Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2019 | May 14, 2019 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | CHINA HGS REAL ESTATE INC. | |
Entity Central Index Key | 0001158420 | |
Current Fiscal Year End Date | --09-30 | |
Entity Filer Category | Non-accelerated Filer | |
Trading Symbol | HGSH | |
Entity Common Stock, Shares Outstanding | 45,050,000 | |
Entity Emerging Growth Company | false | |
Entity Small Business | true |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS | Mar. 31, 2019USD ($) | Sep. 30, 2018USD ($) |
Current assets: | ||
Cash | $ 1,133,688 | $ 3,267,020 |
Restricted cash | 4,007,053 | 3,508,557 |
Contract receivables | 11,597,778 | 12,582,965 |
Real estate property development completed | 59,556,146 | 58,999,178 |
Real estate property under development | 51,926,234 | 60,128,554 |
Other current assets | 1,592,188 | 1,408,826 |
Total current assets | 129,813,087 | 139,895,100 |
Property, plant and equipment, net | 694,368 | 718,366 |
Real estate property development completed, net of current portion | 1,246,099 | 1,217,650 |
Security deposits | 8,490,628 | 8,296,782 |
Real estate property under development, net of current portion | 221,272,778 | 215,431,915 |
Due from local government for real estate property development completed | 2,903,145 | 2,836,865 |
Total Assets | 364,420,105 | 368,396,678 |
Current liabilities: | ||
Construction loans | 69,321,433 | 55,610,803 |
Accounts payables | 20,032,294 | 20,507,128 |
Other payables | 5,596,567 | 4,894,774 |
Construction deposits | 1,932,231 | 1,879,570 |
Contract liabilities | 6,250,086 | 5,844,189 |
Customer deposits | 18,016,727 | 20,234,072 |
Shareholder loans | 2,149,869 | 2,142,110 |
Accrued expenses | 3,004,580 | 3,006,150 |
Taxes payable | 14,587,240 | 15,492,902 |
Total current liabilities | 140,891,027 | 129,611,698 |
Deferred tax liabilities | 2,443,617 | 2,068,257 |
Tax payable - long term | 5,076,682 | 4,960,779 |
Customer deposits, net of current portion | 1,646,501 | 1,914,677 |
Construction loans, less current portion | 46,646,059 | 66,885,378 |
Construction deposits, net of current portion | 1,307,913 | 1,278,053 |
Total liabilities | 198,011,799 | 206,718,842 |
Commitments and Contingencies | ||
Stockholders' equity | ||
Common stock, $0.001 par value, 100,000,000 shares authorized, 45,050,000 shares issued and outstanding March 31, 2019 and September 30, 2018 | 45,050 | 45,050 |
Additional paid-in capital | 129,907,805 | 129,907,805 |
Statutory surplus | 9,925,794 | 9,925,794 |
Retained earnings | 31,628,807 | 30,803,052 |
Accumulated other comprehensive deficit | (5,099,150) | (9,003,865) |
Total stockholders' equity | 166,408,306 | 161,677,836 |
Total Liabilities and Stockholders' Equity | $ 364,420,105 | $ 368,396,678 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2019 | Sep. 30, 2018 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 45,050,000 | 45,050,000 |
Common stock, shares outstanding | 45,050,000 | 45,050,000 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Real estate sales | $ 9,367,156 | $ 21,906,367 | $ 17,104,352 | $ 36,353,938 |
Less: Sales tax | (362,846) | (65,064) | (504,957) | (90,280) |
Cost of real estate sales | (7,556,593) | (18,118,690) | (13,479,777) | (30,119,231) |
Gross profit | 1,447,717 | 3,722,613 | 3,119,618 | 6,144,427 |
Operating expenses | ||||
Selling and distribution expenses | 104,926 | 185,593 | 274,900 | 502,335 |
General and administrative expenses | 783,687 | 654,778 | 1,254,619 | 1,012,207 |
Total operating expenses | 888,613 | 840,371 | 1,529,519 | 1,514,542 |
Operating income | 559,104 | 2,882,242 | 1,590,099 | 4,629,885 |
Interest expense, net | (35,611) | (126,064) | (140,842) | (254,685) |
Other expense | (29,010) | 0 | (302,163) | |
Income before income taxes | 494,483 | 2,756,178 | 1,147,094 | 4,375,200 |
Provision for income taxes | 152,938 | 717,008 | 321,339 | 1,130,758 |
Net income | 341,545 | 2,039,170 | 825,755 | 3,244,442 |
Other Comprehensive income | ||||
Foreign currency translation adjustment | 4,083,473 | 6,344,376 | 3,904,715 | 10,073,463 |
Comprehensive income | $ 4,425,018 | $ 8,383,546 | $ 4,730,470 | $ 13,317,905 |
Basic and diluted income per common share | ||||
Basic and diluted | $ 0.01 | $ 0.05 | $ 0.02 | $ 0.07 |
Weighted average common shares outstanding | ||||
Basic and diluted | 45,050,000 | 45,050,000 | 45,050,000 | 45,050,000 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Total | Common Stock [Member] | Additional Paid-in Capital [Member] | Statutory Surplus | Retained Earnings [Member] | Accumulated Other Comprehensive Income (loss) [Member] |
Beginning balance at Sep. 30, 2017 | $ 161,889,366 | $ 45,050 | $ 129,853,172 | $ 9,142,899 | $ 26,343,030 | $ (3,494,785) |
Beginning balance (in Shares) at Sep. 30, 2017 | 45,050,000 | |||||
Stock-based Compensation | 29,800 | $ 0 | 29,800 | 0 | 0 | 0 |
Net income for the period | 3,244,442 | 0 | 0 | 0 | 3,244,442 | 0 |
Foreign currency translation adjustments | 10,073,463 | 0 | 0 | 0 | 0 | 10,073,463 |
Ending balance at Mar. 31, 2018 | 175,237,071 | $ 45,050 | 129,882,972 | 9,142,899 | 29,587,472 | 6,578,678 |
Ending Balance (in Shares) at Mar. 31, 2018 | 45,050,000 | |||||
Beginning balance at Sep. 30, 2018 | 161,677,836 | $ 45,050 | 129,907,805 | 9,925,794 | 30,803,052 | (9,003,865) |
Beginning balance (in Shares) at Sep. 30, 2018 | 45,050,000 | |||||
Net income for the period | 825,755 | $ 0 | 0 | 0 | 825,755 | |
Foreign currency translation adjustments | 3,904,715 | 0 | 0 | 0 | 0 | 3,904,715 |
Ending balance at Mar. 31, 2019 | $ 166,408,306 | $ 45,050 | $ 129,907,805 | $ 9,925,794 | $ 31,628,807 | $ (5,099,150) |
Ending Balance (in Shares) at Mar. 31, 2019 | 45,050,000 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities | ||
Net income | $ 825,755 | $ 3,244,442 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Deferred tax provision | 321,339 | 380,788 |
Depreciation | 40,073 | 29,800 |
Stock based compensation | 442,235 | |
Changes in assets and liabilities: | ||
Advances to vendors | 0 | (175,248) |
Contract receivables | 264,661 | (1,481,211) |
Real estate property development completed | 807,172 | 14,251,003 |
Real estate property under development | 8,646,320 | (6,492,660) |
Other current assets | (147,825) | 3,177 |
Accounts payables | (937,339) | (5,880,670) |
Other payables | 577,196 | 709,012 |
Contract liabilities | 1,256,887 | 654,002 |
Customer deposits | (2,950,683) | (469,686) |
Construction deposits | 8,594 | (32,745) |
Accrued expenses | (57,874) | (198,484) |
Taxes payable | (1,189,102) | (793,293) |
Net cash provided by operating activities | 7,465,174 | 4,190,462 |
Cash flow from investing activities | ||
Purchases of fixed assets | 0 | (398,269) |
Net cash used in investing activities | 0 | (398,269) |
Cash flow from financing activities | ||
Net proceeds (repayments) of shareholder loans | 0 | (330,130) |
Net proceeds (repayments) of bank loans | (9,227,072) | (880,860) |
Net cash used in financing activities | (9,227,072) | (1,210,990) |
Effect of changes of foreign exchange rate on cash and restricted cash | 127,062 | 372,555 |
Net increase (decrease) in cash and restricted cash | (1,634,836) | 2,953,758 |
Cash and restricted cash , beginning of period | 6,775,577 | 4,716,604 |
Cash and restricted cash, end of period | 5,140,741 | 7,670,362 |
Supplemental disclosures of cash flow information: | ||
Interest paid | 3,614,641 | 3,008,428 |
Income taxes paid | 209,392 | 544,678 |
Reconciliation to amounts on condensed consolidated balance sheets: | ||
Cash | 1,133,688 | 4,323,993 |
Restricted | 4,007,053 | 3,346,369 |
Total cash and restricted cash | $ 5,140,741 | $ 7,670,362 |
ORGANIZATION AND BASIS OF PRESE
ORGANIZATION AND BASIS OF PRESENTATION | 6 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND BASIS OF PRESENTATION | NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION China HGS Real Estate, Inc. (“China HGS” 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 space and commercial properties in Tier 3 and Tier 4 cities and counties in China. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) for interim financial information. 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 six months ended March 31, 2019 and 2018 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, 2018 filed with the SEC on January 10, 2019. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The unaudited condensed consolidated financial statements include the financial statements of China HGS Real Estate Inc. (the “Company” or “China HGS”), 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 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. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates. Fair value of financial instruments The Company follows the provisions of Accounting Standards Codification (“ASC”) 820, 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. 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. Revenue recognition Most of the Company’s revenue is derived from real estate sales of condominiums and commercial property in the PRC. The majority of the Company’s contracts contain a single performance obligations involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development project, the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. Under percentage completion method, revenue and profit from the sales of long term real estate development properties is recognized by the percentage of completion method on the sale of individual units when all the following criteria are met: a. Construction is beyond a preliminary stage. b. The buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest. c. Sufficient units have already been sold to assure that the entire property will not revert to rental property. d. Sales prices are collectible. e. Aggregate sales proceeds and costs can be reasonably estimated. 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 individual real estate condominium units sold under development and related costs are recognized over the course of the construction period, based on the completion progress of a project. The progress towards complete satisfaction of the performance obligation is measured based on the Company’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total estimated costs for each contract. 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. Revenue from the sales of completed real estate condominium units is recognized at the time of the closing of an individual unit sale. This occurs when the customer obtains the physical possession, the legal title, or the significant risks and rewards of ownership of the assets and the Company has present right to payment and the collection of the consideration is probable. For municipal road construction projects, fees are generally recognized at the time of the projects are completed. Disaggregation of Revenues Disaggregated revenues was as follows: For the three months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 226,731 $ 11,121,635 Revenue recognized for condominium real estate projects under development 9,140,425 10,784,732 Total $ 9,367,156 $ 21,906,367 For the six months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 976,564 18,962,557 Revenue recognized for condominium real estate projects under development 16,127,788 17,391,381 Total $ 17,104,352 36,353,938 Contract balances Timing 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 to the passage of time. Contract liabilities include cash collected in excess of revenues. Customer deposit are excluded from contract liabilities. The Company has elected to apply the optional practical expedient for costs to obtain a contract which allows the Company to immediately expense sales commissions (included under selling expenses) because the amortization period of the asset that the Company otherwise would have used is one year or less. Contract assets and liabilities are generally classified as current based on our contract operating cycle. The following table presents the Company’s contract balances As of March 31, 2019 and September 30, 2018. As of March 31, As of September 30, 2019 2018 Contract assets Cost and earnings in excess of billings $ 11,597,778 $ 12,582,965 Contract liabilities Billings in excess of cost and earnings $ 6,250,086 $ 5,844,189 Impact of adoption of ASC 606 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)(“ASU No. 2014-09”). Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients among others. These ASUs have the same effective date as ASU 2014-09. All guidance is collectively referred to as ASC 606, which supersedes ASC 605, Revenue Recognition. ASC 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASC 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, ASC 606 requires extensive disclosures. The Company adopted ASC 606 on October 1, 2018 using the modified retrospective approach with no restatement of comparative periods and no cumulative-effect adjustment to retained earnings recognized as of the date of adoption. As part of the implementation of ASC 606, the Company performed an assessment including identifying revenue streams within the scope of ASC 606, analyzing contracts and reviewing potential changes to its existing revenue recognition accounting policies. A significant portion of the Company’s revenue is derived from development and sales of condominium real estate property in the PRC, with revenue currently recognized using the percentage of completion method. Under the new standard, to recognize revenue over time similar to the percentage of completion method, contractual provisions need to provide the Company with an enforceable right to payment and the Company has no alternative use of the asset. Historically, all contracts executed contained an enforceable right to home purchase payments and the Company had no alternative use of assets, therefore, the adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. 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's deposit and resell the property to a third party. Once the Certificate of Property 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. Foreign currency translation The Company’s financial information is presented in U.S. dollars. The functional currency of the Company’s operating subsidiaries is Renminbi (“RMB”), the currency of the PRC. The financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830-30 “Translation of Financial Statements”. The financial information is first prepared in RMB and then is translated into U.S. dollars at year-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. 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 six months ended March 31, September 30, 2019 2018 2018 Period end RMB : USD exchange rate 6.7112 6.2726 6.8680 Period average RMB : USD exchange rate 6.8302 6.4823 6.5368 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. 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. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU was effective for fiscal years beginning after December 15, 2017 and was adopted by the Company on October 1, 2018 on a retrospective basis The amendments in this Update should be applied using a retrospective transition method to each period presented. 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). 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 under development 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 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 reviewed 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 six months ended March 31, 2019 and 2018, the Company did not recognize any impairment for real estate property under development or completed. 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 property under development is recorded as a component of cost of real estate sales when related units are sold. All other interest is expensed as incurred. For the three and six months ended March 31, 2019, the total interest capitalized in the real estate property development was $1,827,172 and $3,546,443, respectively. For the three and six months ended March 31, 2018, the total interest capitalized in the real estate property development was $1,422,579 and $2,800,270, respectively. Impairment of long-lived 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. 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 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'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 no impairment of long-lived assets during the three and six months ended March 31, 2019 and 2018. 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 and six months ended March 31, 2019 and 2018, 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. 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 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. Valuation allowances are established, when necessary, to reduce 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 position 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 March 31, 2019 and September 30, 2018. 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 in the PRC. No income is earned in the United States and the management does not repatriate any earnings outside the PRC. As a result, the Company did not generate any U.S. taxable income For the three and six months ended March 31, 2019 and 2018. As of March 31, 2019, the Chinese entities’ income tax returns filed in China for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are subject to examination by the Chinese taxing authorities. As of March 31, 2019, the tax years ended September 30, 2010 through September 30, 2018 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities. The parent Company China HGS Real Estate Inc.’s both U.S. federal tax returns and Florida state tax returns are delinquent since 2009. Its tax years ended September 30, 2014 through September 30, 2018 remains 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 March 31, 2019 and September 30, 2018, including an approximately $2.3 million provision on the deemed repatriation of undistributed foreign earnings and an additional $0.2 million provision for delinquent U.S. and State tax fillings. The Company is in the process of engaging a tax professional to file its delinquent tax returns. 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 record 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 project Mingzhu Garden, Nan 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 are located, requires 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 comprehensive income (loss) for the three and six months ended March 31, 2019 and 2018 were net income and foreign currency translation adjustments. Basic and diluted earnings per share The Company computes earnings 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 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. Concentration risk The Company's operations are carried out in the PRC. Accordingly, the Company'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's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance 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. All of the Company’s cash is maintained with state-owned banks within the People’s Republic of China of which no deposits are covered by ins |
REAL ESTATE PROPERTY DEVELOPMEN
REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT | 6 Months Ended |
Mar. 31, 2019 | |
Real Estate [Abstract] | |
REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT | NOTE 3. REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT The following summarizes the components of real estate property development completed and under development As of March 31, 2019 and September 30, 2018: Balance as of March 31, 2019 September 30, 2018 Development completed: Hanzhong City Mingzhu Garden Phase I $ 670,577 $ 655,268 Hanzhong City Mingzhu Garden Phase II 31,141,129 31,096,125 Hanzhong City Nan Dajie (Mingzhu Xinju) 1,232,842 1,204,695 Hanzhong City Oriental Pearl Garden 21,821,016 21,397,560 Yang County Yangzhou Pearl Garden Phase I 1,712,449 1,673,351 Yang County Yangzhou Pearl Garden Phase II 4,224,232 4,189,829 Real estate property development completed 60,802,245 60,216,828 Less: Real estate property completed – short-term 59,556,146 58,999,178 Real estate property completed – long-term $ 1,246,099 $ 1,217,650 Under development: Yang County Yangzhou Palace (a) $ 51,926,234 $ 60,128,554 Hanzhong City Shijin Project 7,217,447 7,052,669 Hanzhong City Liangzhou Road and related projects (b) 143,504,201 135,011,975 Hanzhong City Hanfeng Beiyuan East (c) 752,125 734,953 Hanzhong City Beidajie (e) 64,847,389 67,793,750 Yang County East 2 nd 4,951,616 4,838,568 Real estate property under development 273,199,012 275,560,469 Less: Short-term portion 51,926,234 60,128,554 Real estate property under development –long-term $ 221,272,778 $ 215,431,915 (a) The Company recognized $7,320,041 and $ 12,574,295 15,868,225 (b) 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 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 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. As of March 31, 2019, the actual costs incurred by the Company were $ 143,504,201 135,011,975 (c) 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 March 31, 2019, the local government was still in the process of assessing the budget for these projects. (d) The Company was engaged by the Yang County local government to construct the East 2nd Ring Road with a total length of 2.15 km. The local government is required to repay the Company’s project investment costs within 3 years with interest at the interest rate based on the commercial borrowing rate with the similar term published by China construction bank (March 31, 2019 and 2017 - 4.75 As of March 31, 2019 and September 30, 2018, land use rights included in real estate property under development totaled $13,813,956 and $14,749,085, respectively. |
CONSTRUCTION LOANS
CONSTRUCTION LOANS | 6 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
CONSTRUCTION LOANS | NOTE 4. CONSTRUCTION LOANS March 31, 2019 September 30, 2018 Loan A (i) $ 98,276,294 $ 96,472,714 Loan B (ii) - 8,736,168 Loan C (iii) 17,691,198 17,287,299 115,967,492 122,496,181 Less: current maturities of construction loans 69,321,433 55,610,803 Construction loans – long-term portion $ 46,646,059 $ 66,885,378 (i) 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 $ 115,478,603 775,000,000 4.75 98,276,294 96,472,714 51,926,234 60,128,554 5,510,535 5,384,726 1,685,442 3,293,441 1,275,874 2,512,964 For the periods ended: Repayment in USD Repayment in RMB March 31, 2019 69,321,432 465,230,000 March 31, 2020 26,077,304 175,010,000 March 31, 2021 2,877,558 19,311,860 Total 98,276,294 659,551,860 (ii) On January 8, 2016, the Company signed a loan agreement with Hanzhong Municipal Housing Provident Fund Management Center (“Housing Fund”) to borrow up to $ 11,920,372 80,000,000 3.575 11,520 61,501 112,506 221,826 (iii) 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 $ 17,731,553 119,000,000 17,691,198 1.2 3,546,311 143,504,201 52,856 105,116 56,174 110,758 Additionally, in September 2017, the Urban Development Center Co., Ltd. approved a construction loan for the Company in the amount of $26,075,814 (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 $5,215,163 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 2019. Interest charge for three and six months ended March 31, 2019 was $77,810 and $154,583 (2018-$ 82,609 162,880 |
CUSTOMER DEPOSITS
CUSTOMER DEPOSITS | 6 Months Ended |
Mar. 31, 2019 | |
Banking and Thrift [Abstract] | |
CUSTOMER DEPOSITS | NOTE 5. 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: March 31, 2019 September 30, 2018 Customer deposits by real estate projects Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) $ 8,405,175 $ 8,246,058 Oriental Pearl Garden 4,878,889 4,648,784 Liangzhou road and related projects 1,646,501 1,914,677 Yang County Pearl Garden 1,008,996 997,312 Yang County Palace 3,723,667 6,341,918 Total 19,663,228 22,148,749 Less: Customer deposits - short-term 18,016,727 20,234,072 Customer deposits - long-term $ 1,646,501 $ 1,914,677 Customer deposits are typically 10% - 20% of the unit price for those customers who purchase properties in cash and 30%-50% of the unit 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 March 31, 2019 and September 30, 2018, approximately $4.0 million and $3.5 million was guaranteed by the Company, respectively. |
SHAREHOLDER'S LOANS
SHAREHOLDER'S LOANS | 6 Months Ended |
Mar. 31, 2019 | |
Related Party Transactions [Abstract] | |
SHAREHOLDER'S LOANS | NOTE 6. SHAREHOLDER’S LOANS As of March 31, 2019 September 30, 2018 Shareholder loan – USD loan (a) $ 1,810,000 $ 1,810,000 Shareholder loan – RMB loan (b) 339,869 332,110 Total $ 2,149,869 $ 2,142,110 a. The Company has a one year loan agreement (“USD Loan Agreement”) with our Chairman, CEO and major shareholder, pursuant to which the Company borrowed $ 1,810,000 4 18,100 36,200 b. On December 31, 2013, Shaanxi Guangsha Investment and Development Group Co., Ltd. (the “Guangsha”), the Company's PRC operating subsidiary, entered into a loan agreement with the Chairman (the “Shareholder RMB Loan Agreement”), pursuant to which Guangsha is able to borrow funds from the Chairman in order to support the Company’s Liangzhou Road construction project development and the Company’s working capital needs. The Loan Agreement has a one-year term, and has been renewed upon maturity, with at an interest rate of 4.35 5,134 25,422 7,922 13,668 |
TAXES
TAXES | 6 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
TAXES | NOTE 7. TAXES (A) Business sales tax and 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 tax based on revenue as a cost of sales as the revenue is recognized. As of March 31, 2019, the Company had business sales tax payable of $9,093,685 (September 30, 2018 - $9,871,794), 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) Corporate income taxes (“CIT”) The Company’s PRC subsidiaries 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, as approved by the local tax authority of Hanzhong City, the 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 for the year ended September 30, 2017. Starting from fiscal 2018, the Company’s CIT changed to 25% on taxable income. The change in the income tax policy could negatively affect the Company’s net income in future years. 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 As of March 31, 2019 and September 30, 2018, the Company’s income tax payable balances were $8,255,113 and $8,331,026, respectively. The Company expects to pay off the income tax payable balance when the related real estate projects are completely sold. The following table reconciles the statutory rates to the Company’s effective tax rate for the three and six months ended March 31, 2019 and 2018: Three months ended March 31, Six months ended March 31, 2019 2018 2019 2018 Chinese statutory tax rate 25 % 25 % 25 % 25 % Valuation allowance change and other adjustments* 5.9 % 1 % 3.0 % 0.8 % Effective tax rate 30.9 % 26 % $ 28.0 % 25.8 % Valuation allowance change and other adjustments for the three and six months ended March 31, 2019 and 2018 were primarily related to valuation allowance changes. Income tax expense for the three and six months ended March 31, 2019 and 2018 is summarized as follows: Three months ended March 31, Six months ended March 31, 2019 2018 2019 2018 Current tax provision $ - $ 481,934 $ - $ 749,970 Deferred tax provision 152,938 235,074 321,339 380,788 Income tax provision $ 152,938 $ 717,008 $ 321,339 $ 1,130,758 The components of deferred taxes As of March 31, 2019 and September 30, 2018 consist of the following: March 31, 2019 September 30, 2018 Deferred tax liability: Revenue recognized based on percentage of completion $ 2,443,617 $ 2,068,257 Recent U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings 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 GILTI effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations. As of March 31, 2019 and September 30, 2018, the Company recognized a one-time transition toll tax liability of approximately $2.3 million that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries and VIE of the Company mandated by the U.S. Tax Reform. The Company’s estimate of the one-time transition toll Tax is subject to the finalization 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 returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the Tax Act may require further adjustments and changes in our estimates. The Company provided an additional $0.2 million tax provision due to delinquent U.S. tax 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 March 31, 2019, the outstanding LAT payable balance was $111,392 with respect to completed real estate properties sold up to March 31, 2019. As at September 30, 2018 the Company has an outstanding LAT payable balance of $ 141,765 with respect to completed real estate properties sold up to September 30, 2018. (D) Taxes payable consisted of the following: March 31, 2019 September 30, 2018 CIT $ 8,255,113 $ 8,331,026 Business tax 9,093,686 9,871,794 Other taxes and fees 2,315,123 2,250,861 Total taxes payable 19,663,922 20,453,681 Less: current portion 14,587,240 15,492,902 Tax payable – long term $ 5,076,682 $ 4,960,779 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 8. 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 with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company's management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows. 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 obtaining 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’ 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. 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. The Company has made necessary reserves in its restricted cash account to cover any potential mortgage defaults as required by the mortgage lenders. The Company has not experienced any losses related to this guarantee and believes that such reserves are sufficient. As of March 31, 2019 and September 30, 2018, the amount of security deposits provided for these guarantees was approximately $4.0 million and $3.5 million respectively. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Principles of consolidation | Principles of consolidation The unaudited condensed consolidated financial statements include the financial statements of China HGS Real Estate Inc. (the “Company” or “China HGS”), 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 have been eliminated upon consolidation. |
Use of estimates | 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. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates. |
Fair value of financial instruments | Fair value of financial instruments The Company follows the provisions of Accounting Standards Codification (“ASC”) 820, 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. 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. |
Revenue recognition | Revenue recognition Most of the Company’s revenue is derived from real estate sales of condominiums and commercial property in the PRC. The majority of the Company’s contracts contain a single performance obligations involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development project, the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. Under percentage completion method, revenue and profit from the sales of long term real estate development properties is recognized by the percentage of completion method on the sale of individual units when all the following criteria are met: a. Construction is beyond a preliminary stage. b. The buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest. c. Sufficient units have already been sold to assure that the entire property will not revert to rental property. d. Sales prices are collectible. e. Aggregate sales proceeds and costs can be reasonably estimated. 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 individual real estate condominium units sold under development and related costs are recognized over the course of the construction period, based on the completion progress of a project. The progress towards complete satisfaction of the performance obligation is measured based on the Company’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total estimated costs for each contract. 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. Revenue from the sales of completed real estate condominium units is recognized at the time of the closing of an individual unit sale. This occurs when the customer obtains the physical possession, the legal title, or the significant risks and rewards of ownership of the assets and the Company has present right to payment and the collection of the consideration is probable. For municipal road construction projects, fees are generally recognized at the time of the projects are completed. Disaggregation of Revenues Disaggregated revenues was as follows: For the three months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 226,731 $ 11,121,635 Revenue recognized for condominium real estate projects under development 9,140,425 10,784,732 Total $ 9,367,156 $ 21,906,367 For the six months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 976,564 18,962,557 Revenue recognized for condominium real estate projects under development 16,127,788 17,391,381 Total $ 17,104,352 36,353,938 Contract balances Timing 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 to the passage of time. Contract liabilities include cash collected in excess of revenues. Customer deposit are excluded from contract liabilities. The Company has elected to apply the optional practical expedient for costs to obtain a contract which allows the Company to immediately expense sales commissions (included under selling expenses) because the amortization period of the asset that the Company otherwise would have used is one year or less. Contract assets and liabilities are generally classified as current based on our contract operating cycle. The following table presents the Company’s contract balances As of March 31, 2019 and September 30, 2018. As of March 31, As of September 30, 2019 2018 Contract assets Cost and earnings in excess of billings $ 11,597,778 $ 12,582,965 Contract liabilities Billings in excess of cost and earnings $ 6,250,086 $ 5,844,189 Impact of adoption of ASC 606 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)(“ASU No. 2014-09”). Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients among others. These ASUs have the same effective date as ASU 2014-09. All guidance is collectively referred to as ASC 606, which supersedes ASC 605, Revenue Recognition. ASC 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASC 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, ASC 606 requires extensive disclosures. The Company adopted ASC 606 on October 1, 2018 using the modified retrospective approach with no restatement of comparative periods and no cumulative-effect adjustment to retained earnings recognized as of the date of adoption. As part of the implementation of ASC 606, the Company performed an assessment including identifying revenue streams within the scope of ASC 606, analyzing contracts and reviewing potential changes to its existing revenue recognition accounting policies. A significant portion of the Company’s revenue is derived from development and sales of condominium real estate property in the PRC, with revenue currently recognized using the percentage of completion method. Under the new standard, to recognize revenue over time similar to the percentage of completion method, contractual provisions need to provide the Company with an enforceable right to payment and the Company has no alternative use of the asset. Historically, all contracts executed contained an enforceable right to home purchase payments and the Company had no alternative use of assets, therefore, the adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. 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's deposit and resell the property to a third party. Once the Certificate of Property 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. |
Foreign currency translation | Foreign currency translation The Company’s financial information is presented in U.S. dollars. The functional currency of the Company’s operating subsidiaries is Renminbi (“RMB”), the currency of the PRC. The financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830-30 “Translation of Financial Statements”. The financial information is first prepared in RMB and then is translated into U.S. dollars at year-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. 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 six months ended March 31, September 30, 2019 2018 2018 Period end RMB : USD exchange rate 6.7112 6.2726 6.8680 Period average RMB : USD exchange rate 6.8302 6.4823 6.5368 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. |
Cash | 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 | 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. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU was effective for fiscal years beginning after December 15, 2017 and was adopted by the Company on October 1, 2018 on a retrospective basis The amendments in this Update should be applied using a retrospective transition method to each period presented. |
Advances to vendors | 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 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 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 under development 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 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 reviewed 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 six months ended March 31, 2019 and 2018, the Company did not recognize any impairment for real estate property under development or completed. |
Capitalization of Interest | 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 property under development is recorded as a component of cost of real estate sales when related units are sold. All other interest is expensed as incurred. For the three and six months ended March 31, 2019, the total interest capitalized in the real estate property development was $1,827,172 and $3,546,443, respectively. For the three and six months ended March 31, 2018, the total interest capitalized in the real estate property development was $1,422,579 and $2,800,270, respectively. |
Impairment of long-lived assets | Impairment of long-lived 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. 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 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'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 no impairment of long-lived assets during the three and six months ended March 31, 2019 and 2018. |
Customer deposits | 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 | 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 and six months ended March 31, 2019 and 2018, 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 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. |
Share-based compensation | 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 | 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. Valuation allowances are established, when necessary, to reduce 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 position 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 March 31, 2019 and September 30, 2018. 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 in the PRC. No income is earned in the United States and the management does not repatriate any earnings outside the PRC. As a result, the Company did not generate any U.S. taxable income For the three and six months ended March 31, 2019 and 2018. As of March 31, 2019, the Chinese entities’ income tax returns filed in China for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are subject to examination by the Chinese taxing authorities. As of March 31, 2019, the tax years ended September 30, 2010 through September 30, 2018 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities. The parent Company China HGS Real Estate Inc.’s both U.S. federal tax returns and Florida state tax returns are delinquent since 2009. Its tax years ended September 30, 2014 through September 30, 2018 remains 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 March 31, 2019 and September 30, 2018, including an approximately $2.3 million provision on the deemed repatriation of undistributed foreign earnings and an additional $0.2 million provision for delinquent U.S. and State tax fillings. The Company is in the process of engaging a tax professional to file its delinquent tax returns. |
Land appreciation tax ("LAT") | 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 record 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 project Mingzhu Garden, Nan 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 are located, requires a tax rate of 0.5%. |
Comprehensive income (loss) | 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 comprehensive income (loss) for the three and six months ended March 31, 2019 and 2018 were net income and foreign currency translation adjustments. |
Basic and diluted earnings per share | Basic and diluted earnings per share The Company computes earnings 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 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. |
Concentration risk | Concentration risk The Company's operations are carried out in the PRC. Accordingly, the Company'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's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance 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. All of the Company’s cash is maintained with state-owned banks within the People’s Republic of China of which no deposits are covered by insurance. 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 |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On October 31, 2018 the FASB issued new guidance (ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities) that expands the application of a specific private company accounting alternative related to VIEs and changes the guidance for determining whether a decision-making fee is a variable interest. The amendments in the ASU provide that indirect interests held through related parties under common control will be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interests. Such indirect interests were previously treated the same as direct interests. The consideration of indirect interests on a proportional basis is consistent with how indirect interests held through related parties under common control are treated when determining if a reporting entity within a related party group is the primary beneficiary of a VIE. The new guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Retrospective adoption is required. Early adoption is permitted, including adoption in an interim period. The Company does not expect this new guidance to have a material impact on our financial position and results of operations. Excepts as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income, stockholders’ equity and cash flow. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Disaggregation of Revenue | Disaggregated revenues was as follows: For the three months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 226,731 $ 11,121,635 Revenue recognized for condominium real estate projects under development 9,140,425 10,784,732 Total $ 9,367,156 $ 21,906,367 For the six months ended March 31, 2019 2018 Revenue recognized for completed condominium real estate projects $ 976,564 18,962,557 Revenue recognized for condominium real estate projects under development 16,127,788 17,391,381 Total $ 17,104,352 36,353,938 |
Contract with Customer, Asset and Liability | The following table presents the Company’s contract balances As of March 31, 2019 and September 30, 2018. As of March 31, As of September 30, 2019 2018 Contract assets Cost and earnings in excess of billings $ 11,597,778 $ 12,582,965 Contract liabilities Billings in excess of cost and earnings $ 6,250,086 $ 5,844,189 |
Currency Exchange Rate | For six months ended March 31, September 30, 2019 2018 2018 Period end RMB : USD exchange rate 6.7112 6.2726 6.8680 Period average RMB : USD exchange rate 6.8302 6.4823 6.5368 |
REAL ESTATE PROPERTY DEVELOPM_2
REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Real Estate [Abstract] | |
Components of Real Estate Property Completed and under Development | The following summarizes the components of real estate property development completed and under development As of March 31, 2019 and September 30, 2018: Balance as of March 31, 2019 September 30, 2018 Development completed: Hanzhong City Mingzhu Garden Phase I $ 670,577 $ 655,268 Hanzhong City Mingzhu Garden Phase II 31,141,129 31,096,125 Hanzhong City Nan Dajie (Mingzhu Xinju) 1,232,842 1,204,695 Hanzhong City Oriental Pearl Garden 21,821,016 21,397,560 Yang County Yangzhou Pearl Garden Phase I 1,712,449 1,673,351 Yang County Yangzhou Pearl Garden Phase II 4,224,232 4,189,829 Real estate property development completed 60,802,245 60,216,828 Less: Real estate property completed – short-term 59,556,146 58,999,178 Real estate property completed – long-term $ 1,246,099 $ 1,217,650 Under development: Yang County Yangzhou Palace (a) $ 51,926,234 $ 60,128,554 Hanzhong City Shijin Project 7,217,447 7,052,669 Hanzhong City Liangzhou Road and related projects (b) 143,504,201 135,011,975 Hanzhong City Hanfeng Beiyuan East (c) 752,125 734,953 Hanzhong City Beidajie (e) 64,847,389 67,793,750 Yang County East 2 nd 4,951,616 4,838,568 Real estate property under development 273,199,012 275,560,469 Less: Short-term portion 51,926,234 60,128,554 Real estate property under development –long-term $ 221,272,778 $ 215,431,915 (a) The Company recognized $7,320,041 and $ 12,574,295 15,868,225 (b) 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 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 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. As of March 31, 2019, the actual costs incurred by the Company were $ 143,504,201 135,011,975 (c) 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 March 31, 2019, the local government was still in the process of assessing the budget for these projects. (d) The Company was engaged by the Yang County local government to construct the East 2nd Ring Road with a total length of 2.15 km. The local government is required to repay the Company’s project investment costs within 3 years with interest at the interest rate based on the commercial borrowing rate with the similar term published by China construction bank (March 31, 2019 and 2017 - 4.75 |
CONSTRUCTION LOANS (Tables)
CONSTRUCTION LOANS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Schedule of Long-term Debt Instruments | March 31, 2019 September 30, 2018 Loan A (i) $ 98,276,294 $ 96,472,714 Loan B (ii) - 8,736,168 Loan C (iii) 17,691,198 17,287,299 115,967,492 122,496,181 Less: current maturities of construction loans 69,321,433 55,610,803 Construction loans – long-term portion $ 46,646,059 $ 66,885,378 (i) 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 $ 115,478,603 775,000,000 4.75 98,276,294 96,472,714 51,926,234 60,128,554 5,510,535 5,384,726 1,685,442 3,293,441 1,275,874 2,512,964 (ii) On January 8, 2016, the Company signed a loan agreement with Hanzhong Municipal Housing Provident Fund Management Center (“Housing Fund”) to borrow up to $ 11,920,372 80,000,000 3.575 11,520 61,501 112,506 221,826 (iii) 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 $ 17,731,553 119,000,000 17,691,198 1.2 3,546,311 143,504,201 52,856 105,116 56,174 110,758 Additionally, in September 2017, the Urban Development Center Co., Ltd. approved a construction loan for the Company in the amount of $26,075,814 (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 $5,215,163 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 2019. Interest charge for three and six months ended March 31, 2019 was $77,810 and $154,583 (2018-$ 82,609 162,880 |
Schedule of Maturities of Long-term Debt | The total required loan repayment schedule assuming total loan proceeds are borrowed are listed below: For the periods ended: Repayment in USD Repayment in RMB March 31, 2019 69,321,432 465,230,000 March 31, 2020 26,077,304 175,010,000 March 31, 2021 2,877,558 19,311,860 Total 98,276,294 659,551,860 |
CUSTOMER DEPOSITS (Tables)
CUSTOMER DEPOSITS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Banking and Thrift [Abstract] | |
Customer Deposits from Pre-Sale of Residential Units | 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: March 31, 2019 September 30, 2018 Customer deposits by real estate projects Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) $ 8,405,175 $ 8,246,058 Oriental Pearl Garden 4,878,889 4,648,784 Liangzhou road and related projects 1,646,501 1,914,677 Yang County Pearl Garden 1,008,996 997,312 Yang County Palace 3,723,667 6,341,918 Total 19,663,228 22,148,749 Less: Customer deposits - short-term 18,016,727 20,234,072 Customer deposits - long-term $ 1,646,501 $ 1,914,677 |
SHAREHOLDER'S LOANS (Tables)
SHAREHOLDER'S LOANS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Related Party Transactions [Abstract] | |
Schedule of Related Party Transactions | As of March 31, 2019 September 30, 2018 Shareholder loan – USD loan (a) $ 1,810,000 $ 1,810,000 Shareholder loan – RMB loan (b) 339,869 332,110 Total $ 2,149,869 $ 2,142,110 a. The Company has a one year loan agreement (“USD Loan Agreement”) with our Chairman, CEO and major shareholder, pursuant to which the Company borrowed $ 1,810,000 4 18,100 36,200 b. On December 31, 2013, Shaanxi Guangsha Investment and Development Group Co., Ltd. (the “Guangsha”), the Company's PRC operating subsidiary, entered into a loan agreement with the Chairman (the “Shareholder RMB Loan Agreement”), pursuant to which Guangsha is able to borrow funds from the Chairman in order to support the Company’s Liangzhou Road construction project development and the Company’s working capital needs. The Loan Agreement has a one-year term, and has been renewed upon maturity, with at an interest rate of 4.35 5,134 25,422 7,922 13,668 |
TAXES (Tables)
TAXES (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Reconciliation of Statutory Rates to Effective Tax Rate | The following table reconciles the statutory rates to the Company’s effective tax rate for the three and six months ended March 31, 2019 and 2018: Three months ended March 31, Six months ended March 31, 2019 2018 2019 2018 Chinese statutory tax rate 25 % 25 % 25 % 25 % Valuation allowance change and other adjustments* 5.9 % 1 % 3.0 % 0.8 % Effective tax rate 30.9 % 26 % $ 28.0 % 25.8 % |
Schedule of Components of Income Tax Expense (Benefit) | Income tax expense for the three and six months ended March 31, 2019 and 2018 is summarized as follows: Three months ended March 31, Six months ended March 31, 2019 2018 2019 2018 Current tax provision $ - $ 481,934 $ - $ 749,970 Deferred tax provision 152,938 235,074 321,339 380,788 Income tax provision $ 152,938 $ 717,008 $ 321,339 $ 1,130,758 |
Components of Deferred Taxes | The components of deferred taxes As of March 31, 2019 and September 30, 2018 consist of the following: March 31, 2019 September 30, 2018 Deferred tax liability: Revenue recognized based on percentage of completion $ 2,443,617 $ 2,068,257 |
Taxes payable | (D) Taxes payable consisted of the following: March 31, 2019 September 30, 2018 CIT $ 8,255,113 $ 8,331,026 Business tax 9,093,686 9,871,794 Other taxes and fees 2,315,123 2,250,861 Total taxes payable 19,663,922 20,453,681 Less: current portion 14,587,240 15,492,902 Tax payable – long term $ 5,076,682 $ 4,960,779 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Disaggregation of Revenue) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue recognized for completed condominium real estate projects | $ 226,731 | $ 11,121,635 | $ 976,564 | $ 18,962,557 |
Revenue recognized for condominium real estate projects under development | 9,140,425 | 10,784,732 | 16,127,788 | 17,391,381 |
Total | $ 9,367,156 | $ 21,906,367 | $ 17,104,352 | $ 36,353,938 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contract with Customer, Asset and Liability) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Contract assets | ||
Cost and earnings in excess of billings | $ 11,597,778 | $ 12,582,965 |
Contract liabilities | ||
Billings in excess of cost and earnings | $ 6,250,086 | $ 5,844,189 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Currency Exchange Rate) (Details) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Sep. 30, 2018 | |
Period end RMB : USD exchange rate | 6.7112 | 6.2726 | 6.8680 |
Period average RMB : USD exchange rate | 6.8302 | 6.4823 | 6.5368 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2017 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Sep. 30, 2018 | Dec. 31, 2017 | |
Significant Accounting Policies [Line Items] | ||||||||
Percentage Of Contract Cost Withholds | 2.00% | |||||||
Real Estate Property Plant And Equipment Interest Capitalization | $ 1,827,172 | $ 1,422,579 | $ 3,546,443 | $ 2,800,270 | ||||
Effective Income Tax Rate Reconciliation, Repatriation of Foreign Earnings, Amount | $ 2,300,000 | 2,300,000 | $ 2,300,000 | |||||
Effective Income Tax Rate Reconciliation Provision For Delinquent Tax Filings | $ 200,000 | |||||||
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 21.00% | 35.00% | |
Project Expenditure [Member] | ||||||||
Significant Accounting Policies [Line Items] | ||||||||
Concentration Risk, Percentage | 10.00% | |||||||
Hanzhong | ||||||||
Significant Accounting Policies [Line Items] | ||||||||
Land appreciation tax rate | 1.00% | |||||||
Yang Country | ||||||||
Significant Accounting Policies [Line Items] | ||||||||
Land appreciation tax rate | 0.50% | |||||||
Minimum | ||||||||
Significant Accounting Policies [Line Items] | ||||||||
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 20.00% | |||||||
Percentage Of Mortgage Proceeds As Security | 5.00% | |||||||
Land appreciation tax rate | 30.00% | |||||||
Maximum | ||||||||
Significant Accounting Policies [Line Items] | ||||||||
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 50.00% | |||||||
Percentage Of Mortgage Proceeds As Security | 10.00% | |||||||
Land appreciation tax rate | 60.00% |
REAL ESTATE PROPERTY DEVELOPM_3
REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT (Components Of Real Estate) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 | |
Real Estate Properties [Line Items] | |||
Real estate property development completed | $ 60,802,245 | $ 60,216,828 | |
Less: Real estate property completed - short-term | 59,556,146 | 58,999,178 | |
Real estate property completed - long-term | 1,246,099 | 1,217,650 | |
Real estate property under development | 273,199,012 | 275,560,469 | |
Less: Short-term portion | 51,926,234 | 60,128,554 | |
Real estate property under development -long-term | 221,272,778 | 215,431,915 | |
Hanzhong City Mingzhu Garden Phase I | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 670,577 | 655,268 | |
Hanzhong City Mingzhu Garden Phase II | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 31,141,129 | 31,096,125 | |
Hanzhong City Nan Dajie (Mingzhu Xinju) | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 1,232,842 | 1,204,695 | |
Hanzhong City Oriental Pearl Garden | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 21,821,016 | 21,397,560 | |
Yang County Yangzhou Pearl Garden Phase I | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 1,712,449 | 1,673,351 | |
Yang County Yangzhou Pearl Garden Phase II | |||
Real Estate Properties [Line Items] | |||
Real estate property development completed | 4,224,232 | 4,189,829 | |
Yang County Yangzhou Palace | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | [1] | 51,926,234 | 60,128,554 |
Hanzhong City Shijin Project | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | 7,217,447 | 7,052,669 | |
Hanzhong City Liangzhou Road and related projects | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | [2] | 143,504,201 | 135,011,975 |
Hanzhong City Hanfeng Beiyuan East | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | [3] | 752,125 | 734,953 |
Hanzhong City Beidajie | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | 64,847,389 | 67,793,750 | |
Yang County East 2nd Ring Road | |||
Real Estate Properties [Line Items] | |||
Real estate property under development | [4] | $ 4,951,616 | $ 4,838,568 |
[1] | The Company recognized $7,320,041 and $12,574,295 of development cost in cost of real estate sales under the percentage of completion method for the three and six months ended March 31, 2019 (2018- $9,844,433 and $15,868,225), respectively. | ||
[2] | 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 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. As of March 31, 2019, the main Liangzhou road construction is substantially completed and is expected to be approved by the local government in fiscal 2019. 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. As of March 31, 2019, the actual costs incurred by the Company were $143,504,201 (September 30, 2018 - $135,011,975) and the incremental cost related to residence resettlement approved by the local government. The Company determined that the Company’s Investment in Liangzhou Road Project in exchange for interests in future land use rights is a barter transaction with commercial substance. | ||
[3] | In September 2012, the Company was approved by the Hanzhong local government to construct four municipal roads with a total length of approximately 1,192 meters. The project was deferred and then restarted during the quarter ended March 31, 2014. As of March 31, 2019, the local government was still in the process of assessing the budget for these projects. | ||
[4] | The Company was engaged by the Yang County local government to construct the East 2nd Ring Road with a total length of 2.15 km. The local government is required to repay the Company’s project investment costs within 3 years with interest at the interest rate based on the commercial borrowing rate with the similar term published by China construction bank (March 31, 2019 and 2017 - 4.75%). The local government has approved a refund to the Company by reducing local surcharges or taxes otherwise required in the real estate development. The road construction was substantially completed As of March 31, 2019 and in process of government review and approval. |
REAL ESTATE PROPERTY DEVELOPM_4
REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT (Narrative) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | Sep. 30, 2018 | Mar. 31, 2017 | |
Real Estate Properties [Line Items] | ||||||
Land use right included in real estate property under development | $ 13,813,956 | $ 13,813,956 | $ 14,749,085 | |||
Hanzhong City Oriental Pearl Garden | ||||||
Real Estate Properties [Line Items] | ||||||
Actual Construction And Development Costs Incurred | 7,320,041 | $ 9,844,433 | 12,574,295 | $ 15,868,225 | ||
Hanzhong City Liangzhou Road and related projects | ||||||
Real Estate Properties [Line Items] | ||||||
Budgeted Price For Municipal Roads | $ 33,000,000 | |||||
Actual Construction And Development Costs Incurred | $ 143,504,201 | $ 135,011,975 | ||||
Yang County East 2nd Ring Road | ||||||
Real Estate Properties [Line Items] | ||||||
Debt Instrument, Interest Rate, Stated Percentage | 4.75% | 4.75% | 4.75% |
CONSTRUCTION LOANS (Other Loans
CONSTRUCTION LOANS (Other Loans-Long Term Portion) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 | |
Construction loans | $ 115,967,492 | $ 122,496,181 | |
Less: current maturities of construction loans | 69,321,433 | 55,610,803 | |
Construction loans – long-term portion | 46,646,059 | 66,885,378 | |
Loan A | |||
Construction loans | [1] | 98,276,294 | 96,472,714 |
Loan B | |||
Construction loans | [2] | 0 | 8,736,168 |
Loan C | |||
Construction loans | [3] | $ 17,691,198 | $ 17,287,299 |
[1] | 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 $115,478,603 (RMB 775,000,000) for a long term loan at 4.75% interest per year to develop Liangzhou Road Project. As of March 31, 2019, the Company borrowed $98,276,294 under this credit line (September 30, 2018- $96,472,714) with final due date in October 2021. The loan is guaranteed by Hanzhong City Hantai District Municipal Government and pledged by the Company’s Yang County Yangzhou Palace project with carrying value of $51,926,234 as of March 31, 2019 (September 30, 2018- $60,128,554). In addition, the Company was required to provide a security deposit for the loan received. As of March 31, 2019, the security deposits paid were $5,510,535 (September 30, 2018 - $5,384,726) for loans received. For the three and six months ended March 31, 2019, interest paid was $1,685,442 and $3,293,441 (2018- $1,275,874 and $2,512,964), respectively, which was capitalized in to the development cost of Liangzhou road project. Due to local government’s delay in reallocation of residence in Liangzhou Road and related area, the Hanzhong Urban Construction Investment Development Co., Ltd has not released all the funds available in this loan to the Company and the Company’s withdraw will be based on the project’s development progress. The total required loan repayment schedule assuming total loan proceeds are borrowed are listed below: | ||
[2] | On January 8, 2016, the Company signed a loan agreement with Hanzhong Municipal Housing Provident Fund Management Center (“Housing Fund”) to borrow up to $11,920,372 (RMB 80,000,000) on development of Oriental Garden related projects. The loan carries interest at 3.575% per year and is due in January 2019. The Company fully repaid the loan upon maturity. The Company’s major shareholder Mr. Xiaojun Zhu pledged his personal assets as collateral for the loan. The Company has received all the proceeds from Housing Fund. The progress repayment was required based on certain sales milestones or a fixed repayment schedule starting in July 2018. The Housing Fund has rights to monitor the project’s future cash flow. For the three months and six ended March 31, 2019, total interest was $11,520 and $61,501 (2018 - $112,506 and $221,826), respectively, which was included in the interest expense, because the related Oriental Garden project was completed in fiscal year 2016. The loan has been fully repaid on January 16, 2019. | ||
[3] | 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 $17,731,553 (RMB 119,000,000) for the development of Hanzhong City Liangzhou Road project. As of March 31, 2019, the balance of loan was $17,691,198. The loan carries interest at a fixed interest of 1.2% and is due on June 20, 2031. The Company is required to repay the loan by equal annual principal repayment of $3,546,311 from December 2027 through June 2031. The Company pledged the assets of Liangzhou Road related projects with carrying value of $143,504,201 as collateral for the loan. Total interest of $52,856 and $105,116 for the three and six months ended March 31, 2019, (2018 - $56,174 and $110,758) respectively, were capitalized in to the development cost of Hanzhong City Liangzhou Road project. |
CONSTRUCTION LOANS (Schedule Of
CONSTRUCTION LOANS (Schedule Of Repayment Loan) (Details) - 6 months ended Mar. 31, 2019 | USD ($) | CNY (¥) |
Debt Instrument Scheduled Repayment Amount | $ 98,276,294 | ¥ 659,551,860 |
March 31, 2019 | ||
Debt Instrument Scheduled Repayment Amount | 69,321,432 | 465,230,000 |
March 31, 2020 | ||
Debt Instrument Scheduled Repayment Amount | 26,077,304 | 175,010,000 |
March 31, 2021 | ||
Debt Instrument Scheduled Repayment Amount | $ 2,877,558 | ¥ 19,311,860 |
CONSTRUCTION LOANS (Narrative)
CONSTRUCTION LOANS (Narrative) (Details) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||
Mar. 31, 2019USD ($) | Mar. 31, 2018USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2018USD ($) | Sep. 30, 2017USD ($) | Mar. 31, 2019CNY (¥) | Sep. 30, 2018USD ($) | Sep. 30, 2017CNY (¥) | Dec. 31, 2016USD ($) | Dec. 31, 2016CNY (¥) | Jan. 08, 2016USD ($) | Jan. 08, 2016CNY (¥) | |
Debt Instrument [Line Items] | ||||||||||||
Debt Instrument, Face Amount | $ 143,504,201 | $ 143,504,201 | ||||||||||
Security Deposit | 8,490,628 | 8,490,628 | $ 8,296,782 | |||||||||
Debt Instrument, Periodic Payment, Principal | 3,546,311 | |||||||||||
Hantai District Urban Construction Investment Development Co., Ltd [Member] | ||||||||||||
Debt Instrument [Line Items] | ||||||||||||
Interest Costs Capitalized | 52,856 | $ 56,174 | 105,116 | $ 110,758 | ||||||||
Urban Development Center Co., Ltd [Member] | ||||||||||||
Debt Instrument [Line Items] | ||||||||||||
Line of Credit Facility, Remaining Borrowing Capacity | $ 17,691,198 | $ 17,691,198 | ||||||||||
Agreement Wth Hanzhong Urban Construction Investment Development Co Ltd [Member] | ||||||||||||
Debt Instrument [Line Items] | ||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 4.75% | 4.75% | 4.75% | |||||||||
Long-term Line of Credit | $ 98,276,294 | $ 98,276,294 | 96,472,714 | |||||||||
Line of Credit Facility, Maximum Borrowing Capacity | 115,478,603 | 115,478,603 | ¥ 775,000,000 | |||||||||
Long-term Debt, Gross | 51,926,234 | 51,926,234 | 60,128,554 | |||||||||
Debt Instrument, Periodic Payment, Interest | 1,685,442 | 1,275,874 | 3,293,441 | 2,512,964 | ||||||||
Security Deposit | $ 5,510,535 | $ 5,510,535 | $ 5,384,726 | |||||||||
Agreement With Hanzhong Municipal Housing Provident Fund Management Center [Member] | ||||||||||||
Debt Instrument [Line Items] | ||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 1.20% | 1.20% | 1.20% | 3.575% | 3.575% | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 17,731,553 | ¥ 119,000,000 | $ 11,920,372 | ¥ 80,000,000 | ||||||||
Debt Instrument, Periodic Payment, Principal | $ 11,520 | 112,506 | $ 61,501 | 221,826 | ||||||||
Construction Loan [Member] | Urban Development Center Co., Ltd [Member] | ||||||||||||
Debt Instrument [Line Items] | ||||||||||||
Debt Instrument, Face Amount | $ 26,075,814 | ¥ 175,000,000 | ||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 1.20% | 1.20% | ||||||||||
Interest Costs Capitalized | $ 5,215,163 | |||||||||||
Debt Instrument, Periodic Payment | $ 77,810 | $ 82,609 | $ 154,583 | $ 162,880 |
CUSTOMER DEPOSITS (Customer Dep
CUSTOMER DEPOSITS (Customer Deposits From Pre-Sale Of Residential Units) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Customer deposits by real estate projects | ||
Total | $ 19,663,228 | $ 22,148,749 |
Less: Customer deposits - short-term | 18,016,727 | 20,234,072 |
Customer deposits - long-term | 1,646,501 | 1,914,677 |
Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) | ||
Customer deposits by real estate projects | ||
Total | 8,405,175 | 8,246,058 |
Oriental Pearl Garden | ||
Customer deposits by real estate projects | ||
Total | 4,878,889 | 4,648,784 |
Liangzhou road and related projects | ||
Customer deposits by real estate projects | ||
Total | 1,646,501 | 1,914,677 |
Yang County Pearl Garden | ||
Customer deposits by real estate projects | ||
Total | 1,008,996 | 997,312 |
Yang County Palace | ||
Customer deposits by real estate projects | ||
Total | $ 3,723,667 | $ 6,341,918 |
CUSTOMER DEPOSITS (Narrative) (
CUSTOMER DEPOSITS (Narrative) (Details) - USD ($) $ in Millions | 6 Months Ended | |
Mar. 31, 2019 | Sep. 30, 2018 | |
Deposit Liabilities [Line Items] | ||
Mortgage loan guarantee amount | $ 4 | $ 3.5 |
Minimum | ||
Deposit Liabilities [Line Items] | ||
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 20.00% | |
Minimum | Customer deposits [Member] | ||
Deposit Liabilities [Line Items] | ||
Percentage of customer deposit of unit price for cash purchase | 10.00% | |
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 30.00% | |
Maximum | ||
Deposit Liabilities [Line Items] | ||
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 50.00% | |
Maximum | Customer deposits [Member] | ||
Deposit Liabilities [Line Items] | ||
Percentage of customer deposit of unit price for cash purchase | 20.00% | |
Percentage of down payments to total purchase price of property to receive mortgage loan guarantees | 50.00% |
SHAREHOLDER'S LOANS (Schedule o
SHAREHOLDER'S LOANS (Schedule of Other Short-term Loans) (Details) | Mar. 31, 2019USD ($) | Mar. 31, 2019CNY (¥) | [1] | Sep. 30, 2018USD ($) | Sep. 30, 2018CNY (¥) | [1] | |
Shareholder Loans [Line Items] | |||||||
Shareholder loan | $ 2,149,869 | ¥ 339,869 | $ 2,142,110 | ¥ 332,110 | |||
Shareholder USD Loan Agreement | |||||||
Shareholder Loans [Line Items] | |||||||
Shareholder loan | [2] | $ 1,810,000 | $ 1,810,000 | ||||
[1] | On December 31, 2013, Shaanxi Guangsha Investment and Development Group Co., Ltd. (the “Guangsha”), the Company's PRC operating subsidiary, entered into a loan agreement with the Chairman (the “Shareholder RMB Loan Agreement”), pursuant to which Guangsha is able to borrow funds from the Chairman in order to support the Company’s Liangzhou Road construction project development and the Company’s working capital needs. The Loan Agreement has a one-year term, and has been renewed upon maturity, with at an interest rate of 4.35% per year. For the three and six months ended March 31, 2019, the interest was $5,134 and $25,422 (2018- $7,922 and $13,668), respectively, which is capitalized in the development cost of Liangzhou road project. | ||||||
[2] | The Company has a one year loan agreement (“USD Loan Agreement”) with our Chairman, CEO and major shareholder, pursuant to which the Company borrowed $1,810,000 to make a capital injection into Shaanxi HGS, the Company’s subsidiary. The interest rate for the loan is 4% per annum and the loan matured on July 19, 2014. The Company entered into the amendments to the USD Loan Agreement to extend the term until July 31, 2019. The Company recorded interest of $18,100 and $36,200 for the three and six months ended March 31, 2019 and 2018, respectively. The Company has not yet paid this interest and it is recorded in accrued expenses in the accompanying consolidated balance sheets as of March 31, 2019 and September 30, 2018, respectively. |
SHAREHOLDER'S LOANS (Narrative)
SHAREHOLDER'S LOANS (Narrative) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Shareholder Loans [Line Items] | ||||
Interest (expense) | $ 35,611 | $ 126,064 | $ 140,842 | $ 254,685 |
Shareholder USD Loan Agreement | ||||
Shareholder Loans [Line Items] | ||||
Interest (expense) | $ 18,100 | 18,100 | $ 36,200 | 36,200 |
Debt instrument, stated interest rate | 4.00% | 4.00% | ||
Shareholder's RMB Loan Agreement | ||||
Shareholder Loans [Line Items] | ||||
Interest (expense) | $ 5,134 | $ 7,922 | $ 25,422 | $ 13,668 |
Debt instrument, stated interest rate | 4.35% | 4.35% |
TAXES (Reconciliation Of Statut
TAXES (Reconciliation Of Statutory Rates To Effective Tax Rate) (Details) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2017 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | |
Income Taxes [Line Items] | |||||||
Chinese statutory tax rate | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 21.00% | 35.00% |
Valuation allowance change and other adjustments | 5.90% | 1.00% | 3.00% | 0.80% | |||
Effective tax rate | 30.90% | 26.00% | 28.00% | 25.80% |
TAXES (Components of Income Tax
TAXES (Components of Income Tax Expenses) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Income Taxes [Line Items] | ||||
Current tax provision | $ 0 | $ 481,934 | $ 0 | $ 749,970 |
Deferred tax provision | 152,938 | 235,074 | 321,339 | 380,788 |
Income tax provision | $ 152,938 | $ 717,008 | $ 321,339 | $ 1,130,758 |
TAXES (Components Of Deferred T
TAXES (Components Of Deferred Taxes) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Deferred tax liability: | ||
Revenue recognized based on percentage of completion | $ 2,443,617 | $ 2,068,257 |
TAXES (Taxes Payable) (Details)
TAXES (Taxes Payable) (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Income Taxes [Line Items] | ||
CIT | $ 8,255,113 | $ 8,331,026 |
Business tax | 9,093,686 | 9,871,794 |
Other taxes and fees | 2,315,123 | 2,250,861 |
Total taxes payable | 19,663,922 | 20,453,681 |
Less: current portion | 14,587,240 | 15,492,902 |
Tax payable - long term | $ 5,076,682 | $ 4,960,779 |
TAXES (Narrative) (Details)
TAXES (Narrative) (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2017 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Sep. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2017 | |
Income Taxes [Line Items] | |||||||||
Business sales tax, rate | 5.00% | ||||||||
Business sales tax | $ 9,093,686 | $ 9,093,686 | $ 9,871,794 | ||||||
Income tax at statutory tax rate | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 21.00% | 35.00% | ||
Provision for income taxes | $ 152,938 | $ 717,008 | $ 321,339 | $ 1,130,758 | |||||
Land appreciation tax payable | $ 111,392 | $ 111,392 | 141,765 | ||||||
Effective Value Added Tax Rate Percentage | 5.00% | 5.00% | 5.00% | 5.00% | |||||
Effective Income Tax Rate Reconciliation, Deduction, Percent | 50.00% | ||||||||
Provision Due To Delinquent US Tax Return | $ 200,000 | ||||||||
Effective Income Tax Rate Reconciliation, Repatriation of Foreign Earnings, Amount | $ 2,300,000 | $ 2,300,000 | 2,300,000 | ||||||
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 21.00% | 35.00% | ||
Minimum | |||||||||
Income Taxes [Line Items] | |||||||||
Land appreciation tax rate | 30.00% | ||||||||
Maximum | |||||||||
Income Taxes [Line Items] | |||||||||
Land appreciation tax rate | 60.00% | ||||||||
Hanzhong | |||||||||
Income Taxes [Line Items] | |||||||||
Local income tax rate | 2.50% | ||||||||
Land appreciation tax rate | 1.00% | ||||||||
Yang Country | |||||||||
Income Taxes [Line Items] | |||||||||
Local income tax rate | 1.25% | ||||||||
Land appreciation tax rate | 0.50% | ||||||||
Provision for income taxes | $ 8,255,113 | $ 8,331,026 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Narrative) (Details) - USD ($) $ in Millions | 6 Months Ended | |
Mar. 31, 2019 | Sep. 30, 2018 | |
Commitments And Contingencies [Line Items] | ||
Security deposit provided for guarantee | $ 4 | $ 3.5 |
Minimum | ||
Commitments And Contingencies [Line Items] | ||
Percentage Of Mortgage Proceeds As Security | 5.00% | |
Maximum | ||
Commitments And Contingencies [Line Items] | ||
Percentage Of Mortgage Proceeds As Security | 10.00% |