabilities | 122,632,316 | 110,040,028 | ||||||
Deferred tax liabilities | 322,918 | 170,950 | ||||||
Tax payable - long term | 5,236,559 | 5,120,862 | ||||||
Customer deposits, net of current portion | 2,366,937 | 2,314,641 | ||||||
Other long term loan payable, less current portion | 89,151,908 | 98,797,447 | ||||||
Construction deposits, net of current portion | 1,342,770 | 1,319,295 | ||||||
Total liabilities | 221,053,408 | 217,763,223 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' equity | ||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 45,050,000 shares issued and outstanding December 31, 2017 and September 30, 2017 | 45,050 | 45,050 | ||||||
Additional paid-in capital | 129,868,072 | 129,853,172 | ||||||
Statutory surplus | 9,142,899 | 9,142,899 | ||||||
Retained earnings | 27,548,302 | 26,343,030 | ||||||
Accumulated other comprehensive income (loss) | 234,302 | (3,494,785 | ) | |||||
Total stockholders' equity | 166,838,625 | 161,889,366 | ||||||
Total Liabilities and Stockholders' Equity | $ | 387,892,033 | $ | 379,652,589 |
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
ASSETS | (Unaudited) | |||||||
Cash | $ | 105,659 | $ | 1,360,217 | ||||
Restricted cash | 2,754,200 | 3,007,960 | ||||||
Contract assets | 7,081,099 | 7,628,770 | ||||||
Prepayment | 32,694,702 | 26,936,915 | ||||||
Real estate property development completed | 72,677,725 | 74,772,530 | ||||||
Other assets | 3,894,869 | 3,767,190 | ||||||
Property, plant and equipment, net | 460,349 | 483,219 | ||||||
Security deposits | 1,737,364 | 1,771,019 | ||||||
Real estate property under development | 59,691,056 | 145,300,588 | ||||||
Due from local governments for real estate property development completed | 41,554,018 | 42,358,986 | ||||||
Total Assets | $ | 222,651,041 | $ | 307,387,394 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Construction loans | $ | 106,307,012 | $ | 108,366,351 | ||||
Accounts payable | 10,390,360 | 10,606,635 | ||||||
Other payables | 17,156,617 | 13,578,713 | ||||||
Amount due to related parties | 400,000 | — | ||||||
Construction deposits | 2,971,993 | 3,029,565 | ||||||
Contract liabilities | 1,933,651 | 1,989,898 | ||||||
Customer deposits | 19,341,039 | 19,842,768 | ||||||
Accrued expenses | 11,641,475 | 10,547,436 | ||||||
Taxes payable | 18,856,414 | 19,980,358 | ||||||
Total liabilities | 188,998,561 | 187,941,724 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ equity | ||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized, 55,793,268 and 46,464,929 shares issued and outstanding at June 30, 2023 and September 30, 2022, respectively | 55,793 | 46,464 | ||||||
Additional paid-in capital | 190,119,912 | 184,821,771 | ||||||
Statutory surplus | 11,095,939 | 11,095,939 | ||||||
Retained earnings | (160,040,608 | ) | (67,432,727 | ) | ||||
Accumulated other comprehensive income | (7,578,556 | ) | (9,085,777 | ) | ||||
Total stockholders’ equity | 33,652,480 | 119,445,670 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 222,651,041 | $ | 307,387,394 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME (LOSS)
(Unaudited)
Three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Real estate sales | $ | 14,447,571 | $ | 8,897,854 | ||||
Less: Sales tax | (25,216 | ) | (112,602 | ) | ||||
Cost of real estate sales | (12,000,541 | ) | (7,061,035 | ) | ||||
Gross profit | 2,421,814 | 1,724,217 | ||||||
Operating expenses | ||||||||
Selling and distribution expenses | 316,742 | 146,234 | ||||||
General and administrative expenses | 357,429 | 472,730 | ||||||
Total operating expenses | 674,171 | 618,964 | ||||||
Operating income | 1,747,643 | 1,105,253 | ||||||
Interest expense | (128,621 | ) | (121,123 | ) | ||||
Income before income taxes | 1,619,022 | 984,130 | ||||||
Provision for income taxes | 413,750 | 221,998 | ||||||
Net income | 1,205,272 | 762,132 | ||||||
Other Comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | 3,729,087 | (6,225,991 | ) | |||||
Comprehensive income (loss) | $ | 4,934,359 | $ | (5,463,859 | ) | |||
Basic and diluted income per common share | ||||||||
Basic and diluted | $ | 0.03 | $ | 0.02 | ||||
Weighted average common shares outstanding | ||||||||
Basic and diluted | 45,050,000 | 45,050,000 |
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Real estate sales, net of sales tax | $ | 206,096 | $ | 1,164,954 | $ | 858,679 | $ | 8,286,940 | ||||||||
Revenue from Battery Recycling | 224,226 | - | 224,226 | - | ||||||||||||
Cost of real estate sales | (165,535 | ) | (833,599 | ) | (699,197 | ) | (4,594,258 | ) | ||||||||
Cost of Battery Recycling | (223,386 | ) | — | (223,386 | ) | — | ||||||||||
Gross profit | 41,401 | 331,355 | 160,322 | 3,692,682 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and distribution expenses | (37,291 | ) | (40,261 | ) | (140,152 | ) | (289,919 | ) | ||||||||
General and administrative expenses | (804,743 | ) | (1,698,534 | ) | (2,555,639 | ) | (2,980,887 | ) | ||||||||
Impairment losses on real estate property development completed | (89,914,582 | ) | - | (89,914,582 | ) | - | ||||||||||
Total operating expenses | (90,756,616 | ) | (1,738,795 | ) | (92,610,373 | ) | (3,270,806 | ) | ||||||||
Operating (loss) income | (90,715,215 | ) | (1,407,440 | ) | (92,450,051 | ) | 421,876 | |||||||||
Interest income, net | 1,313 | 1,705 | 3,365 | 3,910 | ||||||||||||
Other (expense) | (15,178 | ) | 5,609 | (161,195 | ) | (245,592 | ) | |||||||||
(Loss) income before income taxes | (90,729,080 | ) | (1,400,126 | ) | (92,607,881 | ) | 180,194 | |||||||||
Provision for income taxes | — | (30,450 | ) | — | (513,675 | ) | ||||||||||
Net (loss) income | (90,729,080 | ) | (1,430,576 | ) | (92,607,881 | ) | (333,481 | ) | ||||||||
Other comprehensive (loss) income | ||||||||||||||||
Foreign currency translation adjustment | (1,894,958 | ) | (10,649,961 | ) | 1,507,221 | (7,444,501 | ) | |||||||||
Comprehensive (loss) income | $ | (92,624,038 | ) | $ | (12,080,537 | ) | $ | (91,100,660 | ) | $ | (7,777,982 | ) | ||||
Basic and diluted (loss) earnings per common share: | ||||||||||||||||
Basic | $ | (1.63 | ) | $ | (0.04 | ) | $ | (1.69 | ) | $ | (0.01 | ) | ||||
Diluted | $ | (1.63 | ) | $ | (0.04 | ) | $ | (1.69 | ) | $ | (0.01 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 55,793,268 | 40,464,929 | 54,925,252 | 33,672,274 | ||||||||||||
Diluted | 55,793,268 | 40,464,929 | 54,925,252 | 33,672,274 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(Unaudited)
Three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 1,205,272 | $ | 762,132 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Deferred tax provision | 145,714 | - | ||||||
Depreciation | 412,078 | 15,962 | ||||||
Stock based compensation | 14,900 | 14,900 | ||||||
Changes in assets and liabilities: | ||||||||
Restricted cash | (160,771 | ) | 323,605 | |||||
Cost and earnings in excess of billings | (850,656 | ) | (2,049,151 | ) | ||||
Real estate property development completed | 5,976,747 | 7,061,036 | ||||||
Real estate property under development | (4,361,705 | ) | (21,981,341 | ) | ||||
Other current assets | 236,266 | (522,767 | ) | |||||
Accounts payables | (1,719,070 | ) | (1,287,068 | ) | ||||
Other payables | 237,946 | (7,695 | ) | |||||
Billings in excess of cost and earnings | 429,205 | (19,812 | ) | |||||
Customer deposits | 492,982 | 756,670 | ||||||
Construction deposits | (6,230 | ) | (425,264 | ) | ||||
Accrued expenses | (86,445 | ) | (112,531 | ) | ||||
Taxes payable | (61,119 | ) | 150,497 | |||||
Net cash provided by (used in) operating activities | 1,905,114 | (17,320,827 | ) | |||||
Cash flow from investing activities | ||||||||
Purchases of fixed assets | (390,392 | ) | - | |||||
Net cash used in investing activities | (390,392 | ) | - | |||||
Cash flow from financing activities | ||||||||
Net repayments of shareholder loan | (122,484 | ) | - | |||||
Repayments of bank loans | (863,438 | ) | - | |||||
Proceeds from other loans | - | 21,488,076 | ||||||
Net cash provided by (used in) financing activities | (985,922 | ) | 21,488,076 | |||||
Effect of changes of foreign exchange rate on cash | 56,332 | (319,414 | ) | |||||
Net increase in cash | 585,132 | 3,847,835 | ||||||
Cash, beginning of period | 2,109,043 | 6,401,237 | ||||||
Cash, end of period | $ | 2,694,175 | $ | 10,249,072 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | $ | 1,481,263 | $ | 1,374,159 | ||||
Income taxes paid | $ | 98,906 | $ | 170,567 |
Accumulated | ||||||||||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Statutory | Retained | comprehensive | stockholders’ | |||||||||||||||||||||||
Shares | Amount | Stocks | Reserve | Earnings | Income (loss) | equity | ||||||||||||||||||||||
Balance, September 30, 2021 | 25,617,807 | $ | 25,617 | $ | 136,535,303 | $ | 11,095,939 | $ | 40,691,955 | $ | 2,348,897 | $ | 190,697,711 | |||||||||||||||
Net income | — | — | — | — | 364,310 | — | 364,310 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 2,167,401 | 2,167,401 | |||||||||||||||||||||
Balance, December 31, 2021 - unaudited | 25,617,807 | $ | 25,617 | $ | 136,535,303 | $ | 11,095,939 | $ | 41,056,265 | $ | 4,516,298 | $ | 193,229,422 | |||||||||||||||
Issuance of common stocks in connection with private placements | 14,847,122 | 14,847 | 28,922,068 | — | — | — | 28,936,915 | |||||||||||||||||||||
Net income | — | — | — | — | 732,785 | — | 732,785 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 1,038,059 | 1,038,059 | |||||||||||||||||||||
Balance, March 31, 2022 - unaudited | 40,464,929 | $ | 40,464 | $ | 165,457,371 | $ | 11,095,939 | $ | 41,789,050 | $ | 5,554,357 | $ | 223,937,181 | |||||||||||||||
Net loss | — | — | — | — | (1,430,576 | ) | — | (1,430,576 | ) | |||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | (10,649,961 | ) | (10,649,961 | ) | |||||||||||||||||||
Balance, June 30, 2022 - unaudited | 40,464,929 | $ | 40,464 | $ | 165,457,371 | $ | 11,095,939 | $ | 40,358,474 | $ | (5,095,604 | ) | $ | 211,856,644 | ||||||||||||||
Balance, September 30, 2022 | 46,464,929 | $ | 46,464 | $ | 184,821,771 | $ | 11,095,939 | $ | (67,432,727 | ) | $ | (9,085,777 | ) | $ | 119,445,670 | |||||||||||||
Private placements | 9,288,339 | 9,289 | 5,192,181 | — | — | — | 5,201,470 | |||||||||||||||||||||
Net income | — | — | — | — | (573,722 | ) | — | (573,722 | ) | |||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 2,987,908 | 2,987,908 | |||||||||||||||||||||
Balance, December 31, 2022 - unaudited | 55,753,268 | $ | 55,753 | $ | 190,013,952 | $ | 11,095,939 | $ | (68,006,449 | $ | (6,097,869 | ) | $ | 127,061,326 | ||||||||||||||
Private placements | 40,000 | 40 | 105,960 | — | — | — | 106,000 | |||||||||||||||||||||
Net income | — | — | — | — | (1,305,079 | ) | — | (1,305,079 | ) | |||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | 414,271 | 414,271 | |||||||||||||||||||||
Balance, March 31, 2023 - unaudited | 55,793,268 | $ | 55,793 | $ | 190,119,912 | $ | 11,095,939 | $ | (69,311,528 | ) | $ | (5,683,598 | ) | $ | 126,276,518 | |||||||||||||
Net loss | — | — | — | — | (90,729,080 | ) | — | (90,729,080 | ) | |||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | (1,894,958 | ) | (1,894,958 | ) | |||||||||||||||||||
Balance, June 30, 2023 - unaudited | 55,793,268 | $ | 55,793 | $ | 190,119,912 | $ | 11,095,939 | $ | (160,040,608 | ) | $ | (7,578,556 | ) | $ | 33,652,480 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | (92,607,881 | ) | $ | (333,481 | ) | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 14,201 | 18,440 | ||||||
Impairment loss | 89,914,582 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Contract assets | 417,835 | 514,590 | ||||||
Real estate property development completed | 699,197 | 4,600,277 | ||||||
Real estate property under development | (3,952,017 | ) | (9,302,202 | ) | ||||
Other current assets | (200,605 | ) | 4,013,019 | |||||
Accounts payables | (15,265 | ) | (6,525,103 | ) | ||||
Other payables | 3,966,769 | 3,895,841 | ||||||
Amount due to related parties | 400,000 | — | ||||||
Contract liabilities | (19,125 | ) | (175,577 | ) | ||||
Customer deposits | (129,333 | ) | 2,624,895 | |||||
Accrued expenses | 1,342,254 | 646,264 | ||||||
Taxes payables | (842,518 | ) | (776,711 | ) | ||||
Net Cash Used in Operating Activities | (1,011,906 | ) | (799,748 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Prepayment for energy equipment | (5,757,787 | ) | (26,936,915 | ) | ||||
Net Cash Used in Investing Activities | (5,757,787 | ) | (26,936,915 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from private placements | 5,307,470 | 28,936,915 | ||||||
Net Cash Provided by Financing Activities | 5,307,470 | 28,936,915 | ||||||
Effect of exchange rate changes on cash and restricted cash | (46,095 | ) | (124,054 | ) | ||||
Net increase (decrease) in cash and restricted cash | (1,508,318 | ) | 1,076,198 | |||||
Cash and restricted cash, beginning of period | 4,368,177 | 3,465,189 | ||||||
Cash and restricted cash, end of period | $ | 2,859,859 | $ | 4,541,387 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest expense | $ | — | $ | — | ||||
Cash paid for income tax | $ | — | $ | — | ||||
Non-cash Transactions of Investing and Financing Activities | ||||||||
Reclassification of interest payable to other liabilities | $ | — | $ | 5,063,191 | ||||
Settlement of accounts payable with real estate property* | $ | — | $ | 569,299 | ||||
Settlement of accounts payable and accounts receivable* | $ | — | $ | 2,758,731 | ||||
Settlement of accounts payable with issuance of stocks | $ | — | $ | — | ||||
Real estate sales for settlement in real estate property under development | $ | — | $ | — | ||||
Reconciliation of cash and restricted cash | ||||||||
Cash, end of period | $ | 105,659 | $ | 1,463,797 | ||||
Restricted, end of period | 2,754,200 | 3,077,590 | ||||||
Total cash and restricted cash, end of period | $ | 2,859,859 | $ | 4,541,387 | ||||
Cash, beginning of period | $ | 1,360,217 | $ | 170,001 | ||||
Restricted, beginning of period | 3,007,960 | 3,295,188 | ||||||
Total cash and restricted cash, beginning of period | $ | 4,368,177 | $ | 3,465,189 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Green Giant Inc., formerly known as China HGS Real Estate Inc. (“China HGS”GG” or the “Company” or “we”, “us”, “our”), through its subsidiaries and variable interest entity (“VIE”), engages in real estate development, and the construction and sales of residential apartments, parking spacespaces and commercial properties in Tier 3 and Tier 4 cities and counties in China. On March 23, 2022, the Company completed the change of its name from China HGS Real Estate Inc. to Green Giant Inc., effective immediately (the “Name Change”).
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission for interim financial information.reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2017June 30, 2023 and 20162022 are not necessarily indicative of the results that may be expected for the full year. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 20172022 filed with the SECU.S. Securities and Exchange Commission (the “SEC”) on January 13, 2023.
NOTE 2. LIQUIDITY
In recent years, the Chinese government has implemented measures to control overheating residential and commercial property prices including but not limited to restrictions on home purchases, increasing the down-payment requirement against speculative buying, development of low-cost rental housing properties to help low-income groups while reducing the demand in the commercial housing market, increasing real estate property taxes to discourage speculation, control of the land supply and slowdown the construction land auction process, etc. In addition, in December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly throughout China and worldwide, which has caused significant volatility in the PRC and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC’s and international economies. To reduce the spread of COVID-19, the Chinese government has employed measures including city lockdowns, quarantines, travel restrictions, suspension of business activities and school closures. Due to difficulties resulting from the COVID-19 pandemic, including, but not limited to, the closure of the Company’s facilities and operations beginning in early February 2020 and ending in December 2022, limited support from the Company’s employees, delayed access to construction raw material supplies, reduced customer visits to the Company’s sales office, and inability to promote real estate property sales to customers on a timely basis. The Company had real estate sales of approximately $0.9 million for the nine months ended June 30, 2023, as compared with $8.3 million in the same period of last year. Based on the assessment of the current economic environment, customer demand and sales trends, we believe that consumer spending has been restored in the local real estate market and real estate sales are expected to grow in the coming periods. On the other side, due to the negative impact from the COVID-19 pandemic and its variants, the development period of real estate properties and our operating cycle has been extended and we may not be able to liquidate our large balance of completed real estate properties within the short term as we originally expected. In addition, as of June 30, 2023, we had large construction loans payable of approximately $106.3 million and accounts payable of approximately $10.4 million to be paid to subcontractors. The extent of the impact of COVID-19 on the Company’s future financial results will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the local economy and real estate markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this uncertainty, the Company is currently unable to quantify the expected impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations if the current situation continues. The above-mentioned facts raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date of this filing.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. LIQUIDITY (CONTINUED)
In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. As of June 30, 2023, our total cash and restricted cash balance was approximately $2.9 million. With respect to capital funding requirements, the Company budgeted its capital spending based on ongoing assessments of its needs to maintain adequate cash. On January 27, 2023, the Company closed a private placement with net proceeds of approximately $0.1 million. As of June 30, 2023, we had approximately $72.7 million of completed residential apartments and commercial units available for sale to potential buyers. Although we reported approximately $10.4 million accounts payable as of June 30, 2023, due to the long-term relationship with our construction suppliers and subcontractors, we were able to effectively manage cash spending on construction and negotiate with them to adjust the payment schedule based on our cash on hand. In addition, most of our existing real estate development projects relate to the old town renovation which are supported by the local government. As of June 30, 2023, we reported approximately $106.3 million of construction loans borrowed from financial institutions controlled by the local government and such loans can only be used on the old town renovation related project development. We expect that we will be able to renew all of the existing construction loans upon their maturity and borrow additional new loans from local financial institutions, when necessary, based on our past experience and the Company’s good credit history. Also, the Company’s cash flows from pre-sales and current sales should provide financial support for our current development projects and operations. For the three months ended June 30, 2023, we had six large ongoing construction projects (see Note 3, 2018.real estate properties under development) which were under the preliminary development stage due to delayed inspection and acceptance of the development plans by the local government. In June 2020, we completed the residence relocation surrounding the Liangzhou Road related projects and launched the construction of these projects in December 2020. For the other four projects, we expect we will be able to obtain the government’s approval of the development plans on these projects in the coming fiscal year and start the pre-sale of the real estate properties to generate cash when certain property development milestones have been achieved.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The interim unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“US GAAP”).
The unaudited condensed consolidated financial information as of June 30, 2023 and for the three and nine months ended June 30, 2023 and 2022 has been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended September 30, 2022, which was filed with the SEC on January 13, 2023.
In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended September 30, 2022. The results of operations for the three and nine months ended June 30, 2023 and 2022 are not necessarily indicative of the results for the full years.
Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of China HGS Real Estate Inc. (the “Company” or “China HGS”),the Company, China HGS Investment Inc. (“HGS Investment”), Shaanxi HGS Management and Consulting Co., Ltd. (“Shaanxi HGS”) and its variable interest entity (“VIE”), Shaanxi Guangsha Investment and Development Group Co., Ltd. (“Guangsha”). All inter-company transactions and balances between the Company and its subsidiaries and VIE have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the assumptions and estimates used by management in recognizing development revenue under the percentage of completion method, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, revenue recognition, taxes and budgeted costs, share-based compensation and other similar charges.costs. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments
The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair“Fair Value Measurements and Disclosures.” It clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions or what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the accompanying condensed consolidated balance sheets for cash, restricted cash and all other current assets, security deposits for land use rights, loans and all current liabilities approximate their fair value based on the short-term maturity of these instruments. The fair value of the long term customer, construction and security deposits approximate their carrying amounts because the deposits are received in cash. It was impractical to estimate the fair value of the amount due from the local government and the long term other loans payable.payables.
Revenue recognition
Percentage of Completion method
Real estate sales for the long term real estate projects areThe Company follows FASB ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenue is recognized under percentage completion method in accordance with the provisionstransfer of ASC 360-20-40D “Salegoods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The Company determines revenue recognition through the following steps:
● | identification of the contract, or contracts, with a customer; |
● | identification of the performance obligations in the contract; |
● | determination of the transaction price, including the constraint on variable consideration; |
● | allocation of the transaction price to the performance obligations in the contract; and |
● | recognition of revenue when (or as) the Company satisfies a performance obligation. |
The Company currently operates in two segments, the real estate development business and green energy business. The Company engages in real estate development through the VIE, Guangsha, in mainland China, and is transitioning itself from its real estate development business to a new energy corporation and has appointed a CEO in its Delaware subsidiary to lead and operate the green energy business.
For the three months ended June 30, 2023, revenues were generated from lead ingots or blocks sales and completed condominium real estate projects. The Company controls of Condominium Units”. Revenue and profitthe lead ingots or blocks. Revenues are recognized in gross amount at the point of time when they are delivered to the customers. 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 its 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 long termindividual condominium units in a real estate development propertiesproject, 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 (“percentage completion method”). Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. For the three and nine months ended June 30, 2023 and 2022, the Company did not have any construction in progress recognized under the percentage of completion method on the sale of individual units when all the following criteria are met:
If any of the above criteria is not met, proceeds shall be accounted for as deposits until the criteria are met.
Under the percentage of completion method, revenues from condominium units sold and related costs are recognized over the course of the construction period, based on the completion progress of a project. In relation to any project, revenue is determined by calculating the ratio of incurred costs, including land use rights costs and construction costs, to total estimated costs and applying that ratio to the contracted sales amounts. Cost of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales value, and applying that ratio to the incurred costs. Current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts.
Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized. Changes in total estimated project costs or losses, if any, are recognized in the period in which they are determined.method.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Contract balances
Full accrual method
RevenueTiming of revenue recognition may differ from the timing of billing and cash receipts from customers. The Company records a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance of recognizing revenue. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets include billed and billable receivables, which are the Company’s unconditional rights to consideration other than the passage of time. Contract liabilities include cash collected in advance and in excess of revenue recognized. Customer deposits are excluded from contract liabilities. The Company immediately expenses sales of short term development properties, where the construction period iscommissions (included under selling expenses) because sales commission are not expected to be 18 months or less is recognized by the full accrual method at the time of the closing of an individual unit sale. This occurs when title to or possession of the property is transferred to the buyer. A sale is not considered consummated until (a) the parties are bound by the terms of a contract, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed, (e) the seller does not have substantial continuing involvement with the property, and (f) the usual risks and rewards of ownership have been transferred to the buyer. Further, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property.recovered.
The Company provides “mortgage loan guarantees” only with respect to buyers who make down-payments of 20%-50% of the total purchase price of the property. The period of the mortgage loan guarantee begins on the date the bank approves the buyer’s mortgage and we receive the loan proceeds in our bank account and ends on the date the “Certificate of Ownership” evidencing that title to the property has been transferred to the buyer. The procedures to obtain the Certificate of Ownership take six to twelve months (the “Mortgage Loan Guarantee Period”). If, after investigation of the buyer’s income and other relevant factors, the bank decides not to grant the mortgage loan, our mortgage-loan based sales contract terminates and there will be no guarantee obligation. If, during the Mortgage Loan Guarantee Period, the buyer defaults on his or her monthly mortgage payment for three consecutive months, we are required to return the loan proceeds back to the bank, although we have the right to keep the customer'scustomer’s deposit and resell the property to a third party. Once the Certificate of PropertyOwnership has been issued by the relevant government authority, our loan guarantee terminates. If the buyer then defaults on his or her mortgage loan, the bank has the right to take the property back and sell it and use the proceeds to pay off the loan. The Company is not liable for any shortfall that the bank may incur in this event. To date, no buyer has defaulted on his or her mortgage payments during the Mortgage Loan Guarantee Period and the Company has not returned any loan proceeds pursuant to its mortgage loan guarantees.
For municipal road construction projects, fees are generally recognized by the full accrual method at the time of the projects are completed.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation
The Company’s financial information is presented in U.S. dollars. The functional currency of the Company’s operating subsidiariesVIE is Renminbi (“RMB”), the currency of the PRC. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC Topic 830-30 “Translation of Financial Statements”. The financial information is first prepared in RMB and then is translated into U.S. dollars at year-endperiod-end exchange rates as to assets and liabilities and average exchange rates as to revenue, expenses and expenses.cash flows. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity.
For three months ended December 31, | September 30, | |||||||||||
2017 | 2016 | 2017 | ||||||||||
Period end RMB : USD exchange rate | 6.5063 | 6.9448 | 6.6533 | |||||||||
Period average RMB : USD exchange rate | 6.6131 | 6.8343 | 6.8104 |
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
Year-end spot rate | 7.2513 | 7.1135 |
For the Nine Months Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Average rate | 6.9886 | 6.4504 |
The RMB is not freely convertible into foreign currency and all foreign exchange transactions 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 rates used in translation.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
Cash includes cash on hand and demand deposits in accounts maintained with commercial banks within the PRC. The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company maintains bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted Cash
The restricted cash is required by the banks as collateral for mortgage loans given to the home buyers before obtaining the certificates of ownership of the properties as collateral. In order to provide the banks with the certificates of ownership, the Company is required to complete certain procedures with the Chinese government, which normally takes six to twelve months. Because the banks provide the loan proceeds to the Company without obtaining certificates of ownership as loan collateral during this six to twelve months’ period, the mortgage banks require the Company to maintain, as restricted cash, 5% to 10% of the mortgage proceeds as security for the Company’s obligations under such guarantees. The restricted cash is released by the banks once they receive the certificates of ownership. These deposits are not covered by insurance. The Company has not experienced any losses in such accounts and management believes its restricted cash account is not exposed to any risks.
Advances to vendors
Advances to vendors consist of balances paid to contractors and vendors for services and materials that have not been provided or received and generally relate to the development and construction of residential and commercial units in the PRC. Advances to vendors are reviewed periodically to determine whether their carrying value has become impaired. Historically, the Company has not experienced any losses as a result of these advances.
Security deposits for land use rights
Security deposits for land use rights consist of the deposit held by the PRC government for the purchase of land use rights and the deposit held by an unrelated party to transfer its land use rights to the Company. The deposits will be reclassified to real estate property under development upon the transfers of legal title.
Real estate property development completed and under development
Real estate property consists of finished residential unit sites, commercial offices and residential unit sites under development. The Company leases the land for the residential unit sites under land use right leases with various terms from the PRC government. The cost of land use rights is included in the development cost and allocated to each project. Real estate property development completed and real estate property under development are stated at the lower of cost or fair value.
Expenditures for land development, including cost of land use rights, deed tax, pre-development costs, and engineering costs, exclusive of depreciation, 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 area of units to the estimated total sales area of the project (or phase of the project) multiplied by the total cost of the project (or phase of the project).
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Real estate property development completed and under development
Cost of amenities transferred to buyers is allocated to specific units as a component of total construction cost. The amenity cost includes landscaping, road paving, etc. Once the projects are completed, the amenities are under control of the property management companies. Real estate property development completed and real estate property under development are reclassified on the balance sheet into current and non-current portions based on the estimated date of construction completion and sales. The real estate property development completed classification is based on the estimated date that each property is expected to be sold within the Company’s normal operating cycle of the business and the Company’s sales plan. Real estate property development completed is classified as a current asset if the property is expected to be sold within the normal operating cycle of the business. Otherwise, it is classified as a non-current asset. The majority of real estate projects the Company has completed in the past were multi-layer or sub-high-rise real estate projects. The Company considers its normal operating cycle is 12 months.
Real estate property development completed and under development are 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 its 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. The Company reviewedreviews all of its real estate projects for future losses and impairment by comparing the estimated future undiscounted cash flows for each project to the carrying value of such project. For the three and nine months ended December 31, 2017 and 2016,June 30, 2023, the Company did not recognize anyrecognized $89.9 million impairment forwith respect to real estate property under development and completed.development.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalization of Interest
Interest incurred during and directly related to real estate development projects is capitalized to the related real estate property under development during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest capitalized to real estate propertyproperties under development is recorded as a component of the cost of real estate sales when related units are sold. All other interest is expensed as incurred. For the three and nine months ended December 31, 2017June 30, 2023, the total interest capitalized for real estate property development was $1,343,290 and 2016,$4,208,313, respectively.For the three and nine months ended June 30, 2022, the total interest capitalized in the real estate property development was $1,377,691$1,618,659 and $1,281,875, respectively$5,063,191, respectively.
Impairment of long-lived assets
In accordance with the FASB ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset'sasset’s expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is noThe Company recognized $89.9 million impairment of long-lived assets during thewith respect to real estate property under development for three months ended December 31, 2017 and 2016.
Customer deposits
Customer deposits consist of amounts received from customers relating to the sale of residential units in the PRC. In the PRC, customers will generally obtain permanent financing for the purchase of their residential unit prior to the completion of the project. The lending institution will provide the funding to the Company upon the completion of the financing rather than the completion of the project. The Company receives these funds and recognizes them as a liability until the revenue can be recognized.
Property warranty
The Company provides its customers with warranties which cover major defects of building structure and certain fittings and facilities of properties sold. The warranty period varies from two years to five years, depending on different property components the warranty covers. The Company continually estimates potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a property. Reserves are determined based on historical data and trends with respect to similar property types and geographical areas. The Company continually monitors the warranty reserve and makes adjustments to its pre-existing warranties, if any, in order to reflect changes in trends and historical data as information becomes available. The Company may seek further recourse against its contractors or any related third parties if it can be proved that the faults are caused by them. In addition, the Company also withholds up to 2% of the contract cost from sub-contractors for periods of two to five years. These amounts are included in construction deposits, and are only paid to the extent that there has been no warranty claim against the Company relating to the work performed or materials supplied by the subcontractors. For the three months ended December 31, 2017 and 2016, the Company had not recognized any warranty costs in excess of the amount retained from subcontractors and therefore, no warranty reserve is considered necessary at the balance sheet dates.
Construction Deposits
Construction deposits are the warranty deposits the real estate contractors provide to the Company upon signing the construction contracts. The Company can use such deposits to reimburse customers in the event of customer claims due to construction defects. The remaining balance of the deposits are returned to the contractors when the terms of the after-sale property warranty expires, which normally occurs within two to five years after the date of the deposit. June 30, 2023.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(CONTINUED)
Share-based compensation
Share-based payment transactions are measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, or vesting period.
Forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from initial estimates. Forfeiture rate is estimated based on historical and future expectation of employee turnover rate and are adjusted to reflect future change in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense was recorded only for those stock options and common stock awards that are expected to vest.
Income taxes
DeferredIn accordance with FASB ASC Topic 740 “Income Taxes,” deferred tax assets and liabilities are for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. ValuationA valuation allowances areis established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
ASC 740-10-25 prescribes a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax positionpositions taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There are no material uncertain tax positions as of December 31, 2017June 30, 2023 and September 30, 2017.2022.
The Company is a corporation organized under the laws of the State of Florida. However, all of the Company’s operations are conducted solely by its subsidiaries and VIE in the PRC. No income is earned in the Company and the Company’s subsidiariesUnited States and the management does not repatriate any earnings from VIE outside the PRC. As a result, the Company did not generate any U.S. taxable income for the three and nine months ended December 31, 2017June 30, 2023 and 2016.2022. As of December 31, 2017,June 30, 2023, the Chinese entities’ income tax returns filed in China for the years ended December 31, 2016 2015, 2014, 2013 and 2012through 2020 are subject to examination by the Chinese taxing authorities. As of December 31, 2017, the
The parent Company, China HGS Real Estate Inc.’sGreen Giant’s both U.S. federal tax returns and Florida state tax returns are delinquent since 2009. Its tax years ended September 30, 20132009 through September 30, 2017 remains2021 remain open for statutory examination by U.S. federal and state tax authorities.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. Due to the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded accrued amounts in our consolidated financial statements as of June 30, 2023 and September 30, 2022, including approximately $2.3 million provision on the deemed repatriation of undistributed foreign earnings and an additional $1.3 million provision for delinquent U.S. and State tax fillings. The Company plans to engage a tax professional to file its delinquent tax returns in 2022. Failure to furnish any income tax and information returns with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to civil penalties.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(CONTINUED)
Land appreciation tax (“LAT”)
In accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30% to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures including borrowing costs and all property development expenditures. LAT is exempted if the appreciation values do not exceed certain thresholds specified in the relevant tax laws.
The whole project must be completed before the LAT obligation can be assessed. Accordingly, the Company should recordrecords the liability and the total related expense at the completion of a project unless the tax authorities impose an assessment at an earlier date. The methods to implement this tax law vary among different geographic areas. Hanzhong, where the projectprojects Mingzhu Garden, NandajieNan Dajie and Central Plaza are located, implements this tax rule by requiring real estate companies prepay the LAT based upon customer deposits received. The tax rate in Hanzhong is 1%. Yang County, where the project Yangzhou Pearl Garden and Yangzhou Palace projects are located, requireshas a tax rate of 0.5%.
Comprehensive income (loss)
In accordance with ASC 220-10-55, comprehensive income (loss) is defined as all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s only components of other comprehensive income (loss) for the three and nine months ended December 31, 2017June 30, 2023 and 20162022 were net income and foreign currency translation adjustments.
Basic and diluted earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with the ASC 260, “Earnings per share”, which requires companies to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Advertising expenses
Advertising costs are expensed as incurred. ForAs of June 30, 2023, there were outstanding warrants to purchase approximately 55,793,268 shares of the Company’s Common Stock (September 30, 2022-46,464,929), which resulted in 55,793,268 dilutive shares for the nine months ended June 30, 2023. There were no dilutive shares for the three months ended December 31, 2017 and 2016, the Company recorded advertising expenses of $114,832 and $74,291, respectively.June 30, 2023.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(CONTINUED)
Concentration risk
The Company'sCompany’s operations are carried out in the PRC. Accordingly, the Company'sCompany’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC'sPRC’s economy. The Company'sCompany’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company'sCompany’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittanceremittances abroad, and rates and methods of taxation, among other things. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. AllThe Company’s cash and restricted cash were on deposit at financial institutions in the PRC, which the management believes are of high credit quality. In May, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions, such as commercial banks, established in China are required to purchase deposit insurance for deposits in RMB and in foreign currencies placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s accounts, as its aggregate deposits are much higher than the compensation limit of RMB500,000 (approximately $74,600). However, the Company believes that the risk of failure of any of these Chinese banks is remote. Bank failure is uncommon in China and the Company believes that the Chinese banks that hold the Company’s cash is maintained with state-owned banks within the People’s Republic of China of which no depositsand restricted cash are covered by insurance.financially sound based on public available information. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
The Company is dependent on third-party sub-contractors, manufacturers, and distributors for all construction services and supply of construction materials. For the three and nine months ended December 31, 2017, one supplierJune 30, 2023 and 2022, the Company did not have any individual customer that accounted for approximately 22%more than 10% of the Company’s total project expenditures. ForCompany real estate sales revenue for the three months ended December 31, 2016, one supplier accounted for over 15% of the Company’s total project expenditures. related periods.
NOTE 4. PREPAYMENT
ReclassificationsAs of June 30, 2023, prepayments were as follows:
Certain prior fiscal year restricted cash balance have been reclassified to conform to the current fiscal year presentation.
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
Energy equipments | $ | 26,936,915 | $ | 26,936,915 | ||||
Professional service | 5,200,000 | — | ||||||
Mental Scrap | 557,787 | — | ||||||
Total | $ | 32,694,702 | $ | 26,936,915 |
Recent Accounting Pronouncements
(A) | In April, 2023, Green Giant Energy Texas Inc. (“Green Giant Energy”), an indirect wholly owned subsidiary of Green Giant Inc., entered into a sales contract with AGR Enterprises Inc. (“AGR”), pursuant to which Green Giant Energy agreed to purchase, and AGR agreed to sell to Green Giant Energy, 279.35 MTAluminium Scrap Zorba and 40 MT Non Ferrous Metal Scrap Zurik, with the unit price of $1,827 per MT and $1,185 per MT respectively. Green Giant Energy prepaid $557,787 after both parties signed the agreement. |
(B) | In 1st quarter of fiscal 2023, the Company made the prepayment in $5.2 million to Vocob Inc. for the consulting services on executing and performing acquisition of the renewable energy entities and C&I solar sites. The contract was signed on October 15, 2022. The agreement is subject to annual review by both parties, the company may declare the agreement is void, rescind the contract and reserves the right to take back the US$5.2 million if Vocob Inc. fails to refer appropriate projects to the Company at the anniversary date. Vocob Inc. will deduct its commission at 3% on gross amount of the deal on per successfully referred project basis from the prepayment; the Company is also entitled to have the remaining balance of prepayment back at the end of the contract terms. |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which means it will be effective for the Company’s fiscal year beginning October 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard.
(C) | In 4th quarter of fiscal 2022, the Company made the prepayment in $26.9 million to Golden Mainland Inc. and Golden Ocean Inc. for energy equipment purchase. |
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
Preliminarily, we will adopt Topic 606 in the first quarter of our fiscal 2019 using the modified retrospective transition method, and are continuing to evaluate the impact our pending adoption of Topic 606 will have on our unaudited condensed consolidated financial statements. The Company’s current percentage completion revenue recognition method is not allowed under the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments might have material impacts on the company’s condensed consolidated financial statement upon adoption of the new guidance at the time of adoption based upon outstanding contracts at that time.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3.5. REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT
The following summarizes the components of real estate property development completed and under development as of December 31, 2017June 30, 2023 and September 30, 2017:2022:
Balance as of | ||||||||
December 31, 2017 | September 30, 2017 | |||||||
Development completed: | ||||||||
Hanzhong City Mingzhu Garden Phase I | $ | 841,920 | $ | 823,319 | ||||
Hanzhong City Mingzhu Garden Phase II | 40,417,361 | 42,274,715 | ||||||
Hanzhong City Nan Dajie (Mingzhu Xinju) | 1,336,192 | 1,306,669 | ||||||
Hanzhong City Oriental Pearl Garden | 27,384,391 | 29,969,640 | ||||||
Yang County Yangzhou Pearl Garden Phase I | 1,922,928 | 1,880,443 | ||||||
Yang County Yangzhou Pearl Garden Phase II | 4,464,351 | 4,365,714 | ||||||
Real estate property development completed | 76,367,143 | 80,620,500 | ||||||
Less: Real estate property completed – short-term | 74,949,264 | 79,233,948 | ||||||
Real estate property completed – long-term | $ | 1,417,879 | $ | 1,386,552 | ||||
Under development: | ||||||||
Yang County Yangzhou Palace (a) | $ | 85,651,923 | $ | 87,126,402 | ||||
Hanzhong City Shijin Project | 7,444,745 | 7,280,256 | ||||||
Hanzhong City Liangzhou Road and related projects (b) | 135,144,631 | 133,941,504 | ||||||
Hanzhong City Hanfeng Beiyuan East (c) | 775,811 | 758,670 | ||||||
Hanzhong City Beidajie (e) | 44,626,372 | 36,335,231 | ||||||
Yang County East 2nd Ring Road (d) | 4,633,891 | 2,351,615 | ||||||
Real estate property under development | 278,277,373 | 267,793,678 | ||||||
Less: Short-term portion | 85,651,923 | 87,126,402 | ||||||
Real estate property under development –long-term | $ | 192,625,450 | $ | 180,667,276 |
Balance as of | ||||||||
June 30, 2023 | September 30, 2022 | |||||||
(Unaudited) | ||||||||
Development completed: | ||||||||
Hanzhong City Mingzhu Garden Phase II | $ | 20,279,475 | $ | 20,672,000 | ||||
Hanzhong City Oriental Pearl Garden | 17,094,368 | 17,425,514 | ||||||
Yang County Yangzhou Pearl Garden Phase II | 1,993,943 | 2,039,912 | ||||||
Yang County Yangzhou Palace | 33,309,939 | 34,635,104 | ||||||
Real estate property development completed | $ | 72,677,725 | $ | 74,772,530 | ||||
Under development: | ||||||||
Hanzhong City Liangzhou Road and related projects (a) | $ | 172,551,954 | $ | 173,289,941 | ||||
Hanzhong City Hanfeng Beiyuan East (b) | 771,999 | 786,954 | ||||||
Hanzhong City Beidajie (b) | 32,054,541 | 31,144,446 | ||||||
Yang County East 2nd Ring Road (c) | 7,506,417 | 7,904,869 | ||||||
Real estate property under development | $ | 212,884,911 | $ | 213,126,210 | ||||
Impairment | (153,193,855 | ) | (67,825,622 | ) | ||||
Real estate property under development | $ | 59,691,056 | $ | 145,300,588 |
(a) |
In September 2013, the Company entered into an agreement (“Liangzhou Agreement”) with the Hanzhong local government on the Liangzhou Road reformation and expansion project (Liangzhou Road Project”). Pursuant to the agreement, the Company is contracted to reform and expand the Liangzhou Road, a commercial street in downtown Hanzhong City, with a total length of 2,080 meters and a width of 30 meters and to resettle the existing residences in the Liangzhou road area. The government’s original road construction budget was approximately $33 million in accordance with the Liangzhou Agreement. The Company, in return, is being compensated by the local government to have an exclusive right on acquiring at least 394.5 Mu land use rights in a specified location of Hanzhong City. The Liangzhou Road Project’s road construction started at the end of 2013. In 2014, the original scope and budget on the Liangzhou road reformation and expansion project was extended, because the local government included more area and resettlement residences into the project, which resulted in additional investments from the Company. In return, the Company is authorized by the local government to develop and manage the commercial and residential properties surrounding the Liangzhou Road project. The Company launched the construction of the Liangzhou Road related projects in December 2020. As of |
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT
The Company’s development cost incurred onfor the Liangzhou Road Project is treated as the Company’s deposit on purchasing the related land use rights, as agreed by the local government. As of December 31, 2017,June 30, 2023, the actual costs incurred by the Company were $135,144,631approximately $172.6 million (September 30, 20172022 - $133,941,504)$173.3 million) and the incremental cost related to residence resettlementresettlements approved by the local government. The Company determined that the Company’s Investmentinvestment in the Liangzhou Road Project in exchange for interests in future land use rights is a barter transaction with commercial substance. For the three months ended December 31, 2017 and 2016, the Company did not receive government’s subsidies for its Shanty Area Reform Project surrounding Liang Zhou Road located in Hantai District, Hanzhong City, respectively and the Company recorded the subsidies to offset against the development cost of Liangzhou Road Project.
(b) | In September 2012, the Company was approved by the Hanzhong local government to construct four municipal roads with a total length of approximately 1,192 meters. The project was deferred and then restarted during the |
(c) | The Company was engaged by the Yang County local government to construct the East 2nd Ring Road with a total length of 2.15 |
As of December 31, 2017 and September 30, 2017, land use rights included in real estate property under development totaled $17,835,957 and $18,040,624, respectively.
NOTE 4. OTHER LOANS
December 31, 2017 | September 30, 2017 | |||||||
Loan A (i) | $ | 98,798,071 | $ | 97,473,417 | ||||
Loan B (ii) | 12,295,775 | 12,024,108 | ||||||
Loan C (iii) | 18,248,339 | 17,845,155 | ||||||
129,342,185 | 127,342,680 | |||||||
Less: current maturities of other loans | 40,190,277 | 28,545,233 | ||||||
Other loans – long-term portion | $ | 89,151,908 | $ | 98,797,447 |
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. CONSTRUCTION LOANS
NOTE 4. OTHER LOANS (continued)
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
Loan A | $ | 89,933,511 | $ | 91,675,668 | ||||
Loan B | 16,373,501 | 16,690,683 | ||||||
Total | $ | 106,307,012 | $ | 108,366,351 |
(A) | On June 26, 2015 and March 10, 2016, the Company signed phase I and Phase II agreements with Hanzhong Urban Construction Investment Development Co., Ltd, a |
For the periods ended: | Repayment in USD | Repayment in RMB | ||||||
December 31, 2018 | 32,505,417 | 211,490,000 | ||||||
December 31, 2019 | 39,102,101 | 254,410,000 | ||||||
December 31, 2020 | 26,898,544 | 175,010,000 | ||||||
December 31, 2021 | 13,451,578 | 87,520,000 | ||||||
Total | 111,957,640 | 728,430,000 |
(B) |
Repayment in USD | Repayment in RMB | |||||||
Earlier of July 2018 or 60% sales completed | 3,073,944 | 20,000,000 | ||||||
Earlier of October 2018 or 70% sales completed | 4,610,916 | 30,000,000 | ||||||
Earlier of January 2019 or 75% sales completed | 4,610,915 | 30,000,000 | ||||||
Total | 12,295,775 | 80,000,000 |
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. OTHER LOANS (continued)
In December 2016, the Company signed a loan agreement with Hantai District Urban Construction Investment Development Co., Ltd, a |
Additionally, in September 2017, the Urban Development Center Co., Ltd. approved a construction loan for the Company in the amount of approximately $24.1 million (RMB175.0 million) with an annual interest rate of 1.2% per year in connection with the Liangzhou Road and related |
Additionally, in September 2017, the Urban Development Center Co.$227,871 (June 30, 2022 - $80,330 and $246,884), Ltd. approved a construction loan for the Company in the amount of $26,897,008 (RMB 175,000,000) with an annual interest rate of 1.2% per year in connection with the Liangzhou Road and related Project. The Company is required to repay the loan by equal annual principal repayment of $5,379,402 from December 2027 through May 2031. The amount of this loan is available to be drawn down as soon as the land use rights of the Liangzhou Road is approved and the construction starts, which is expected to begin in the Spring of 2018. Interest charge for the three months ended December 31, 2017 and 2016 was $80,271 and Nil, respectively, which was included in the construction capitalized costs.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5.7. CUSTOMER DEPOSITS
Customer deposits consist of amounts received from customers for the pre-sale of residential units in the PRC. The detail of customer deposits is as follows:
December 31, 2017 | September 30, 2017 | |||||||
Customer deposits by real estate projects | ||||||||
Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) | $ | 12,493,657 | $ | 9,931,120 | ||||
Oriental Pearl Garden | 6,721,489 | 6,342,632 | ||||||
Liangzhou road and related projects | 2,366,937 | 2,314,641 | ||||||
Yang County Pearl Garden | 1,384,070 | 934,557 | ||||||
Yang County Palace | 5,071,835 | 7,405,555 | ||||||
Total | 28,037,988 | 26,928,505 | ||||||
Less: Customer deposits - short-term | 25,671,051 | 24,613,864 | ||||||
Customer deposits - long-term | $ | 2,366,937 | $ | 2,314,641 |
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) | $ | 8,140,369 | $ | 8,300,749 | ||||
Oriental Pearl Garden | 2,957,531 | 3,015,526 | ||||||
Liangzhou road and related projects | 176,520 | 186,968 | ||||||
Yangzhou Pearl Garden | 717,587 | 731,206 | ||||||
Yang County East 2nd Ring Road | 2,068,595 | 2,108,667 | ||||||
Yangzhou Palace | 5,280,437 | 5,499,652 | ||||||
Total | $ | 19,341,039 | $ | 19,842,768 |
Customer deposits are typically 10% - 20% of the unit selling price for those customers who purchase properties in cash and 30% - 50% of the unit selling price for those customers who purchase properties with mortgages. Buyers with mortgage loans pay customer deposits. The banks provide the balance of the funding to the Company upon consummation of the sales. The banks hold the properties as collateral for customers’ mortgage loans. If the customers default, the bank will repossess the collateral properties. Except during the Mortgage Loan Guarantee Period of approximately six to twelve months, the banks have no recourse to the Company for customers’ defaults. As of December 31, 2017 and September 30, 2017, approximately $2.8 million and $2.6 million was guaranteed by the Company, respectively.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. SHAREHOLDER’S LOANS
As of | ||||||||
December 31, 2017 | September 30, 2017 | |||||||
Shareholder loan – USD loan (a) | $ | 1,810,000 | $ | 1,810,000 | ||||
Shareholder loan – RMB loan (b) | 381,312 | 494,632 | ||||||
Total | $ | 2,191,312 | $ 2,304,632 |
NOTE 7. STOCK OPTIONS
On August 22, 2015, the Company’s Board of Directors granted stock options to two new independent directors to repurchase up to an aggregate of 120,000 shares of the Company’s common stock (“2015 Stock Options). The shares underlying the options become excisable during the following 36 months period at the end of each quarter. The exercise price of the options is $1.89 per share. As of December 31, 2017 and September 30, 2017, 77.8% and 69.4% of the option awards have vested, respectively.
The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows: | Options granted in August 2015 | |||
Risk-free interest rate | 0.95 | % | ||
Expected life of the options | 3 year | |||
Expected volatility | 143 | % | ||
Expected dividend yield | 0 | % | ||
Fair value | $ | 178,800 |
The Company uses the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates to determine fair value. The Company’s expected volatility assumption is based on the historical volatility of Company’s stock. The expected life assumption is primarily based on the simplified method due to the Company’s limited option exercise behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the stock option activities of the Company:
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. STOCK OPTIONS (continued)
Number of options | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Grant Date Fair Value | |||||||||||||
Outstanding, September 30, 2017 | 120,000 | $ | 1.89 | 0.89 | $ | 178,800 | ||||||||||
Granted | - | - | - | - | ||||||||||||
Forfeited | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Outstanding, December 31, 2017 | 120,000 | $ | 1.89 | 0.64 | $ | 178,800 | ||||||||||
Exercisable, December 31, 2017 | 93,333 | $ | 1.89 | 0.64 | $ | 139,066 |
NOTE 8. TAXES
(A) Business sales tax and VATValue added taxes (“VAT”)
The Company is subject to a 5% business sales tax on revenue. It is the Company’s continuing practice to recognize the 5% business sales taxVAT for its existing real estate projects based on revenue as a cost of sales as the revenue is recognized.local tax authority’s practice. As of December 31, 2017,June 30, 2023 and September 30, 2022, the Company had business salesVAT tax payable of $14,162,069 (September 30, 2017 - $14,143,444),$3,581,542 and $4,144,254, respectively, which is expected to be paid when the projects are completed and assessed by the local tax authority. In May of 2016, the Business Tax has been incorporated into Value Added Tax in China, which means there will be no more Business Tax and accordingly some business operations previously taxed in the name of Business Tax will be taxed in the manner of VAT thereafter. The Company is subject to 5% of VAT for its all existing real estate project based on the local tax authority’s practice.
B)(B) Corporate income taxes (“CIT”)
The CompanyCompany’s PRC subsidiary and its subsidiaries had operating losses since inception and the Company recorded a full valuation allowance against those tax losses. All the Company’s consolidated earnings are generated by the Company’ VIE in PRC.
The Company’s VIE are governed by the Income Tax Law of the People’s Republic of China concerning thefor privately run enterprises, which are generally subject to income tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. However, prior to October 1, 2017, as approved by the local tax authority of Hanzhong City, theThe Company’s CIT was assessed annually at a pre-determined fixed rate as an incentive to stimulate the local economy and encourage entrepreneurship. The local income tax rate in Hanzhong is 2.5% and in Yang County is 1.25% on revenue. Starting from October 1, 2017, the Company is subject to income tax rate of 25% on taxable income in fiscal 2018 and afterwards. The change in the income tax policy could negatively affect the Company’s net income. For the three months ended December 31, 2017 and 2016, the Company’s income taxes were $413,750 and $221,998, respectively. Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, for the Company’s tax filling prior to October 1, 2017, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. The PRC tax rules are different from the local tax rules and the Company is required to comply with local tax rules. The difference between the two tax rules will not be a liability of the Company. There will be no further tax payments for the difference. As of June 30, 2023 and September 30, 2022, the Company’s total income tax payable amounted to $12,979,639 and $13,279,845, respectively, which included the income tax payable balances in the PRC of $9,414,638 and $9,714,844, respectively and the Company expects to pay this income tax payable balance when the related real estate projects are completely sold.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8. TAXES (continued)
Income tax expense for the three and nine months ended June 30, 2023 and 2022 is summarized as follows:
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Current tax provision | $ | — | $ | 30,450 | $ | — | $ | 513,675 | ||||||||
Total income tax expenses | $ | — | $ | 30,450 | $ | — | $ | 513,675 |
On December 22, 2017,Recent U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Act”“U.S. Tax Reform”), was signed into law making significant changes toon December 22, 2017. The U.S. Tax Reform significantly modified the U.S. Internal Revenue Code. Changes include, but are not limited to, aCode by, among other things, reducing the statutory U.S. federal corporate income tax rate decrease from 35% to 21% effective for taxtaxable years beginning after December 31, 2017,2017; limiting and/or eliminating many business deductions; migrating the transition of U.S international taxation from a worldwide tax systemU.S. to a territorial tax system andwith a one-time transition tax on thea mandatory deemed repatriation of cumulativepreviously deferred foreign earnings as of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years or in a single lump sum. The U.S. Tax Reform also includes provisions for a new tax on Global Intangible Low-Taxed Income (“GILTI”) effective for tax years of foreign corporations beginning after December 31, 2017. The Company has determined that the Company’s VIEGILTI provisions impose a tax on foreign income in PRC does not qualify asexcess of a reportabledeemed return on tangible assets of controlled foreign corporationcorporations (“CFC”CFCs”) in accordance with its understanding, subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the Actincome tax liability, subject to some limitations. As of June 30, 2023 and guidance available as of the date of this filing and as a resultSeptember 30, 2022, the Company assessed therethat the related GILTI tax payable was no significant$nil, which is subject to the reassessment upon the Company’s filling of GILTI information.
For the year ended September 30, 2018, the Company recognized a one-time transition toll tax of approximately $2.3 million that represented management’s estimate of the amount of U.S. corporate income tax impact duringbased on the period in whichdeemed repatriation to the legislation was enacted.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effectsUnited States of the Act. In accordance with SAB 118,Company’s share of previously deferred earnings of certain non-U.S. subsidiaries and VIE of the Company has determined thatmandated by the U.S. Tax Reform. The Company’s VIE in PRC does not qualify as a reportable CFC, therefore it is not necessary to record any income tax provision in connection with the transition tax on the mandatory deemed repatriation of foreign earnings at December 31, 2017. Additional work is necessary to do a more detailed analysisestimate of the Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to currentonetime transition toll tax expense in fiscal 2018 when the analysis is complete.
The following table reconciles the statutory ratessubject to the Company’s effectivefinalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the Tax Act and amounts related to the earnings and profits of certain foreign VIEs and the filing of our tax rate forreturns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the three months ended December 31, 2017Tax Act may require further adjustments and 2016:
For the three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Chinese statutory tax rate | 25 | % | $ | 25 | % | |||
Valuation allowance change | 0.6 | % | 1.1 | % | ||||
Net impact of Exemption rendered by local tax authorities and other adjustments | - | (3.5 | )% | |||||
Effective tax rate | 25.6 | % | $ | 22.6 | % |
Income tax expense for the three months ended December 31, 2017 and 2016 is summarized as follows:
For the three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Current tax provision | $ | 268,036 | $ | 221,998 | ||||
Deferred tax provision | 145,714 | - | ||||||
Income tax provision | $ | 413,750 | $ | 221,998 |
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8. TAXES (continued)
The parent Company China HGS Real Estate Inc. is incorporatedchanges in the United States. Net operating loss carry forwards for United States income tax purposes approximated to $698,160 and $665,160 asour estimates. As of December 31, 2017June 30, 2023 and September 30, 2017, respectively, which are available to reduce future years’ taxable income. These carry forwards will expire in 2035. However, the change in control resulting from the reverse merger in 2009 limits the amount of loss to be utilized each year. Management doesn’t expect any taxable income in the foreseeable future. Accordingly,2022, the Company recorded a full valuation allowance as of December 31, 2017 and September 30, 2017. The Company calculated deferredprovided $2.3 million provision due to delinquent U.S. tax asset using a blended rate in accordance with the Act. The components of deferred taxes as of December 31, 2017 and September 30, 2017 consist of the following:
December 31, 2017 | September 30, 2017 | |||||||
Deferred tax assets: | ||||||||
Deferred tax asset from net operating loss carry-forwards for parent company | $ | 233,084 | $ | 226,154 | ||||
Valuation allowance | (233,084 | ) | (226,154 | ) | ||||
Deferred tax asset – net | $ | - | $ | - | ||||
Deferred tax liability: | ||||||||
Revenue recognized based on percentage of completion | $ | 332,918 | $ | 170,950 | ||||
Deferred tax liability – long term | $ | 332,918 | $ | 170,950 |
Movement of valuation allowance:
For the three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Beginning Balance | $ | 226,154 | $ | 181,274 | ||||
Current period additions | 6,930 | 11,220 | ||||||
Ending Balance | $ | 233,084 | $ | 192,494 |
The valuation allowance increased $6,930 and $11,220 for the three months ended December 31, 2017 and 2016, respectively.return fillings.
(C) Land Appreciation Tax (“LAT”)
Since January 1, 1994, LAT has been applicable at progressive tax rates ranging from 30% to 60% on the appreciation of land values, with an exemption provided for the sales of ordinary residential properties if the appreciation values do not exceed certain thresholds specified in the relevant tax laws. However, the Company’s local tax authority in Hanzhong City has not imposed the regulation on real estate companies in its area of administration. Instead, the local tax authority has levied the LAT at the rate of 0.5% in Yang County and 1.0% in Hanzhong against total cash receipts from sales of real estate properties, rather than according to the progressive rates.
As at December 31, 2017,June 30, 2023 and September 30, 2022, the outstanding LAT payable balance was $1,321,729$nil with respect to completed real estate properties sold up to December 31, 2017. As atJune 30, 2023 and September 30, 2017, the Company has an outstanding LAT payable balance of $1,292,527 with respect to completed real estate properties sold up to September 30, 2017.
CHINA HGS REAL ESTATE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8. TAXES (continued)2022, respectively.
(D) Taxes payable consisted of the following:
December 31, 2017 | September 30, 2017 | |||||||
CIT | $ | 6,528,787 | $ | 6,216,432 | ||||
Business tax | 14,162,069 | 14,143,444 | ||||||
Other taxes and fees | 2,132,729 | 2,020,188 | ||||||
Total taxes payable | 22,823,585 | 22,380,064 | ||||||
Less: current portion | 17,587,026 | 17,259,202 | ||||||
Tax payable – long term | $ | 5,236,559 | $ | 5,120,862 |
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
CIT payable | $ | 12,979,639 | $ | 13,279,845 | ||||
VAT payable | 3,581,542 | 4,144,254 | ||||||
Other taxes and fees payable | 2,295,233 | 2,556,259 | ||||||
Total | $ | 18,856,414 | $ | 19,980,358 |
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. RELATED PARTY BALANCES AND TRANSACTIONS
The table below sets forth major related parties of the Group and their relationships with the Group:
Entity or individual name | Relationship with the Group | |
Goldenmountain Solution Inc | Share holder |
Transactions
June 30, | ||||
Name | 2023 | |||
Goldenmountain Solution Inc | 400,000 |
Balance
June 30, | ||||
Name | 2023 | |||
Goldenmountain Solution Inc | 400,000 |
On May 1, 2023, a loan agreement of $0.4 million was entered into between Goldenmountain Solution Inc and Green Giant Energy.
NOTE 10. COMMON STOCK
On January 14, 2022, the Company closed a private placement with certain investors. In connection with the private placement, the Company issued an aggregate of 10,247,122 units (the “Units”), each Unit consisting of one share of common stock, par value $0.001 per share (“Common Stock”) and a warrant to purchase three shares of Common Stock with an initial exercise price of $2.375 at a price of $2.375 per Unit, for gross proceeds of approximately $24.3 million. The warrants expire five and a half years from its date of issuance. The warrants are subject to customary anti-dilution provisions reflecting stock dividends and splits or other similar transactions.
On March 16, 2022, the Company entered into a certain securities purchase agreement (the “SPA”) with certain purchasers whom are “non-U.S. Persons” (the “Investors”) as defined in Regulation S of the Securities Act, pursuant to which the Company agreed to sell an aggregate of 4,600,000 shares of Common Stock, par value $0.001 per share, for an aggregate purchase price of approximately $4.6 million. On March 30, 2022, the transaction contemplated by the SPA closed.
In connection with the private placement of 10,247,122 units that closed on January 14, 2022, the Company issued warrants to purchase 30,741,366 shares of Common Stock at $2.375 per share. These warrants are not exercisable until six months from the date of issuance and required the reservation of common shares for their issuance. With the sales these units and other sales of Common Stock, the Company does not have the necessary authorized shares should these warrants be converted and was not able to reserve the Common Stock underlying these warrants. The Company is planning to increase their authorized shares prior to the warrants becoming exercisable. If the Company has not increased the authorized shares sufficiently, these warrants will be reflected at their fair value as a liability which could be material.
On March 30, 2022, the transaction contemplated by the SPA closed.
On September 25, 2012, our shareholders approved the Company’s 2012 Omnibus Securities and Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the grant of awards which are distribution equivalent rights, incentive stock options, non-qualified stock options, performance shares, performance units, restricted shares of common stock, restricted stock units, stock appreciation rights (“SARs”), tandem stock appreciation rights, unrestricted shares of common stock or any combination of the foregoing, to key management employees and nonemployee directors of, and nonemployee consultants of, the Company or any of its subsidiaries (each a “participant”). We have reserved a total of 1,000,000 shares of common stock for issuance under the 2012 Plan. The number of shares of common stock for which awards which are options or SARs may be granted to a participant under the 2012 Plan during any calendar year is limited to 500,000.
The Company awards Common Stocks to a director and three consultants pursuant to the 2022 Equity Incentive Plan, which was registered on the Form S-8. Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. These Common Stocks are vested immediately after granted.
On August 10, 2022, Board of directors of the Company issued an aggregate of 5,990,000 registered Common Stock of the Company, from the Company’s current registration statement on the Form S-8, to the consultants or their designees namely, Aizhen Wei, Jun Liao and Youbing Li on the terms and conditions set forth in the agreements, immediately vested upon grant. We record stock-based compensation expense for non-employees at fair value on the grant date as the consideration for service received. On August 10, 2022/the grant date, the Company’s share price closed at $3.23 per share, hence total share-based compensation is equal to $19,347,700.
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. COMMON STOCK (continued)
On September 6, 2022, the Company awarded Jian Zhang, one of the independent directors of the Board, of 10,000 common shares as annual compensation for his role with the Board immediately vested upon the grant date. On September 6, 2022/the grant date, the Company’s share price closed at $2.27 per share, hence total share-based compensation is equal to $22,700.
Total share-based compensation amounts to $19,370,400 for three individuals plus the independent director.
On January 27, 2023, the company granted 40,000 shares of GGE’s restricted stock to FTGC or its designee for the termination of the Exclusion Placement Agent Agreement.
NOTE 9.11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated withrelated to these matters when they become probable and as a result the amount of loss can be reasonably estimated. Legal costs incurredIn determining whether a loss from a claim is probable, and if it is possible to estimate the loss, the Company reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in connection withlight of potentially relevant factual and legal developments. If the Company determines a favorable outcome is probable, or that the amount of loss contingencies are expensed as incurred. The Company's managementcannot be reasonably estimated, the Company does not expect any liabilityaccrue costs for a potential litigation loss.
There are 135 cases against the Company, the total claims of year to day amounts to $10.5 million according to the judgement outcome from local courts as of July 15, 2023, of which approximately $9.4 million was accrued for the dispositionmonth ended December 31, 2022. The difference of such claims and litigation individually or$1.1 million was accrued for the nine months ended June 30, 2023. The Company disputes the allegations in the aggregate would have a material adverse impact onlawsuit and intends to vigorously defend itself in the Company's consolidated financial position, results of operations and cash flows.action.
As an industry practice, the Company provides guarantees to PRC banks with respect to loans procured by the purchasers of the Company’s real estate properties for the total mortgage loan amount until the completion of obtainingbuyer obtains the “Certificate of Ownership” of the properties from the government, which generally takes six to twelve months. Because the banks provide loan proceeds without getting the “Certificate of Ownership” as loan collateral during this six to twelve months’the six-to-twelve-month period, the mortgage banks require the Company to maintain as restricted cash, at least 5% to 10% of the mortgage proceeds as security for the Company’s obligations under such guarantees. If a purchaser defaults on its payment obligations, the mortgage bank may deduct the delinquent mortgage payment from the security deposit and require the Company to pay the excess amount if the delinquent mortgage payments exceed the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers’ default on their payment obligations at around the same time, we will be required to make significant payments to the banks to satisfy our guarantee obligations. If we are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. The Company has made necessarythe required reserves in its restricted cash account to cover any potential mortgage defaults as required by the mortgage lenders. TheSince inception through the release of this report, the Company has not experienced any delinquent mortgage loans and has not experienced any losses related to this guaranteethese guarantees. As of June 30, 2023 and September 30, 2022, our outstanding guarantees in respect of our customers’ mortgage loans amounted to approximately $25.7 million. As of June 30, 2023 and September 30, 2022, the amount of restricted cash reserved for these guarantees was approximately $3.0 million and the Company believes that such reserves are sufficient.
NOTE 12. SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred up to the date the unaudited financial statements were available to issue. Based upon this review, the Company has not identified any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
NOTE 13. GOING CONCERN
As of December 31, 2017 and SeptemberJune 30, 2017,2023, the amountCompany had cash balance of $0.1 million. In addition to the cash balance, the Company has restricted cash of $2.8 million, contract assets of $7.1 million, security deposits provided for these guarantees was approximately $2.8of $1.7 million and $2.6 million, respectively.due from local governments for real estate property development completed of $41.6 million. The balances of these assets are expected to be repaid on maturity dates and will also be used for working capital for daily operation in the twelve months to come.
On November 14, 2022, the company announced to transform itself into the new energy business. In March and April 2023, the Company reached purchase agreements with AGR Enterprises Inc. delivered battery recycle products. On April 16, 2023, the Company entered a sales contract with ACE Recycling Pte Ltd. sold lead ingots and blocks. The Company believes it will generate more revenue from its new business.
On May 1, 2023, a loan agreement of $0.4 million was entered into between Goldenmountain Solution Inc and Green Giant Energy.
The management will enable to meet the operating expenses obligation for the next twelve months from self-generated positive cashflow and external fund raising by private equity financing or direct public offering. The registration statement on Form S-3 was declared effective on May 2, 2023 by SEC, and the Company is ready to raise fund through direct public offering to support cash shortfall, if any.
Going forward there are no conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for one year after the financial statement issuance date.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of Green Giant Inc. (formerly known as China HGS Real Estate, Inc. for). For the three and nine months ended December 31, 2017June 30, 2023 and 2016 2022and should be read in conjunction with such financial statements and related notes included in this report.
As used in this report, the terms “Company,” “we,” “our,” “us” and “HGS”“GG” refer to China HGS Real Estate,Green Giant Inc. and its subsidiaries.
Preliminary Note Regarding Forward-Looking Statements.
We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.
Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. These forward-looking statements include, among other things, statements relating to:
● | our ability to sustain our project development |
● | our ability to obtain additional land use rights at favorable prices; |
● | the market for real estate in Tier 3 and 4 cities and counties; |
● | our ability to obtain additional capital in future years to fund our planned expansion; or |
● | economic political, regulatory, legal and foreign exchange risks associated with our operations. |
Business Overview
The Company currently operates in two segments, the real estate development business and green energy business. The Company engages in Tier 3real estate development through the VIE, Guangsha, in mainland China, and 4 citiesis transitioning itself from its real estate development business to a new energy corporation and counties;has appointed a CEO in its Delaware subsidiary to lead and operate the green energy business.
The Company engages in future years to fund our planned expansion; orreal estate development, primarily in the construction and sale of residential apartments, car parks and commercial properties in mainland China through Guangsha. Guangsha was founded by Mr. Xiaojun Zhu, and commenced operations in 1995 in Hanzhong, a prefecture-level city in Shaanxi Province.
Currently, we conduct our operations.
Business Overview
We conduct substantially all of ourreal estate development business through Shaanxi Guangsha Investment and Development Group Co., Ltd,the VIE, in Hanzhong, Shaanxi Province. Since the initiation of our real estate development business, we have been focused on expanding our business in certain Tier 3 and Tier 4 cities and counties in China.
For the threenine months ended December 31, 2017,June 30, 2023, our sales and gross profit were $1.1 million and net income were $14,447,571, $2,421,814 and $1,205,272,$0.2million, respectively, representing an approximate 62.4%, 40.5%86.9% and 58.1% increase95.7% decrease in sales and gross profit and net income as compared to threenine months ended December 31, 2016,June 30, 2022, respectively. The increasedecrease in sales and gross profit and net income was mainly resulted from morethe result of less gross floor area (“GFA”) sold during this quarter.
For the first three months ended December 31, 2017, we recognized revenue under the percentagequarters of completion method for Yangzhou Palace real estate Project because the real estate project under development have met the criteria for revenue recognition under the percentage of completion method as June 30, 2017. Total revenue recognized under the percentage of completion method for the three months ended December 31, 2017 was $6,606,649 (2016 - $Nil), representing 45.7% (2016 – Nil) of total revenue for the period, with related costs of these real estate sales was $6,023,792 (2016 - Nil), representing 50.2% (2016 – Nil) of the real estate costs in the period. The gross profit before sales tax from the percentage of completion method was $582,857 (2016 - Nil), representing 23.8% (2016 – Nil) of the total gross profit for the period.fiscal 2023.
For the threenine months ended December 31, 2017,June 30, 2023, the average selling price (“ASP”) for our completed real estate projects (excluding sales of parking spaces) located in Yang County was approximately $332.6$552 per square meter, an increase of 66.2%increased from the ASP of $200.1$522 per square meter for the threenine months ended December 31, 2016. The increase in ASPJune 30, 2022, which was mainly dueattributable to the fact allfollowing:
1. | Central and local governments relax control measures over real estate development sector in an attempt to stimulate housing market, e.g. lift up quote for home buyers, lower interest rate on mortgage loans, special policies form low income earners etc. |
2. | The Company are selling completed house of Yang County project, not blue-prints and so in high demand; it also attracts home buyers who are willing to pay for a higher price; Yang County project targets high-end market, which has better location than residential complex. |
3. | Yang County project targets high-end market, which has better location than residential complex. |
Market Outlook
On November 11, 2022, the revenue in Yang County was from salesPeople’s Bank of our residential units in Yangzhou PalaceChina and the China Banking and Insurance Regulatory Commission issued “Yin Fa [2022] No. 254 “Notice on Supporting the Stable and Healthy Development of the Real Estate Market” to support the stable and healthy development of the real estate Project, whichmarket. On November 14, 2022, China Banking and Insurance Regulatory Commission, the Ministry of Housing and Urban-Rural Development and the Central Bank issued the “Notice on the Relevant Work of Commercial Banks Issuing letters of Guarantee to Replace the Pre-sale Supervision Funds” (the “Pre-sale Supervision Funds Notice”). Commercial banks’ house related credit business is our new project with a relatively higher selling price. In addition, duringexpected to expand. The “Financial Support for Real Estate Notice” issued sixteen measures to generate power at both supply and demand ends, it further clarifies the same period of last year,support policies for housing credit. Many policies have been implemented at the Company reduceddocument system level for the selling pricefirst time, or will push banks to promoteincrease their support for the sales of completed real estate residential unitsmarket. It is expected to reducepositively affect the inventory stockpileconservative attitude of commercial banks to intervene in Yang County. However, the ASP for Yang County Palace project for the three months ended December 31, 2017 was still lower than the ASP of $461 for the year ended September 30, 2017 due to our promotion on the related sales. The ASP of our Hanzhong completed real estate projects (excluding sales of parking spaces) was approximately $551.6 per square meter, a 10.8% increase from the ASP of $498.0 per square meter for the three months ended December 31, 2016, which reflected a normal price increase in the local real estate market.
Market Outlook
In 2018, the Company expects to focus on the development of loan market and support the Liangzhou Road related project. These projects will comprise of residentialincreasing demand from home buyers for end-users and upgraders, shopping malls as well as serviced apartments and offices to satisfy different market demands. Our customers continue to experience growth of their disposable income. With a lower housing price to family disposable income ratio and an increasing urbanization level, there is a growing demand for high quality residential housing. From this perspective, the Company is positive about the outlook for the local real estate market in a long term. In the meantime, the Company is diversifying its revenue and developing more commercial and municipal projects.mortgage loans.
We intendThe Company intends to remain focused on our existing construction projects in Hanzhong City and Yang County, deepening our institutional sales network, enhancing our cost and operational synergies and improving cash flows and strengthening our balance sheet. In this respect, we began
The Company started the construction of the following large high rise residential projects in Hanzhong City and Yang County:
Liangzhou road and related projects
In September 2013, the Company entered into an agreement (“Liangzhou Agreement”) with the Hanzhong local government on the Liangzhou Road reformation and expansion project (Liangzhou Road Project”). Pursuant torelated projects after the agreement, the Company is contracted to reform and expand the Liangzhou Road, a commercial street in downtown Hanzhong City, with a total length of 2,080 meters and width of 30 meters and to resettle the existing residences in the Liangzhou road area. The government’s original road construction budget was approximately $33 million in accordance with the Liangzhou Agreement. The Company, in return, is being compensatedapproval by the local government of the road. These projects comprise residential for end-users and upgraders, shopping malls as well as serviced apartments and offices to have an exclusive right on acquiring at least 394.5 Mu land use rights in a specified location of Hanzhong City. The Liangzhou Road Project’s road construction started at the end of 2013. In 2014, the original scope and budget on the Liangzhou road reformation and expansion project was extended, because the local government included more area and resettlement residences into the project, which resulted in additional investments from the Company. In return, the Company is authorized by the local government to develop and manage the commercial and residential properties surrounding the Liangzhou Road project. As of December 31, 2017, the main Liangzhou road construction is substantially completed and is expected to be approved by the local government in fiscal 2018. The Company’s development cost incurred on Liangzhou Road Project is treated as the Company’s deposit on purchasing the related land use rights, as agreed by the local government.satisfy different market demands.
As of December 31, 2017, the actual costs incurred by the Company was $135,144,631 (September 30, 2017 - $133,941,504) and the incremental cost related to residence resettlement was approved by the local government. The Company determined that the Company’s Investment in Liangzhou Road Project in exchange for interests in future land use rights is a barter transaction with commercial substance. For the three months ended December 31, 2017 and 2016, the Company did not receive government’s subsidies for its Shanty Area Reform Project surrounding Liang Zhou Road located in Hantai District, Hanzhong City, respectively and the Company recorded the subsidies to offset against the development cost of Liangzhou Road Project. The Liangzhou road related projects mainly consists Oriental Garden Phase II, Liangzhou Mansion and Pearl Commercial Plaza surrounding the Liangzhou road area. The Liangzhou road related projects mainly consists Oriental Garden Phase II, Liangzhou Mansion and Pearl Commercial Plaza surrounding the Liangzhou road area.
Critical Accounting Policies and Estimates
Oriental Pearl Garden Phase II
Oriental Garden Phase II project is planned to consist of 8 high-rise residential buildings and 6 commercial buildings with total planned GFA of 370,298 square meters. The project will also include a farmer’s market.
Liangzhou Mansion
Liangzhou Mansion project is planned to consist of 7 high-rise building and commercial shops on the first floor with total planned GFA of 160,000 square meters.
Pearl Commercial Plaza
Pearl Commercial Plaza is planned to consist one office building, one service apartment (or hotel), classical architecture style of Chinese traditional houses and shopping malls with total planned GFA of 124,191 square meters.
The Company plans to start these three real estate projects in spring of 2018 after the road construction is fully completed and passes local government’s inspection and approval in fiscal 2018. These related projects may take 2-3 years to fully complete.
Other projects
Yangzhou Palace
The Company is currently constructing 9 high-rise residential buildings and 16 sub-high-rise residential and multi-layer residential buildings with total GFA of 285,244 square meters in Yangzhou Palace located in Yang County. The construction started in the fourth quarter of fiscal 2013 and is expected to be completed by the beginning of 2018. The Company has obtained pre-sale license in September 2016 and started to sell the residential units in Yangzhou Palace during fiscal 2017.
Road Construction
Other road construction projects mainly included a Yang County East 2nd Ring Road construction project. The Company was engaged by Yang County local government to construct East 2nd Ring Road with total length of 2.15 km and budgeted price approximately of $25.8 million (or RMB 168 million) approved by local Yang County government in March 2014. The local government is required to repay the Company’s project investment within 3-4 years with interest based on the commercial borrowing rate with the similar term published by China Construction Bank. The local government also was allowed to refund the Company by reducing local surcharges or taxes otherwise required in the real estate development. The Company is expected to deliver these two road construction projects to local government in early 2018.
In September 2012, the Company was approved by the Hanzhong local government to construct four municipal roads with a total length of approximately 1,192 meters. The project was deferred and then restarted during the quarter ended March 31, 2014. As of December 31, 2017, the local government was still in the process of planning and assessing the scope and budget for these projects. We expect these initiatives will help us during this difficult period and better position us to capitalize on opportunities from a future market upturn.
Summary of real estate projects completion status
We expect these initiatives will help us during this difficult period and better position us to capitalize on opportunities from a future market upturn.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis and usebase them on historical experience and various other assumptions that are believed to be reasonable under the circumstances as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates because of different and changing assumptions or conditions.
We believe the following critical accounting policies affect our significant estimates and judgments used in the preparation of our condensed consolidated financial statements. These policies should be read in conjunction with Note 2 of the notes to the unaudited condensed consolidated financial statements.statements
Revenue recognition
Percentage of Completion method
Real estate sales for the long term real estate projects areThe Company follows FASB ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenue is recognized under percentage completion method in accordance with the provisionstransfer of ASC 360-20-40D “Salegoods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The Company determines revenue recognition through the following steps:
● | identification of the contract, or contracts, with a customer; |
● | identification of the performance obligations in the contract; |
● | determination of the transaction price, including the constraint on variable consideration; |
● | allocation of the transaction price to the performance obligations in the contract; and |
● | recognition of revenue when (or as) the Company satisfies a performance obligation. |
The Company currently operates in two segments, the real estate development business and green energy business. For the three months ended June 30, 2023, revenues were generated from lead ingots or blocks sales and completed condominium real estate projects.
The Company controls of Condominium Units”. Revenuethe lead ingots or blocks. Revenues are recognized in gross amount at the point of time when they are delivered to the customers. Most of the Company’s revenue is derived from real estate sales of condominiums and profitcommercial properties 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 its 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 long termindividual condominium units in a real estate development propertiesproject, 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 (“percentage completion method”). Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. For the three and nine months ended June 30, 2023 and 2022, the Company did not have any construction in progress recognized under the percentage of completion method on the sale of individual units when all the following criteria are met:
method.
Disaggregation of Revenue
Disaggregated revenues are as follows:
For the three months ended June 30, | ||||||||
2023 | 2022 | |||||||
Revenue recognized for completed condominium real estate projects, net of sales tax | $ | 206,096 | $ | 1,164,954 | ||||
Revenue recognized for condominium real estate projects under development, net of sales tax | — | — | ||||||
Revenue from Battery Recycling | 224,226 | — | ||||||
Total revenue, net of sales tax | $ | 430,322 | $ | 1,164,954 |
If any
For the nine months ended June 30, | ||||||||
2023 | 2022 | |||||||
Revenue recognized for completed condominium real estate projects, net of sales tax | $ | 858,679 | $ | 8,286,940 | ||||
Revenue recognized for condominium real estate projects under development, net of sales tax | — | — | ||||||
Revenue from Battery Recycling | 224,226 | |||||||
Total revenue, net of sales tax | $ | 1,082,905 | $ | 8,286,940 |
Contract balances
Timing of revenue recognition may differ from the above criteria is not met, proceeds shall be accounted for as deposits until the criteria are met.
Under the percentagetiming of completion method, revenuesbilling and cash receipts from condominium units sold and related costs are recognized over the course of the construction period, based on the completion progress ofcustomers. The Company records a project. In relation to any project,contract asset when revenue is determined by calculatingrecognized prior to invoicing, or a contract liability when cash is received in advance of recognizing revenue. A contract asset is a right to consideration that is conditional upon factors other than the ratiopassage of incurred costs, including land usetime. Contract assets include billed and billable receivables, which are the Company’s unconditional rights coststo consideration other than the passage of time. Contract liabilities include cash collected in advance and construction costs, to total estimated costs and applying that ratio to the contracted sales amounts. Costin excess of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales value, and applying that ratio to the incurred costs. Current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts.
Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized. Changes in total estimated project costs or losses, if any,Customer deposits are recognized in the period in which theyexcluded from contract liabilities.
The Company immediately expenses sales commissions (included under selling expenses) because sales commission are determined.
Full accrual method
Revenue from the sales of short term development properties, where the construction period isnot expected to be 18 months or less is recognized by the full accrual method at the time of the closing of an individual unit sale. This occurs when title to or possession of the property is transferred to the buyer. A sale is not considered consummated until (a) the parties are bound by the terms of a contract, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed, (e) the seller does not have substantial continuing involvement with the property, and (f) the usual risks and rewards of ownership have been transferred to the buyer. Further, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property.recovered.
The Company provides “mortgage loan guarantees” only with respect to buyers who make down-payments of 20%-50% of the total purchase price of the property. The period of the mortgage loan guarantee begins on the date the bank approves the buyer’s mortgage and we receive the loan proceeds in our bank account and ends on the date the “Certificate of Ownership” evidencing that title to the property has been transferred to the buyer. The procedures to obtain the Certificate of Ownership take six to twelve months (the “Mortgage Loan Guarantee Period”). If, after investigation of the buyer’s income and other relevant factors, the bank decides not to grant the mortgage loan, our mortgage-loan based sales contract terminates and there will be no guarantee obligation. If, during the Mortgage Loan Guarantee Period, the buyer defaults on his or her monthly mortgage payment for three consecutive months, we are required to return the loan proceeds back to the bank, although we have the right to keep the customer'scustomer’s deposit and resell the property to a third party. Once the Certificate of PropertyOwnership has been issued by the relevant government authority, our loan guarantee terminates. If the buyer then defaults on his or her mortgage loan, the bank has the right to take the property back and sell it and use the proceeds to pay off the loan. The Company is not liable for any shortfall that the bank may incur in this event. To date, no buyer has defaulted on his or her mortgage payments during the Mortgage Loan Guarantee Period and the Company has not returned any loan proceeds pursuant to its mortgage loan guarantees.
For municipal road construction projects, fees are generally recognized by the full accrual method at the time of the projects are completed.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the assumptions and estimates used by management in recognizing development revenue under the percentage of completion method, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, revenue recognition, taxes and budgeted costs, share-based compensation and other similar charges.costs. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.
Real estate property development completed and under development
Real estate property consists of finished residential unit sites, commercial offices and residential unit sites under development. The Company leases the land for the residential unit sites under land use right leases with various terms from the PRC government. The cost of land use rights is included in the development cost and allocated to each project. Real estate property development completed and real estate property under development are stated at the lower of cost or fair value.
Expenditures for land development, including cost of land use rights, deed tax, pre-development costs, and engineering costs, exclusive of depreciation, 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 area of units to the estimated total sales area of the project (or phase of the project) multiplied by the total cost of the project (or phase of the project).
Cost of amenities transferred to buyers is allocated to specific units as a component of total construction cost. The amenity cost includes landscaping, road paving, etc. Once the projects are completed, the amenities are under control of the property management companies. Real estate property development completed and real estate property under development are reclassified on the balance sheet into current and non-current portions based on the estimated date of construction completion and sales. The real estate property development completed classification is based on the estimated date that each property is expected to be sold within the Company’s normal operating cycle of the business and the Company’s sales plan. Real estate property development completed is classified as a current asset if the property is expected to be sold within the normal operating cycle of the business. Otherwise, it is classified as a non-current asset. The majority of real estate projects the Company has completed in the past were multi-layer or sub-high-rise real estate projects. The Company considers its normal operating cycle is 12 months.
Real estate property development completed and under development are 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 its 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. The Company reviewedreviews all of its real estate projects for future losses and impairment by comparing the estimated future undiscounted cash flows for each project to the carrying value of such project. For the three and nine months ended December 31, 2017 and 2016,June 30, 2023, the Company did not recognize any$89.9 million impairment loss for its real estate property under development and completed.properties.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2017June 30, 2023 compared to Three Months Ended December 31, 2016June 30, 2022
Revenues
The following is a breakdownWe derive our revenues from two operating segments, (i) sales of revenue:
For Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Revenue recognized under full accrual method | $ | 7,840,922 | $ | 8,897,854 | ||||
Revenue recognized under percentage of completion method | 6,606,649 | - | ||||||
Total | $ | 14,447,571 | $ | 8,897,854 |
Revenues recognized from completed projects
lead ingots or blocks, and (ii) real estate. The following table summarizessets forth our revenue generatedrevenues by different projects:segment and as a percentage of total revenues for the periods indicated:
For Three Months Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | Variance | ||||||||||||||||||||||
Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
Mingzhu Garden (Mingzhu Nanyuan & Mingzhu Beiyuan) Phase I and II | $ | 4,055,550 | 51.7 | % | $ | 3,537,695 | 39.8 | % | $ | 517,855 | 14.6 | % | ||||||||||||
Oriental Pearl Garden | 3,785,372 | 48.3 | % | 5,324,262 | 59.8 | % | (1,538,890 | ) | (28.9 | )% | ||||||||||||||
Yangzhou Pearl Garden Phase I and II | - | - | 35,897 | 0.4 | % | (35,897 | ) | (100 | )% | |||||||||||||||
Total Real Estate Sales before Sales Tax | 7,840,922 | 100 | % | 8,897,854 | 100 | % | (1,056,932 | ) | (11.9 | )% | ||||||||||||||
Sales Tax | (25,216 | ) | (112,602 | ) | 87,386 | (77.6 | )% | |||||||||||||||||
Revenue net of sales tax | $ | 7,815,706 | $ | 8,785,252 | $ | (969,546 | ) |
Three Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | Variance | ||||||||||||||||||||||
Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
Oriental Garden | — | — | 33,650 | 2.9 | (33,650 | ) | (100.0 | ) | ||||||||||||||||
Yangzhou Palace | 206,096 | 47.9 | 1,131,304 | 97.1 | (925,208 | ) | (81.8 | ) | ||||||||||||||||
Battery Recycling | 224,226 | 52.1 | — | — | 224,226 | 100.0 | ||||||||||||||||||
$ | 430,322 | 100.0 | $ | 1,164,954 | 100.0 | $ | (734,632 | ) | (63.1 | ) |
Our revenues are derived from the sale of residential buildings, commercial store-fronts and parking spaces in projects that we have developed. Our Mingzhu Garden Phase I and Phase II, Yangzhou Pearl Garden Phase I and Phase II and Oriental Garden Phase I have all been completed in prior years, the related revenues have been included in revenue recognized from completed projects in prior years. For these completed real estate properties, only limited models are available for customer selection. Comparing to the first quarter of fiscal 2017, revenues before sales tax decreased by 11.9% to approximately $7.863.1% from $1.2 million for the three months ended December 31, 2017 from approximately $8.9 million. The total GFA sold during three months ended December 31, 2017 was 14,755 square meters, representing a 17.9% decrease from the 17,976 square meters sold in the same period of last year.
In May of 2016, the Business Tax has been incorporated into Value Added Tax in China, which means there will be no more Business Tax and accordingly some business operations previously taxed in the name of Business Tax will be taxed in the manner of VAT thereafter. The Company is subjectJune 30, 2022 to 5% of VAT for all its exiting real estate project based on the local tax authority’s practice. As our revenue is reported net of VAT, the Company does not expect the overall gross margin for the existing real estate properties will be significantly affected by the change from business tax to VAT. The sales tax$0.4 million for the three months ended December 31, 2016 was $0.1 million, while there was $0.03 millionJune 30, 2023, primarily due to the decline in the sales tax chargeof real estate projects, which contributed to 47.9% of our total revenues. The total GFA sold for the remaining real estate projects during the three months ended December 31, 2017.
Revenue recognized from projects under development
For the three months ended December 31, 2017 | ||||||||||||||||||||
Total GFA | Average Percentage of Completion(1) | Qualified Contract Sales(2) | Revenue Recognized under Percentage of Completion | Accumulated Revenue recognized under Percentage of completion | ||||||||||||||||
Real estate properties under development located in Hanzhong | ||||||||||||||||||||
Yangzhou Palace | 297,450 | 84 | % | 25,163,737 | 6,606,649 | 21,484,5086 |
We started to recognize revenue under the percentage of completion method for Yangzhou Palace real estate property since second quarter of fiscal 2017. For the quarter ended December 31, 2017, total GFA sold under qualified contract sales as of December 31, 2017 was52,385June 30, 2023 and 2022 was 293 square meters (September 30, 2017 – 36,133). The average unit price under contract sales was $480 perand 1,666 square meters.
meters, respectively.
Cost of Sales
The following table sets forth a breakdown of our cost of sales:
For Three Months Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | Variance | ||||||||||||||||||||||
Cost | % | Cost | % | Amount | % | |||||||||||||||||||
Land use rights | $ | 1,046,883 | 8.7 | % | $ | 353,051 | 5.0 | % | $ | 693,832 | 196.5 | % | ||||||||||||
Construction cost | 10,953,658 | 91.3 | % | 6,707,984 | 95.0 | % | 4,245,674 | 63.3 | % | |||||||||||||||
Total cost | $ | 12,000,541 | 100 | % | $ | 7,061,035 | 100 | % | $ | 4,939,506 | 70.0 | % |
Three Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | Variance | ||||||||||||||||||||||
Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
Land use rights | $ | 16,776 | 4.3 | $ | 129,327 | 15.5 | $ | (112,551 | ) | (87.0 | ) | |||||||||||||
Construction cost | 148,759 | 38.3 | 704,272 | 84.5 | (555,513 | ) | (78.9 | ) | ||||||||||||||||
Battery Recycling | 223,386 | 57.4 | — | — | 223,386 | 100.0 | ||||||||||||||||||
$ | 388,921 | 100.0 | $ | 833,599 | 100.0 | $ | (444,678 | ) | (53.3 | ) |
Our cost of sales consists of costs associated with land use rights and construction costs. Cost of sales are capitalized and allocatedrevenues decreased by 53.3% from $0.8 million for the three months June 30, 2022 to development projects using the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project (or phase of the project) times the total cost of the project or phase of the project.
Cost of sales was approximately $12.0$0.4 million for the three months ended December 31, 2017 compared to $7.1June 30, 2023 because cost of revenues for real estate segment decreased by 80.1% from $0.8 million for the same period of last year. The $4.9 million increase in cost of sales was mainly attributable to the increase in total GFA sold during the three months ended December 31, 2017 which ledJune 30, 2022 to increased revenue$0.2 million for the three months ended June 30, 2023. The decrease was in line with the reduction in the sales of the condominiums and cost of sales.commercial properties.
Land use rights costcost:: The cost of land use rights includes the land premium we pay to acquire land use rights for our property development sites, plus taxes. Our land use rights cost varies for different projects according to the size and location of the site and the minimum land premium set for the site, all of which are influenced by government policies, as well as prevailing market conditions. Costs for land use rights for the three months ended December 31, 2017June 30, 2023 were $1.0 million,approximately $16.8k, as compared to $0.4 millionapproximately $129.3k for the three months ended December 31, 2016,June 30, 2022, representing an increasea decrease of $0.7 millionapproximately $112.5k from the same quarter last year. The increasedecrease was consistent with the fact that total GFA sold in this quarter was higher thansignificantly decreased from the same period of last year.
Construction cost: We outsource the construction of all of our projects to third party contractors, whom we select through a competitive tender process. Our construction contracts provide a fixed payment which covers substantially all labor, materials and equipment costs, subject to adjustments for some types of excess, such as design changes during construction or changes in government-suggested steel prices. Our construction costs consist primarily of the payments to our third-party contractors, which are paid over the construction period based on specified milestones. In addition, we purchase and supply a limited range of fittings and equipment, including elevators, window frames and door frames. Our construction costs for the three months ending December 31, 2017ended June 30, 2023 were approximately $11.0$0.1 million as compared to approximately $6.7$0.7 million for the same period of last year, representing a decrease of approximately $0.6 million. The decrease in construction cost was due to less real estate projects sold during the quarter ended June 30, 2023.
Gross Profit
The following table sets forth a breakdown of our gross profits:
Three Months Ended June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Gross Profit | Gross Margin | Gross Profit | Gross Margin | |||||||||||||
Nanyuan II Project | — | — | — | — | ||||||||||||
Oriental Garden | — | — | 4,201 | 12.5 | ||||||||||||
Yangzhou Palace | 40,561 | 19.8 | 327,154 | 28.9 | ||||||||||||
Battery Recycling | 840 | 0.4 | — | |||||||||||||
$ | 41,401 | 9.6 | $ | 331,355 | 28.4 |
Our gross profit decreased by 87.5% from $0.3 million for the three months ended December 31, 2016, representing an increase of $4.2 million. The increase in construction cost was dueJune 30, 2022 to increase in units sold during the quarter ended December 31, 2017.
The total cost of sales as a percentage of real estate sales before sales tax for the three months ended December 31, 2017 increased to 83.1% from 79.4% for the three months ended December 31, 2016, which was mainly attributable to the fact that more sales from real estate projects in Yang County were sold during the first quarter of fiscal 2018, while more sales from real estate projects in Hanzhong city were sold in the same period of last year.
Gross Profit
Gross profit was approximately $2.4$0.04 million for the three months ended December 31, 2017 as comparedJune 30, 2023 which was mainly due to approximatelythe economic downturn caused by the epidemic control in China.
Operating Expenses
The following table presents our operating expenses by nature for the periods indicated:
Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Operating expenses: | ||||||||
Selling and distribution expenses | $ | 37,291 | $ | 40,261 | ||||
General and administrative expenses | 804,743 | 1,698,534 | ||||||
Impairment of Real estate property under development | 89,914,582 | — | ||||||
Total operating expenses | $ | 90,756,616 | $ | 1,738,795 | ||||
Total Revenue | $ | 430,322 | $ | 1,164,954 | ||||
Total operating expenses as a % of total revenues | 21,090.4 | % | 149.3 | % |
Total operating expenses increased by 5119.51% from $1.7 million for the three months ended December 31, 2016, representing an increase of $0.7June 30, 2022 to $90.8 million for the three months ended June 30, 2023 which was mainly attributable to more GFA sold during the first quarterimpairment loss of fiscal 2018. For the three months ended December 31, 2017 and 2016, total GFA sold during the period was 31,007 square meters and 17,976 square meters, respectively. The gross margin was lower in the three months ended December 31, 2017, comparing$89.9 million with respect to the same period of last year. It was mainly due to lower price we offered to promote the Yangzhou Palace project and Oriental Garden project. The following table sets forth the gross margin of each of our projects:
For Three Months Ended December 31, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Gross Profit | Gross Margin | Gross Profit | Gross Margin | |||||||||||||
Mingzhu Garden (Mingzhu Nanyuan & Mingzhu Beiyuan) Phase I and II | $ | 1,288,482 | 31.8 | % | $ | 714,709 | 20.2 | % | ||||||||
Oriental Garden | 575,691 | 15.2 | % | 1,133,268 | 21.3 | % | ||||||||||
Yangzhou Pearl Garden Phase I and II | - | - | (11,158 | ) | (31.1 | )% | ||||||||||
Yangzhou Palace | 582,857 | 8.8 | % | - | - | |||||||||||
Sales Tax | (25,216 | ) | (112,602 | ) | ||||||||||||
Total Gross Profit | $$ | 2,421,814 | 16.8 | % | $ | 1,724,217 | 19.4 | % | ||||||||
Total Real Estate Sales before Sales Tax | $ | 14,447,571 | $ | 8,897,854 |
Operating Expenses
Total operating expenses increased by 8.9% or $55,207 to $674,171 for the three months ended December 31, 2017 from $618,964 for the three months ended December 31, 2016 as a result of an increase in selling expense of $170,508 primarily attributed to more sales and marketing related expense incurred to promote the sales of our real estate projects. Our general and administrative expense was $357,429 for the three months ended December 31, 2017, decreased by $115,301 from the three months ended December 31, 2016 due to less consulting and office expenses. Our total operating expenses accounted for 4.7% and 7.0% of our real estate sales before sales taxes for the three months ended December 31, 2017 and 2016, respectively. property development completed.
For Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Selling expenses | $ | 316,742 | $ | 146,234 | ||||
General and administrative expenses | 357,429 | 472,730 | ||||||
Total operating expenses | $ | 674,171 | $ | 618,964 | ||||
Percentage of Real Estate Sales before Sales Tax | 4.7 | % | 7.0 | % |
Income Taxes
U.S. Taxes
The Company is a corporation organized under the laws of the State of Florida. However, all of the Company’s operations are conducted solely by its VIE in the PRC. The Company and its subsidiaries had operating losses since inception and the Company recorded a full valuation allowance against those tax losses. All the Company’s consolidated earnings are generated by the Company’s VIE in PRC. As a result, we did not generate any U.S. taxable income for the three months ended December 31, 2017 and 2016.
PRC Taxes
The Company’s PRC subsidiary and VIE are governed by the Income Tax Law of the People’s Republic of China concerning the privately run enterprises, which are generally subject to income tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. However, prior to October 1, 2017, as approved by the local tax authority of Hanzhong City, theThe Company’s CIT was assessed annually at a pre-determined fixed rate as an incentive to stimulate the local economy and encourage entrepreneurship. The local income tax rate in Hanzhong is 2.5% and in Yang County is 1.25% on revenue. Starting from October 1, 2017, the Company is subject to income tax rate of 25% on taxable income in fiscal 2018 and afterwards. The change in the income tax policy could negatively affect the Company’s net income. For the three months ended December 31, 2017 and 2016, the Company’s income taxes were $413,750 and $221,998, respectively. Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, for the Company’s tax filling prior to October 1, 2017, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. The PRC tax rules are different from the local tax rules and the Company is required to comply with local tax rules. The difference between the two tax rules will not be a liability of the Company. There will be no further tax payments for the difference.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has determined that the Company’s VIE in PRC does not qualify as a reportable controlled foreign corporation (“CFC”) in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result the Company assessed there was no significant income tax impact during the period in which the legislation was enacted.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the Company’s VIE in PRC does not qualify as a reportable CFC, therefore it is not necessary to record any income tax provision in connection with the transition tax on the mandatory deemed repatriation of foreign earnings at December 31, 2017. Additional work is necessary to do a more detailed analysis of the Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in fiscal 2018 when the analysis is complete.
Net Income (Loss)
WeAs a result of the foregoing, we reported net incomeloss of approximately $1.2$90.7 million for the three months ended December 31, 2017,June 30, 2023, as compared to net incomeloss of approximately $0.8 for the three months ended December 31, 2016. The increase of approximately $0.4 million in our net income was primarily due to higher revenue as discussed above under Revenues and Gross Profit.
Other Comprehensive Income (loss)
We operate primarily in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (”RMB”). RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that RMB amounts could have been, or could be, converted into USD at the rates used in translation.
Translation adjustments resulting from this process amounted to $3.7 million and negative $6.2$1.4 million for the three months ended December 31, 2017June 30, 2022.
Nine months ended June 30, 2023 compared to Nine months ended June 30, 2022
Revenues
The following table sets forth our revenues by segment and 2016,as a percentage of total revenues for the periods indicated:
Nine Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | Variance | ||||||||||||||||||||||
Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
Mingzhu Garden (Mingzhu Nanyuan & Mingzhu Beiyuan) Phase I and Phase II | $ | 8,699 | 0.8 | $ | 974,309 | 11.8 | $ | (965,610 | ) | (99.1 | ) | |||||||||||||
Oriental Garden | — | — | 790,593 | 9.5 | (790,593 | ) | (100.0 | ) | ||||||||||||||||
Yangzhou Palace | 849,980 | 78.5 | 6,522,038 | 78.7 | (5,672,058 | ) | (87.0 | ) | ||||||||||||||||
Battery Recycling | 224,226 | 20.7 | — | — | 224,226 | |||||||||||||||||||
$ | 1,082,905 | 100.0 | $ | 8,286,940 | 100.0 | $ | (7,204,035 | ) | (86.9 | ) |
For the nine months ended June 30, 2023 and 2022, we generated revenues of $1.1 million and $8.3 million, respectively, derived from two operating segments, (i) sales of lead ingots or blocks, and (ii) real estate.
Our revenues decreased by 86.9% from $8.3 million for the nine months ended June 30, 2022 to $1.1 million for the nine months ended June 30, 2023, primarily due to the significant depreciationdecline in the sales of RMB.real estate projects, which contributed to 79.3% of our total revenues. The balance sheet amountstotal GFA sold for the remaining real estate projects during the nine months ended June 30, 2023 and 2022 was 1,338 and 13,449 square meters, respectively.
Cost of Sales
The following table sets forth a breakdown of our cost of sales:
Nine Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | Variance | ||||||||||||||||||||||
Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
Land use rights | $ | 70,428 | 7.6 | $ | 486,590 | 10.6 | $ | (416,162 | ) | (85.5 | ) | |||||||||||||
Construction cost | 628,769 | 68.2 | 4,107,668 | 89.4 | (3,478,899 | ) | (84.7 | ) | ||||||||||||||||
Battery Recycling | 223,386 | 24.2 | — | — | 223,386 | 100.0 | ||||||||||||||||||
$ | 922,583 | 100.0 | $ | 4,594,258 | 100.0 | $ | (3,671,675 | ) | (79.9 | ) |
Our cost of revenues decreased by 79.9% from $4.6 million for the nine months June 30, 2022 to $0.9 million for the nine months ended June 30, 2023 because cost of revenues for real estate segment decreased by 84.8% from $4.5 million for the nine months ended June 30, 2022 to $0.7 million for the nine months ended June 30, 2023. The decrease was in line with the exceptionreduction in the sales of equity at December 31, 2017the condominiums and commercial properties.
Land use rights cost: The cost of land use rights includes the land premium we pay to acquire land use rights for our property development sites, plus taxes. Our land use rights cost varies for different projects according to the size and location of the site and the minimum land premium set for the site, all of which are influenced by government policies, as well as prevailing market conditions. Costs for land use rights for the nine months ended June 30, 2023 were translated at 6.5063 RMB to 1.00 USDapproximately $70.4k, as compared to 6.6533 RMB to 1.00 USD at Septemberapproximately $486.6k for the nine months ended June 30, 2017, RMB has appreciated 2% against2022, representing a decrease of approximately $416.2k from the U.S. dollar from Septembersame period of last year. The decrease was consistent with the fact that total GFA sold in the first three quarters ended June 30, 2017 to December 31, 2017. The equity accounts were stated at their historical rate. The average translation rates applied2023 was declined significantly compared to the income statements accountssame period last year.
Construction cost: We outsource the construction of all of our projects to third party contractors, whom we select through a competitive tender process. Our construction contracts provide a fixed payment which covers substantially all labor, materials and equipment costs, subject to adjustments for some types of excess, such as design changes during construction or changes in government-suggested steel prices. Our construction costs consist primarily of the payments to our third-party contractors, which are paid over the construction period based on specified milestones. In addition, we purchase and supply a limited range of fittings and equipment, including elevators, window frames and door frames. Our construction costs for the nine months ended June 30, 2023 were approximately $0.6 million as compared to approximately $4.1 million for the same period of last year, representing a decrease of approximately $3.5 million. The decrease in construction cost was due to less real estate property units sold for the nine months ended June 30, 2023.
Gross Profit
The following table sets forth a breakdown of our gross profits:
Nine Months Ended June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Gross Profit | Gross Margin | Gross Profit | Gross Margin | |||||||||||||
Mingzhu Garden (Mingzhu Nanyuan & Mingzhu Beiyuan) Phase I and Phase II | $ | 1,225 | 14.1 | $ | 393,979 | 40.4 | ||||||||||
Oriental Garden | — | — | 603,838 | 76.4 | ||||||||||||
Yangzhou Palace | 158,257 | 18.6 | 2,694,865 | 41.3 | ||||||||||||
Battery Recycling | 840 | 0.4 | — | — | ||||||||||||
$ | 160,322 | 14.8 | $ | 3,692,682 | 44.6 |
Our gross profit decreased by 95.6% from $3.7 million for the nine months ended June 30, 2022 to $0.2 million for the nine months ended June 30, 2023 which was mainly due to the economic downturn caused by the epidemic control in China and aforementioned.
Operating Expenses
The following table presents our operating expenses by nature for the periods ended December 31, 2017 and 2016 were 6.6131 RMB and 6.8104 RMB, respectively.indicated:
Nine Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Operating expenses: | ||||||||
Selling and distribution expenses | $ | 140,152 | $ | 289,919 | ||||
General and administrative expenses | 2,555,639 | 2,980,887 | ||||||
Impairment of Real estate property under development | 89,914,582 | 2,980,887 | ||||||
Total operating expenses | $ | 92,610,373 | $ | 3,270,806 | ||||
Total Revenue | $ | 1,082,905 | $ | 8,286,940 | ||||
Total operating expenses as a % of total revenues | 8,552.0 | % | 39.5 | % |
Total operating expenses increased by 2,731.4% from $3.3 million for the nine months ended June 30, 2022 to $92.6 million for the nine months ended June 30, 2023 which was mainly attributable to the impairment loss of $89.9 million with respect to real estate property development completed recorded in the three months ended June 30, 2023.
Income Taxes
PRC Taxes
Our Company is governed by the Enterprise Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income as reported in the statutory financial statements after appropriate tax adjustments. For the nine months ended June 30, 2023 and 2022, the Company is subject to income tax rate of 25% on taxable income. Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. The PRC tax rules are different from the local tax rules and the Company is required to comply with local tax rules. The difference between the two tax rules will not be a liability of the Company. There will be no further tax payments for the difference.
Net Income (Loss)
As a result of the foregoing, we reported net loss of approximately $92.6 million for the nine months ended June 30, 2023, as compared to net loss of approximately $0.3 for the nine months ended June 30, 2022.
Liquidity and Capital Resources
Current Assets and Liabilities
Our principal need for liquidity and capital resources is to maintain working capital sufficient to support our operations and to make capital expenditures to finance the growth of our business. Historically, we mainlyhave primarily financed our operations primarily through cash flows from operations and borrowings from our principal shareholder.
Liquidity
In recent years, the Chinese government has implemented measures to control overheating residential and commercial property prices including but not limited to restrictions on home purchases, increasing the down-payment requirement against speculative buying, development of low-cost rental housing properties to help low-income groups while reducing the demand in the commercial housing market, increasing real estate property taxes to discourage speculation, control of the land supply and slowdown the construction land auction process, etc. In addition, in December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly throughout China and worldwide, which has caused significant volatility in the PRC and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC’s and international economies. To reduce the spread of COVID-19, the Chinese government has employed measures including city lockdowns, quarantines, travel restrictions, suspension of business activities and school closures. Due to difficulties resulting from the COVID-19 pandemic, including, but not limited to, the closure of the Company’s facilities and operations beginning in early February 2020 through December 2022, limited support from the Company’s employees, delayed access to construction raw material supplies, reduced customer visits to the Company’s sales office, and inability to promote real estate property sales to customers on a timely basis. The Company had real estate sales of approximately $0.9 million for the nine months ended June 30, 2023, as compared with $8.3 million in the same period of last year. Based on the assessment of the current economic environment, customer demand and sales trends, we believe that consumer spending has been restored in the local real estate market and real estate sales are expected to grow in the coming periods. On the other side, due to the negative impact from the COVID-19 pandemic and its variants, the development period of real estate properties and our operating cycle has been extended and we may not be able to liquidate our large balance of completed real estate properties within the short term as we originally expected. In addition, as of June 30, 2023, we had large construction loans payable of approximately $106.3 million and accounts payable of approximately $10.4 million to be paid to subcontractors. The extent of the impact of COVID-19 on the Company’s future financial results will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the local economy and real estate markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this uncertainty, the Company is currently unable to quantify the expected impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations if the current situation continues. The above-mentioned facts raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date of this filing.
In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. As of December 31, 2017, the Company had approximately $58.6 million in working capital, a decrease of $16.6 million as compared to $75.2 million as of SeptemberJune 30, 2017, which was mainly because certain loans were due in the next twelve months based on the repayment schedule therefore reclassified from long term nature to short term nature. Our2023, our total cash and restricted cash balance werewas approximately $5.5 million and $4.7 million as of December 31, 2017 and September 30, 2017, respectively. In addition, on June 26, 2015 and March 10, 2016, the Company signed phase I and Phase II agreements with Hanzhong Urban Construction Investment Development Co., Ltd, a state owned Company, to borrow up to $119,115,319 (RMB 775,000,000) long term loan at 4.245% interest to develop Liangzhou Road Project. As of December 31, 2017, the Company borrowed $98,798,071 (September 30, 2017 - $97,473,417) from this credit line. The loan is guaranteed by Hanzhong City Hantai District Municipal Government and pledged by the Company’s Yang County Palace project with carrying value of $85,651,923 as of December 31, 2017 (September 30, 2017 - $87,126,402). On January 8, 2016, the Company signed a loan agreement with Hanzhong Municipal Housing Provident Fund Management Center to borrow up to $12,295,775 (RMB 80,000,000) related to Oriental Garden project. The loan carries interest at is 3.575% and is due in January 2019. As of September 30, 2017, the Company received all the proceeds from Housing Fund. The repayment is required based on certain sales milestones or a fixed repayment schedule starting in July 2018. In December 2016, the Company signed a loan agreement with Hantai District Urban Construction Investment Development Co., Ltd, a state owned Company, to borrow up to $18,289,965 (RMB 119,000,000) for the development of Hanzhong City Liangzhou Road project. The loan carries interest at a fixed interest of 1.2% and is due on June 20, 2031. As of December 31, 2017, the Company pledged the assets of Liangzhou Road and related projects with carrying value of $135,144,631 (September 30, 2017 -$133,941,504) as collateral for the loan. Our major shareholder pledged their assets for the loan. The Housing Fund has rights to monitor the project’s future cash flow. Additionally, in September 2017, the Urban Development Center Co., Ltd. approved a construction loan for the Company in the amount of $ $26,897,008 with an annual interest rate of 1.2% per year in connection with the Liangzhou Road and related Project. The Company is required to repay the loan from December 2027 through May 2031. The amount of this loan is available to be drawn down as soon as the land use rights of the Liangzhou Road is approved and the construction starts, which is expected to begin in the Spring of 2018.
$2.9 million. With respect to capital funding requirements, the Company budgeted ourits capital spending based on ongoing assessments of its needs to maintain adequate cash. DueOn January 27, 2023, the Company closed a private placement with net proceeds of approximately $0.1 million. As of June 30, 2023, we had approximately $72.7 million of completed residential apartments and commercial units available for sale to potential buyers. Although we reported approximately $10.4 million accounts payable as of June 30, 2023, due to the long termlong-term relationship with our construction suppliers and subcontractors, we were able to effectively manage cash spending on construction. Also,construction and negotiate with them to adjust the payment schedule based on our principal shareholder, Mr. Xiaojun Zhu has been providing and will continue to provide his personal funds, if necessary, to support the Companycash on an as needed basis.hand. In addition, most of our existing real estate development projects relate to the old town renovation which are supported by the local government. As of June 30, 2023, we reported approximately $106.3 million of construction loans borrowed from financial institutions controlled by the local government and such loans can only be used on the old town renovation related project development. We expect that we will be able to renew all of the existing construction loans upon their maturity and borrow additional new loans from local financial institutions, when necessary, based on our past experience and the Company’s good credit history. Also, the Company’s cash flows from pre-sales and current sales should provide financial support for our current developmentsdevelopment projects and operations. The Company believes it has sufficient working capital forFor the next twelve months.
three months ended June 30, 2023, we had six large ongoing construction projects (see Note 3, real estate properties under development) which were under the preliminary development stage due to delayed inspection and acceptance of the development plans by the local government. In order to fully implement our business planJune 2020, we completed the residence relocation surrounding the Liangzhou Road related projects and sustain continued growth,launched the construction of these projects in December 2020. For the other four projects, we may also need to raise capital from outside investors. Our expectation, therefore, is thatexpect we will seek to access the capital markets in both the U.S. and Chinabe able to obtain the funds as needed. Atgovernment’s approval of the present time, however, we do notdevelopment plans on these projects in the coming fiscal year and start the pre-sale of the real estate properties to generate cash when certain property development milestones have commitments of funds from any third party.been achieved.
Cash Flow
Comparison of cash flows results is summarized as follows:
Three months ended December 31, | ||||||||
2017 | 2016 | |||||||
Net cash provided by (used in) operating activities | $ | 1,905,114 | $ | (17,320,827 | ) | |||
Net cash used in investing activities | (390,392 | ) | - | |||||
Net cash provided by (used) in financing activities | (985,922 | ) | 21,488,076 | |||||
Effect of change of foreign exchange rate on cash | 56,332 | (319,414 | ) | |||||
Net cash increase in cash | 585,132 | 3,847,835 | ||||||
Cash, beginning of period | 2,109,043 | 6,401,237 | ||||||
Cash, end of period | $ | 2,694,175 | $ | 10,249,072 |
Cash Flow
For the Nine Months Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Net Cash Used in Operating Activities | $ | (1,011,906 | ) | $ | (799,748 | ) | ||
Net Cash Used in Investing Activities | (5,757,787 | ) | (26,936,915 | ) | ||||
Net Cash Provided by Financing Activities | 5,307,470 | 28,936,915 | ||||||
Effect of exchange rate changes on cash | (46,095 | ) | (124,054 | ) | ||||
Net increase (decrease) in cash and restricted cash | (1,508,318 | ) | 1,076,198 | |||||
Cash and restricted cash, beginning of period | 4,368,177 | 3,465,189 | ||||||
Cash and restricted cash, end of period | $ | 2,859,859 | $ | 4,541,387 |
Operating Activities
Net cash provided byused in operating activities during the threenine months ended December 31, 2017June 30, 2023 was $1.9$1.0 million, consisting of net incomeloss of $1.2 million, noncash adjustments of $0.6approximately $92.6 million and net changes in our operating assets and liabilities, which mainly included a decrease inof impairment of $90.0 million, an increase of real estate property completed by approximately $6.0 million because we sold these completed residential and commercial units during current quarter, offset with an increase in the real estate under development of approximately $4.4$4.0 million due to constructions on the Liangzhou roada decrease of $5.3 million in other payable and related projects and Yangzhou Palace project, payments of accounts payable of approximately $1.7 million. The cash inflows provided by operating activities is mainly attributable to our revenue from current quarter sales.accrued expenses.
Net cash used in operating activities during the threenine months ended December 31, 2016June 30, 2022 was $17.3$0.8 million, consisting of net incomeloss of $0.8 million, noncash adjustments of $0.03approximately $0.3 million and net changes in our operating assets and liabilities, which mainly included a decreasean increase of spending in real estate property completed by approximately $7.1under development of $9.3 million, because we sold these completed residential and commercial units during current quarter, an increase in the real estate under developmentaccounts payable of approximately $22$6.5 million due to constructions onmore payments to our supplier, offset by decrease of real estate property completed of $4.6 million due to sales of real estate and a decrease in other assets of $4.0 million due to the Liangzhou road and related projects and Hanzhong City Beidajie project, paymentsreduction of accounts payablereceivables from housing buyers, a decrease of approximately $1.3$2.6 million and the increase in customer deposits of approximately $0.8 million. The cash outflows used in operating activities is mainly attributable to our increased spending on ourreceived from real estate properties under development.
Investing activities
Net cash usedsales and a decrease of $0.6 million in investing activitiesother payable and accrued expenses due to accrual of $1.4 million for claims from suppliers and customers for civil disputes during threethe nine months ended December 31, 2017 and 2016 was $0.4 million and Nil, respectively, due to purchases of office equipment during the period.June 30, 2022.
FinancingInvesting Activities
Net cash flows used in financinginvesting activities was approximately $1.0$5.8 million for threenine months ended December 31, 2017,June 30, 2023, which included a net repayment of shareholder loan of $0.1was the prepayment made to professional service fee and Mental Scrap.
Net cash flows used in investing activities was approximately $26.9 million and repayment of other loans of $0.9 million.for nine months ended June 30, 2022, which was the prepayment made to purchase energy equipment.
Financing Activities
Net cash flows provided by financing activities amounted towas approximately $21.5$5.3 million for the threenine months ended December 31, 2016, primarily because weJune 30, 2023 which was the proceeds received loanfrom two private placements completed by the Company during the first half of fiscal 2023.
Net cash flows provided by financing activities was approximately $28.9 million for nine months ended June 30, 2022, which was the proceeds of approximately $21.5 millionreceived from local banktwo private placements closed in January 2022 and other financial institution and invested these amounts on our real estate projects under development, including approximately $9.2 million borrowed from Hanzhong Urban Construction Investment Development Co., Ltd for our Liangzhou Road related projects, and $12.3 million borrowed from Hantai District Urban Construction Investment Development Co., Ltd for our Hanzhong Liangzhou Road project.March 2022, respectively.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
As an industry practice, the Company provides guarantees to PRC banks with respect to loans procured by the purchasers of the Company’s real estate properties for the total mortgage loan amount until the buyer obtains the “Certificate of Ownership” of the properties from the government, which generally takes six to twelve months. Because the banks provide loan proceeds without getting the “Certificate of Ownership” as loan collateral during the six-to-twelve-month period, the mortgage banks require the Company to maintain, as restricted cash of at least 5% of the mortgage proceeds as security for the Company’s obligations under such guarantees. If a purchaser defaults on its payment obligations, the mortgage bank may deduct the delinquent mortgage payment from the security deposit and require the Company to pay the excess amount if the delinquent mortgage payments exceed the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers’ default on their payment obligations at around the same time, we will be required to make significant payments to the banks to satisfy our guarantee obligations. If we are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. The Company has the required reserves in its restricted cash account to cover any potential mortgage defaults as required by the mortgage lenders. Since its inception through the release of this report, the Company has not experienced any delinquent mortgage loans and has not experienced any losses related to these guarantees. As of June 30, 2023 and September 30, 2022, our outstanding guarantees in respect of our customers’ mortgage loans amounted to approximately $25.7 million. As of June 30, 2023 and September 30, 2022, the amount of restricted cash reserved for these guarantees was approximately $2.8 million and $3.0 million, respectively, and the Company believes that such reserves are sufficient.
Inflation
Inflation has not had a material impact on our real estate business in China and we do not expect inflation to have a material impact on our business in the near future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISKRISK.
Foreign Exchange Risk
All of our net sales, and a majority of our costs and expenses are denominated in RMB. Although the conversion of RMB is highly regulated in China, the value of RMB against the value of the U.S. dollar or any other currency nonetheless may fluctuate and be affected by, among other things, changes in China’s political and economic conditions. Under current policy, the value of RMB is permitted to fluctuate within a narrow band against a basket of certain foreign currencies. China is currently under significant international pressures to liberalize this government currency policy, and if such liberalization were to occur, the value of RMB could appreciate or depreciate against the U.S. dollar.
Inflation
Because substantially all of our earnings and majority of our cash assets are denominated in RMB, other than certain cash deposits we keep in a bank in Hong Kong and the U.S., appreciation or depreciation in the value of RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividends we may issue in future that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by the PRC exchange control regulations that restrict our ability to convert RMB into foreign currency.
Interest Rate Risk
We have not been, nor do we anticipate being exposed to material risks due to changes in interest rates. Our risk exposure to changes in interest rates relates primarily to the interest income generated by cash deposited in interest-bearing savings accounts and interest expense on variable rate bank loan. We have not used, and do not expect to use in the future any derivative financial instruments to hedge our interest risk exposure. However, fluctuations in interest rates can lead to significant changes in our interest income and interest expense.
Credit Risk
We are exposed to credit risk from our cash in banks, accounts receivable and due from local government for real estate property development completed. The credit risk on cash in bank and fixed deposits is limited because the counterparties are recognized financial institutions. Accounts receivable are subjected to credit evaluations. An allowance would be made, if necessary, for estimated unrecoverable amounts by reference to past default experience, if any, and by reference to the current economic environment.
Inflation
Inflationary factors, such as increases in the cost of our products and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.
We Conduct Substantially All Our Business in Foreign Country
Substantially all of our operations are conducted in China and are subject to various political, economic, and other risks and uncertainties inherent in conducting business in China. Among other risks, our Company and our subsidiaries’ operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures and to confirm that any necessary corrective action, including process improvements, was taken. The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our SEC reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017.June 30, 2023. Management is committed to improving the internal controls over financial reporting and will undertake the consistent improvements or enhancements on an ongoing basis. To remediate the material weakness and significant deficiencies and to prevent similar deficiencies in the future, we are currently evaluating additional controls and procedures, which may include:
● | Provide more U.S. GAAP knowledge and SEC reporting requirements training for the accounting department and establish formal policies and procedures. |
The remedial measures being undertaken may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) the Company may fail to meet future reporting obligations on a timely basis, (ii) the Company’s consolidated financial statements may contain material misstatements, and (iii) the Company’s business and operating results may be harmed.
Changes in Internal Control overOver Financial Reporting
Except for the matters described above to improve our internal controls over financial reporting, there were no changes in our internal control over financial reporting for the three months ended December 31, 2017June 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, however, the Company is in the process of designing and planning to change as described above.
GREEN GIANT INC.
PART II:II - OTHER INFORMATION
We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business. We
There are 135 cases against the Company, the total claims of year to day amounts to $10.5 million according to the judgement outcome from local courts as of July 15, 2023, of which approximately $9.4 million was accrued for the month ended December 31, 2022. The difference of $1.1 million was accrued for the nine months ended June 30, 2023. The Company disputes the allegations in the lawsuit and intends to vigorously defend itself in the action.
Item 1A. Risk Factors
As a smaller reporting company, we are not currently a partyrequired to any legal proceedings,provide the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the business, financial condition, or results of operations of the Company.information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.Other than any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
None.Not applicable.
None.
(a)The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
Index to Exhibits
Incorporated by Reference | ||||||||||
Exhibit | (Unless Otherwise Indicated) | |||||||||
Number | Exhibit Title | Form | File | Exhibit | Filing Date | |||||
31.1 | Certification of | — | — | — | Filed herewith | |||||
31.2 | — | — | — | Filed herewith | ||||||
32.1* | — | — | — | Furnished herewith | ||||||
32.2* | — | — | — | Furnished herewith | ||||||
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL: (i) Condensed Unaudited Consolidated Balance Sheets, (ii) Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Unaudited Consolidated Statements of Changes in Equity, (iv) Condensed Unaudited Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags | — | — | — | Filed herewith | |||||
Cover Page Interactive Data File (formatted as Inline XBRL | ||||||||||
and contained in Exhibit 101) | ||||||||||
— | ||||||||||
* Furnished electronically herewith
* | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
SIGNATURES
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.
Date: August 10, 2023 | ||
By: | /s/ | |
Chief Executive Officer |
Green Giant Inc. | ||
By: | /s/ Rongrong Dai | |
Rongrong Dai | ||
Chief Financial Officer |
38