UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from_______ to ________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification Number) |
Shaanxi Province,
(Address of Principal Executive Offices, Zip Code)
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of each of the issuer’s classes of common equity, as of February 2, 2024 is as follows :
| Class of Securities | Shares Outstanding | |
| Common Stock, $0.001 par value |
TABLE OF CONTENTS
i
PART I: FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Contract assets | ||||||||
| Real estate property development completed | ||||||||
| Inventory | ||||||||
| Other assets | ||||||||
| Prepayment | ||||||||
| Property, plant and equipment, net | ||||||||
| Security deposits | ||||||||
| Real estate property under development | ||||||||
| Due from local government- property development completed | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Construction loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Other payables | ||||||||
| Amount due to related parties | ||||||||
| Construction deposits | ||||||||
| Contract liabilities | ||||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Taxes payable | ||||||||
| Total liabilities | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory surplus | ||||||||
| Retained earnings | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
| Three months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Real estate sales | $ | $ | ||||||
| Less: Sales tax | ( | ) | ( | ) | ||||
| Cost of real estate sales | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and distribution expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Operating income | ( | ) | ( | ) | ||||
| Interest income, net | ||||||||
| Other (expense), net | ( | ) | ||||||
| Income before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net income | ( | ) | ( | ) | ||||
| Other Comprehensive income | — | |||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive income | $ | ( | ) | $ | ||||
| Basic and diluted income per common share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Statutory | Retained | Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Capital | Surplus | Earnings | (loss) income | Total | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Private placements | ||||||||||||||||||||||||||||
| Net income for the period | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||||||
| Balance at December 31, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Balance at September 30,2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Private placements | ||||||||||||||||||||||||||||
| Net income for the period | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2023 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Contract assets | ( | ) | ||||||
| Real estate property development completed | ( | ) | ||||||
| Real estate property under development | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Prepayment | ||||||||
| Security deposits | ( | ) | ||||||
| Accounts payables | ( | ) | ||||||
| Amount due to related parties | ( | ) | ||||||
| Other payables | ||||||||
| Contract liabilities | ||||||||
| Customer deposits | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Construction deposits | ||||||||
| Taxes payables | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Prepayment | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ||||||
| Cash flow from financing activities: | ||||||||
| Proceeds from private placements | ||||||||
| Proceeds from prepaid subscriptions for sale of units | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of changes of foreign exchange rate on cash and restricted cash | ||||||||
| Net increase in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Representing: | ||||||||
| Cash, end of period | $ | $ | ||||||
| Restricted, end of period | $ | $ | ||||||
| Total cash and restricted cash, end of period | $ | $ | ||||||
| Cash, beginning of period | $ | $ | ||||||
| Restricted, beginning of period | ||||||||
| Total cash and restricted cash, beginning of period | $ | $ | ||||||
| Non-cash activities: | ||||||||
| Reclassification of interest payable to construction loan | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Green Giant Inc (Formerly known as China HGS Real Estate Inc.) (the “Company” or “GGE” or “we”, “our”, “us”) is a corporation organized under the laws of the State of Florida.
GGE does not conduct any substantive operations of its own. Instead, through its subsidiary, Shaanxi HGS Management and Consulting Co., Ltd (“Shaanxi HGS”), it entered into certain exclusive contractual agreements with the owners of the Company’s PRC operating subsidiary, Shaanxi Guangsha Investment and Development Group Co., Ltd (“Guangsha”). Pursuant to these agreements, Shaanxi HGS is obligated to absorb a majority of the risk of loss from Guangsha’s activities and entitles Shaanxi HGS to receive a majority of Guangsha’s expected residual returns. In addition, Guangsha’s shareholders have pledged their equity interest in Guangsha to Shaanxi HGS, irrevocably granted Shaanxi HGS an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in Guangsha and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by Shaanxi HGS.
Based on these contractual arrangements, management believes that Guangsha should be considered a “Variable Interest Entity” (“VIE”) under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, because the equity investors in Guangsha no longer have the characteristics of a controlling financial interest, and the Company, through Shaanxi HGS, is the primary beneficiary of Guangsha. Accordingly, Guangsha has been consolidated.
The Company, through its subsidiaries and VIE, engages in real estate development, in the construction and sale of residential apartments, parking lots and commercial properties. Total assets and liabilities presented on the consolidated balance sheets and sales, cost of sales, net income presented on Consolidated Statement of Income and Comprehensive Income (Loss) as well as the cash flows from operations, investing and financing activities presented on the Consolidated Statement of Cash Flows are substantially the financial position, operations and cash flow of Guangsha. The Company has not provided any financial support to Guangsha for the three months ended December 31, 2023 and 2022.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2023 and 2022 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, 2023 filed with the SEC on December 28, 2023.
5
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and basis of presentation
The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited consolidated financial statements include the accounts of Green Giant 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.
The Company’s operations involve real estate development and sales. Starting from the year ended September 30, 2020, the Company has been involved in larger real estate property development with an extended development cycle. As a result, it is not possible to precisely measure the duration of its operating cycle. The accompanying consolidated balance sheets of the Company have been prepared on an unclassified basis in accordance with real estate industry practice.
Liquidity
In assessing
the liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in
the future, and its operating and capital expenditure commitments. As of December 31, 2023, our total cash and restricted cash balance
was approximately $
On December
12, 2023, the Company entered into a securities purchase agreement with certain accredited investors to sell $
Segment Reporting
The Company’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s operating decision maker is the Company’s Chief Executive Officer.
6
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition
The Company follows FASB ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, Revenue from Contracts with Customers, revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The Company determines revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price, including the constraint on variable consideration; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when (or as) the Company satisfies a performance obligation. |
Most of the Company’s revenue is derived from real estate sales of condominiums and commercial properties in the PRC. The majority of the Company’s contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to its customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of 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 (“percentage completion method”). Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. For the three months ended December 31, 2023 and 2022, the Company did not have any construction in progress recognized under the percentage of completion method. For the three months ended December 31, 2023 and 2022, all revenues were generated from completed condominium real estate projects.
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 the passage of time. Contract liabilities include cash collected in advance and in excess of revenue recognized. Customer deposits are excluded from contract liabilities.
The Company 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.
7
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
The Company
provides “mortgage loan guarantees” only with respect to buyers who make down-payments of
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. The Company will enter the medical industry selling medical device like vitro short-wave radiometer, high-pressure syringe and related consumables. In future, it will also enter high-end products including gamma knife and apparatus for kidney. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.
Changes of estimated gross profit margins related to revenue recognized under the percentage of completion method are made in the period in which circumstances requiring the revisions become known. For the three months ended December 31, 2023 and 2022, the Company did not change the estimated revenue and related gross profit margin.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute its new business strategy and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
8
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments
The Company follows the provisions of ASC Topic 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 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 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 other payables.
Foreign currency translation
The Company’s financial information is presented
in U.S. dollars. The functional currency of the Company’s operating VIE is Renminbi (“RMB”), the currency of the PRC.
The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC Topic 830-30 “Translation
of Financial Statements”. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end
exchange rates as to assets and liabilities and average exchange rates as to revenue, expenses and cash flows. Capital accounts are translated
at their historical exchange rates when the capital transactions occurred.
| For three months ended | ||||||||||||
| December 31, | September 30, | |||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Period end RMB:USD exchange rate | ||||||||||||
| Period average RMB:USD exchange rate | ||||||||||||
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.
9
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
Cash includes cash on hand and demand deposits in accounts maintained with large reputable 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.
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 month period, the mortgage
banks require the Company to maintain, as restricted cash,
Security deposits for land use rights
Security deposits for land use rights consist of deposits held by the PRC government for the purchase of land use rights and the deposits 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 transfer 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 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.
10
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Real estate property development completed and under development (continued)
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 are subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets. The Company reviews 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 months ended December 31, 2023 and 2022, the Company did not recognize any impairment loss for its real estate properties.
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 months ended December
31, 2023 and 2022, the total interest capitalized for real estate property development was $
Property, plant and equipment, net
Property, plant and equipment are recorded at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
| Buildings | ||||
| Vehicles |
Any gain or loss on disposal or retirement of a fixed asset is recognized in the profit and loss account and is the difference between the net sales proceeds and the net carrying amount of the asset. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting profit or loss is reflected in income (loss).
Maintenance, repairs and minor renewals are charged directly to expense as incurred unless such expenditures extend the useful life or represent a betterment, in which case they are capitalized.
11
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 was no impairment of long-lived assets for the three months ended December 31, 2023 and 2022.
For contract assets and prepayment of uncompleted projects, the Company adopts aging analysis and discounted cash flow by attaching a percentage rate to calculate impair loss respectively.
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 warranties
The Company
provides its customers with warranties which cover major defects of the 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
12
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Income taxes
In accordance with FASB ASC Topic 740 “Income Taxes,” deferred tax assets and liabilities are for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowances is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
ASC 740-10-25 prescribes a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax positions taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There are no material uncertain tax positions as of December 31, 2023 and 2022.
The Company is a corporation organized under the laws of the State of Florida. However, all of the Company’s operations are conducted solely by its subsidiaries and VIE in the PRC. No income is earned in the 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 moths ended December 31, 2023 and 2022. As of December 31, 2023, the Chinese entities’ income tax returns filed in China for the years ended December 31, 2022, 2021, 2020, 2019 and 2018 are subject to examination by the Chinese taxing 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, 2009 through September 30, 2022 remain open for statutory examination by U.S. federal and state tax authorities.
On December 22,
2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue
Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from
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
13
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Land appreciation tax (“LAT”) (continued)
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 projects 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
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 months ended December 31, 2023 and 2022 were net income and foreign currency translation adjustments.
Share-based Compensation
The Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation, and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, for employee stock-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award. For the non-employee stock-based awards, the fair value of the awards to non-employees are measured every reporting period based on the value of the Company’s common stock.
Basic and diluted earnings (loss) per share
The
Company computes earnings (loss) per share (“EPS”) in accordance with the FASB ASC Topic 260, “Earnings per
share,” which requires companies to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the
weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a
per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the
beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Diluted loss
per share is the same as basic loss per share due to the lack of dilutive items in the Company for the years ended December 31,
2023. The number of warrants is omitted excluded from the computation as the anti-dilutive effect As of December 31, 2023,
there were outstanding warrants to purchase approximately
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 remittances 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. The Company’s
cash and restricted cash were on deposit at financial institutions in the PRC, which the management believes are of high credit quality.
In May, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions, such
as commercial banks, established in China are required to purchase deposit insurance for deposits in RMB and in foreign currency placed
with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s accounts,
as its aggregate deposits are much higher than the compensation limit of RMB
Impact of Recent Accounting Pronouncements
The accounting standards that we adopted beginning October 1, 2022 did not have a significant impact on our consolidated financial statements.
14
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. REAL ESTATE PROPERTY DEVELOPMENT COMPLETED AND UNDER DEVELOPMENT
| Balance as of | ||||||||
| December 31, 2023 | September 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Development completed: | ||||||||
| Hanzhong City Mingzhu Garden Phase II | $ | $ | ||||||
| Hanzhong City Oriental Pearl Garden | ||||||||
| Yang County Yangzhou Pearl Garden Phase II | ||||||||
| Yang County Yangzhou Palace | ||||||||
| Real estate property development completed | $ | $ | ||||||
| Under development: | ||||||||
| Hanzhong City Liangzhou Road and related projects (a) | $ | $ | ||||||
| Hanzhong City Hanfeng Beiyuan East (b) | ||||||||
| Hanzhong City Beidajie (b) | ||||||||
| Yang County East 2nd Ring Road (c) | ||||||||
| Real estate property under development | $ | $ | ||||||
| Impairment | ( | ) | ( | ) | ||||
| Real estate property under development | ||||||||
| (a) | In September 2013, the Company entered into an agreement (“Liangzhou Agreement”) with the Hanzhong local government on the Liangzhou Road reformation and expansion project (Liangzhou Road Project”). Pursuant to the agreement, the Company is contracted to reform and expand the Liangzhou Road, a commercial street in downtown Hanzhong City, with a total length of 2,080 meters and a width of 30 meters and to resettle the existing residences in the Liangzhou road area. The government’s original road construction budget was approximately $ |
The Company’s development cost
incurred for the Liangzhou Road Project is treated as the Company’s deposit on purchasing the related land use rights, as agreed
by the local government. As of December 31, 2023, the actual costs incurred by the Company were approximately $
| (b) |
| (c) |
15
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PREPAYMENT
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| Energy equipments | $ | $ | ||||||
| Professional service | ||||||||
| Total | $ | $ | ||||||
The prepayment of Energy equipment was for the Company’s new business on green energy. The counterparties are Golden Mainland Inc. and Golden Ocean Inc.
NOTE 5.
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| Loan A | $ | $ | ||||||
| Loan B | ||||||||
| Total | $ | $ | ||||||
| (A) |
| (B) |
Additionally, in September 2017, the
Urban Development Center Co., Ltd. approved a construction loan for the Company in the amount of approximately $
16
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. CUSTOMER DEPOSITS
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| Customer deposits by real estate projects: | ||||||||
| Mingzhu Garden (Mingzhu Nanyuan and Mingzhu Beiyuan) | $ | $ | ||||||
| Oriental Pearl Garden | ||||||||
| Liangzhou road and related projects | ||||||||
| Yangzhou Pearl Garden | ||||||||
| Yang County East 2nd Ring Road | ||||||||
| Yangzhou Palace | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Customer deposits are typically
NOTE 7. TAXES
(A) Business sales tax and VAT
The Company is subject to a
B) Corporate income taxes (“CIT”)
The Company’s PRC subsidiary and VIE are
governed by the Income Tax Law of the People’s Republic of China for privately run enterprises, which are generally subject to income
tax on income reported in the statutory financial statements after appropriate tax adjustments. The Company’s CIT rate is
17
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. TAXES (continued)
B) Corporate income taxes (“CIT”) (continued)
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Chinese statutory tax rate | % | $ | % | |||||
| Other adjustments* | ( | )% | ( | )% | ||||
| Effective tax rate | — | % | $ | |||||
| * |
| For the three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax provision | $ | $ | ||||||
| Deferred tax provision | ||||||||
| Income tax provision | $ | $ | ||||||
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
For the year ended September 30, 2018, the
Company recognized a one-time transition toll tax of approximately $
18
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. TAXES (continued)
(C) Land Appreciation Tax (“LAT”)
Since January 1, 1994, LAT has been applicable
at progressive tax rates ranging from
As at December 31, 2023 and September 30, 2023, the outstanding LAT payable balance was with respect to completed real estate properties sold up to December 31,2023 and September 30, 2023, respectively.
(D)
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| CIT | $ | $ | ||||||
| Business tax | ||||||||
| Other taxes and fees | ||||||||
| Tax payable | $ | $ | ||||||
19
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 believe the 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 buyer obtains the “Certificate of Ownership” of the properties from
the government, which generally takes six to twelve months. Because the banks provide loan proceeds without getting the “Certificate
of Ownership” as loan collateral during the six to twelve months period, the mortgage banks require the Company to maintain, as
restricted cash of at least
The Company has been named as a defendant in a number of lawsuits arising in its ordinary course of business. As of the date of this quarterly report, the Company continues to use all commercially reasonable efforts to defend itself in these proceedings and is undergoing on-going discussion with regulatory authorities.
There were
additional 4 new cases in the first quarter of fiscal 2024 totaled in RMB
20
GREEN GIANT INC.
(FORMERLY CHINA HGS REAL ESTATE, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SUBSEQUENT EVENTS
On January 16, 2024, the Company received a notice
from Nasdaq stating that the Staff has determined, unless the Company timely requests an appeal of the Staff’s determination, before
Nasdaq’s Hearing Panel (the “Panel”), by January 23, 2024, to delist the Company’s common stock from the Nasdaq
Capital Market because the Company is not in compliance with the $
The notice has no immediate impact on the Company’s listing and trading, as the Company has requested a panel hearing and it will be held on April 4, 2024. The Company will continue to be listed after meeting the minimum bid price requirement prior to the hearing date.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of Green Giant Inc. (formerly “China HGS Real Estate, Inc.”) for the three months ended December 31, 2022 and 2021 and should be read in conjunction with such financial statements and related notes included in this report.
As used in this report, the terms “Company,” “we,” “our,” “us” and “GGE” refer to Green Giant Inc. and its subsidiaries.
Preliminary Note Regarding Forward-Looking Statements.
We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.
Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. These forward-looking statements include, among other things, statements relating to:
| ● | our ability to sustain our project development |
| ● | our ability to obtain additional land use rights at favorable prices; |
| ● | the market for real estate in Tier 3 and 4 cities and counties; |
| ● | our ability to obtain additional capital in future years to fund our planned expansion; or |
| ● | economic political, regulatory, legal and foreign exchange risks associated with our operations. |
22
Business Overview
The Company currently operates in two segments, the real estate development business and green energy business. The Company engages in real estate development through the VIE, Guangsha, in mainland China, and is transitioning itself from its real estate development business to a new energy corporation.
Currently, we are operating in Hanzhong, a prefecture-level city in Shaanxi Province, and Yang County, a county in Hanzhong. Our management has been focused on expanding our business in Tier 3 and Tier 4 cities and counties in China that we strategically select based on population and urbanization growth rates, general economic conditions and growth rates, income and purchasing power of resident consumers, anticipated demand for private residential properties, availability of future land supply and land prices, and governmental urban planning and development policies. Initially, these Tier 3 and Tier 4 cities and counties will be located in the Shaanxi province, China. We utilize a standardized and scalable model that emphasizes rapid asset turnover, efficient capital management and strict cost control. We plan to expand into strategically selected Tier 3 and Tier 4 cities and counties with real estate development potential in Shaanxi Province, and expect to benefit from rising demand for residential housing as a result of increasing income levels of consumers and growing populations in these cities and counties due to urbanization.
In September 2020, the Company started land leveling and construction process for the Oriental Garden Phase II and Liangzhou Mansion real estate properties in the Liangzhou Road related projects. The Company started the construction of the Liangzhou Road related projects, which consist of residential buildings, office buildings and a commercial plaza, after the approval by the local government of the road. Upon completion, the Liangzhou Road related projects will become a new city center of Hanzhong city.
Since November 2022, the Company started to explore the possibility of entering into the green energy sector in the U.S. As the usage of electric vehicles and other battery-powered technologies surges, the demand for batteries correspondingly rises. This growth cycle presents both a challenge and an opportunity when these batteries reach their end-of-life stage. Our solution to this challenge lies in our innovative battery recycling process. We have been searching for a warehouse for our battery recycling production. During the recycling process, valuable metal such as lithium, nickel, and cobalt are extracted from the used batteries. These metals are then converted into lead ingots and blocks. The global market for these metals is dynamic, with prices fluctuating in response to the constantly changing supply and demand.
Furthermore, the Company is planning to enter the medical industry through selling medical devices like vitro short-wave radiometer, high-pressure syringe and related consumables. In the future, it also plans to sell high-end medical equipment including gamma knife and apparatus for kidney.
Market Outlook
On November 11, 2022 the People’s Bank of China and the China Banking and Insurance Regulatory Commission issued “Yin Fa [2022] No. 254 “Notice on Supporting the Stable and Healthy Development of the Real Estate Market” to support the stable and healthy development of the real estate market.
On November 14, 2022 China Banking and Insurance Regulatory Commission, the Ministry of Housing and Urban-Rural Development and the Central Bank issued the “Notice on the Relevant Work of Commercial Banks Issuing letters of Guarantee to Replace the Pre-sale Supervision Funds” (the “Pre-sale Supervision Funds Notice”). Commercial banks’ house related credit business is expected to expand. The “Financial Support for Real Estate Notice” issued sixteen measures to generate power at both supply and demand ends, it further clarifies the support policies for housing credit. Many policies have been implemented at the document system level for the first time, or will push banks to increase their support for the real estate market. It is expected to positively affect the conservative attitude of commercial banks to intervene in the development of loan market and support the increasing demand from home buyers for mortgage loans.
According to China Galaxy Securities Research Report dated October 25, 2023, the sixth session of China’s 14th National People’s Congress Standing Committee voted and passed resolutions on incremental issuance of treasury bonds by the state council and adjustment scheme of central government’s 2023 budget. The central finance will additionally issue 1 trillion treasury bonds of 2023 in the fourth quarter 2023, and all of the treasury bonds issued will be arranged to local governments through transfer payments. This will generate impacts to economy in following aspects: to assist reconstruction of disaster areas and economic resurgence, and will directly drive investment growth in local infrastructure, the directions concentrated on drainage and flood control projects and farmland construction related to water conservancy engineering.
According to CNR Cultural Media dated November 23, 2023, responsible officer from the ministry of finance stated that according to plan of the State Council and related work arrangement, part of increased 2024 debt limit of local governments was released in advance, to reasonably guarantee local financing need. The institutions predicted that the limit approved in advance may exceed 2.7 trillion and may continue to tilt towards east region in good fiscal condition. From the usage of special debit published by ministry of finance, fields of livelihood services, transportation infrastructure, infrastructure for municipal administration and Industrial Park, agriculture, forestry, and water conservancy accounted for 64.9%、23.8%、6.0% and 3.6% respectively.
The Company intends to remain focused on our existing construction projects in Hanzhong City and Yang County, deepening our institutional sales network, enhancing our cost and operational synergies and improving cash flows and strengthening our balance sheet.
23
The Company started the construction of the Liangzhou Road related projects after the approval by the local government of the road. These projects comprise residential for end-users and upgraders, shopping malls as well as serviced apartments and offices to satisfy different market demands.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly to many parts of the PRC and other parts of the world in the first quarter of 2020, which has caused significant volatility in the PRC and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC and international economies. For the year three months ended December 31, 2023 and 2022, the COVID-19 pandemic did not have did have a material net impact on the Company’s financial position and operating results, especially Yang County which is operation was shut down. On and off from August 2022 onwards The extent of the impact on the Company’s future financial results will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the pandemic, future government actions in response to the pandemic and the overall impact of the COVID-19 pandemic on the local economy and real estate markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this uncertainty, the Company is currently unable to quantify the future impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations if the current situation continues.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis and base them on historical experience and various other assumptions that are believed to be reasonable under the circumstances as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates because of different and changing assumptions or conditions.
We believe the following critical accounting policies affect our significant estimates and judgments used in the preparation of our condensed consolidated financial statements. These policies should be read in conjunction with Note 3 of the notes to the unaudited condensed consolidated financial statements.
Revenue recognition
The Company follows FASB ASC Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, Revenue from Contracts with Customers, revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The Company determines revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price, including the constraint on variable consideration; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when (or as) the Company satisfies a performance obligation. |
24
Most of the Company’s revenue is derived from real estate sales of condominiums and commercial properties in the PRC. The majority of the Company’s contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to its customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of 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 (“percentage completion method”). Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. For the three months ended December 31, 2023 and 2022, the Company did not have any construction in progress meet the revenue recognition under percentage completion method.
Disaggregation of Revenues
Disaggregated revenues was as follows:
| For the three months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue recognized for completed condominium real estate projects, net of sales taxes | $ | 183,469 | $ | 162,706 | ||||
| Revenue recognized for condominium real estate projects under development, net of sales taxes | — | — | ||||||
| Total revenue, net of sales taxes | $ | 183,469 | $ | 162,706 | ||||
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 the passage of time. Contract liabilities include cash collected in advance and in excess of revenue recognized. Customer deposits are excluded from contract liabilities.
The Company immediately expenses sales commissions (included under selling expenses) because sales commission is not expected to be recovered.
The Company provides “mortgage loan guarantees” only with respect to buyers who make down-payments of 20%-50% of the total purchase price of the property. The period of the mortgage loan guarantee begins on the date the bank approves the buyer’s mortgage and we receive the loan proceeds in our bank account and ends on the date the “Certificate of Ownership” evidencing that title to the property has been transferred to the buyer. The procedures to obtain the Certificate of Ownership take six to twelve months (the “Mortgage Loan Guarantee Period”). If, after investigation of the buyer’s income and other relevant factors, the bank decides not to grant the mortgage loan, our mortgage-loan based sales contract terminates and there will be no guarantee obligation. If, during the Mortgage Loan Guarantee Period, the buyer defaults on his or her monthly mortgage payment for three consecutive months, we are required to return the loan proceeds back to the bank, although we have the right to keep the customer’s deposit and resell the property to a third party. Once the Certificate of Ownership 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.
25
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.
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 are subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the asset. The Company reviews 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 months ended December 31, 2023 and 2022, the Company did not recognize any impairment loss for its real estate properties.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2023 compared to Three Months Ended December 31, 2022
Revenues
The following is a breakdown of revenue:
| For the three months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue recognized for completed condominium real estate projects, net of sales taxes | $ | 183,469 | $ | 162,706 | ||||
| Revenue recognized for condominium real estate projects under development, net of sales taxes | — | — | ||||||
| Total revenue, net of sales taxes | $ | 183,469 | $ | 162,706 | ||||
26
Revenue recognized for completed condominium real estate projects
The following table summarizes our revenue generated by different projects:
| For Three Months Ended December 31, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Revenue | % | Revenue | % | Amount | % | |||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||
| Yangzhou Palace | $ | 185,111 | 100.0 | % | $ | 164,712 | 100.0 | % | $ | 20,399 | 12.4 | % | ||||||||||||
| Gross Real Estate Sales | 185,111 | 100.0 | % | 164,712 | 100.0 | % | 20,399 | 12.4 | % | |||||||||||||||
| Less: Sales Tax | (1,642 | ) | (2,006 | ) | 364 | (18.1 | )% | |||||||||||||||||
| Revenue, net of sales tax | $ | 183,469 | $ | 162,706 | $ | 20,763 | 12.8 | % | ||||||||||||||||
Our revenues are derived from the sale of residential buildings, commercial store-fronts and parking spaces in projects that we have developed. Comparing to the same period of last year, revenues after sales tax increased by 12.8% from $162,706 to $183,469 for the three months ended December 31, 2023. The total GFA sold during three months ended December 31, 2023 was 345 square meters, increased 3 square meters from the 342 square meters completed and sold in the same period of last year. The sales tax for the three months ended December 31, 2023 was $1,641, decreased by 18.1% from same period of last year mainly attributable to the decline of the advance payments from the customers (sales tax was accrued as 1% of the advance payments).
Cost of Sales
The following table sets forth a breakdown of our cost of sales:
| For Three Months Ended December 31, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Cost | % | Cost | % | Amount | % | |||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||
| Land use rights | $ | 10,989 | 10.1 | % | $ | 5,773 | 4.4 | % | $ | 5,216 | 90.4 | % | ||||||||||||
| Construction cost | 97,693 | 89.9 | % | 124,519 | 95.6 | % | (26,826 | ) | (21.5 | )% | ||||||||||||||
| Total cost | $ | 108,682 | 100.0 | % | $ | 130,292 | 100.0 | % | $ | (21,610 | ) | (16.6 | )% | |||||||||||
Our cost of sales consists primarily of costs associated with land use rights and construction costs. Cost of sales are capitalized and allocated to development projects using a specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project or phase of the project times the total cost of the project or phase of the project.
Cost of sales was $108,682 for the three months ended December 31, 2023, a decrease of $21,610, or approximately 16.6%, as compared to $130,292 for the same period of last year as a result of the decrease in construction costs due to the economic downturn.
Land use rights cost: The cost of land use rights includes the land premium we pay to acquire land use rights for our property development sites, plus taxes. Our land use rights cost varies for different projects according to the size and location of the site and the minimum land premium set for the site, all of which are influenced by government policies, as well as prevailing market conditions. Costs for land use rights for the three months ended December 31, 2023 and 2022 were approximately $10,989 million and $5,773 million, respectively.
27
Construction cost: We outsource the construction of all of our projects to third party contractors, whom we select through a competitive tender process. Our construction contracts provide a fixed payment which covers substantially all labor, materials and equipment costs, subject to adjustments for some types of excess, such as design changes during construction or changes in government-suggested steel prices. Our construction costs consist primarily of the payments to our third-party contractors, which are paid over the construction period based on specified milestones. In addition, we purchase and supply a limited range of fittings and equipment, including elevators, window frames and door frames. Our construction costs for the three months ending December 31, 2023 were approximately $97,692 as compared to approximately $124,519 for the three months ended December 31, 2022, representing a decrease of approximately $26,827. The decrease in construction cost was primarily due to the economic downturn and sluggish real estate market.
Gross Profit
Gross profit and gross margin were $74,787 and 40.4 % respectively for the three months ended December 31, 2023 as compared to $32,414 and 19.7% respectively in the same period of last year as aforementioned.
| For three months ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Gross Profit | Gross Margin | Gross Profit | Gross Margin | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Yangzhou Palace | $ | 76,429 | 41.3 | % | $ | 34,420 | 20.9 | % | ||||||||
| Sales Tax | (1,642 | ) | (2,006 | ) | ||||||||||||
| Total Gross Profit | $ | 74,787 | 40.4 | % | $ | 32,414 | 19.7 | % | ||||||||
| Total Real Estate Sales before Sales Tax | $ | 185,111 | $ | 164,712 | ||||||||||||
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the three months ended December 31, 2023 and 2022, respectively:
| For three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Selling expenses | $ | 6,648 | $ | 40,430 | ||||
| General and administrative expenses | 2,979,812 | 566,817 | ||||||
| Total operating expenses | $ | 2,986,460 | $ | 607,247 | ||||
| Percentage of Real Estate Sales before Sales Tax | 1613.3 | % | 368.7 | % | ||||
Total operating expenses increased by 391.8% to $2,986,460 for the three months ended December 31, 2023 from $607,247 for the three months ended December 31, 2022
Selling expenses
Our selling expenses decreased by $33,782, or 83.6%, from $40,430 for the three months ended December 31, 2022 to $6,648 for the three months ended December 31, 2023. As the Company did not have new premises to develop, the expenditures for surveying and mapping were reduced accordingly.
28
General and administrative expenses
Our general and administrative expenses increased by $2,412,995, or 425.7%, from $566,817 for the three months ended December 31, 2022 to $2,979,812 for the three months ended December 31, 2023. The increase was mainly attributable to the share-based compensation to the Consultants.
Income Taxes
PRC Taxes
The Company’s PRC subsidiary and VIE are governed by the Income Tax Law of the People’s Republic of China concerning the privately run enterprises, which are generally subject to income tax on income reported in the statutory financial statements after appropriate tax adjustments. The Company’s CIT rate is 25% on taxable income. Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. The PRC tax rules are different from the local tax rules and the Company is required to comply with local tax rules. The difference between the two tax rules will not be a liability of the Company. There will be no further tax payments for the difference.
Net Income
We reported net loss of approximately $2.9 million for the three months ended December 31, 2023, as compared to net loss of approximately $0.6 million for the three months ended December 31, 2022. The increase in net loss was primarily due to more operating expenses as discussed above.
Other Comprehensive Income
We operate primarily in the PRC and the functional currency of our operating subsidiary and VIE is the Chinese Renminbi (“RMB”). RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that RMB amounts could have been, or could be, converted into USD at the rates used in translation.
Translation adjustments resulting from this process amounted to negative $0.2 million and $3.0 million for the three months ended December 31, 2023 and 2022, respectively. The balance sheet amounts with the exception of equity at December 31, 2023 were translated at 7.0999 RMB to 1.00 USD as compared to 7.2960 RMB to 1.00 USD at September 30, 2023. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the periods ended December 31, 2023 and 2022 were 7.2247 RMB and 7.1120 RMB, respectively.
Liquidity and Capital Resources
Our principal need for liquidity and capital resources is to maintain working capital sufficient to support our operations and to make capital expenditures to finance the growth of our business.
29
In assessing the liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources in the future, and its operating and capital expenditure commitments. As of December 31, 2023, our total cash and restricted cash balance was approximately $7.2 million, an increase from approximately $4.6 million as of September 30, 2023. With respect to capital funding requirements, the Company budgeted its capital spending based on ongoing assessments of needs to maintain adequate cash. As of December 31, 2023, we had approximately $74.0 million of completed residential apartments and commercial units available for sale to potential buyers. Although we reported approximately $10.6 million accounts payable as of December 31, 2023, due to the long-term relationship with our construction suppliers and subcontractors, we were able to effectively manage cash spending on construction and negotiate with them to adjust the payment schedule based on our cash on hand. In addition, most of our existing real estate development projects relate to the old town renovation which are supported by the local government. As of December 31, 2023, we reported approximately $108.6 million of construction loans borrowed from financial institutions controlled by the local government and such loans can only be used on the old town renovation related project development. We expect that we will be able to renew all of the existing construction loans upon their maturity and borrow additional new loans from local financial institutions, when necessary, based on our past experience and the Company’s good credit history. Also, the Company’s cash flows from pre-sales and current sales should provide financial support for our current development projects and operations. For the year ended December 31, 2023, we had four large ongoing construction projects (see Note 3, real estate properties under development) which were under the preliminary development stage due to delayed inspection and acceptance of the development plans by the local government. In June 2020, we completed the residence relocation surrounding the Liangzhou Road related projects and launched the construction of these projects in December 2020.
On December 12, 2023, the Company entered into a securities purchase agreement with certain accredited investors to sell $5.95 million of its units, each consisting of one share of its common stock, $0.001 par value per share, one Class A common warrant to purchase one share of common stock and one Class B common warrant to purchase one share of common stock, and pre-funded units, each consisting of one pre-funded warrant, one Class A common warrant to purchase one share of common stock and one Class B common warrant to purchase one share of common stock. Under the terms of the securities purchase agreement, GGE has agreed to sell 35,000,000 units at a per unit purchase price of $0.17. The Offering closed on December 14, 2023 with net proceeds of $5.29 million.
Cash Flow
Comparison of cash flows results is summarized as follows:
| Three months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash used in operating activities | $ | (5,475,780 | ) | $ | (672,961 | ) | ||
| Net Cash Used in Investing Activities | — | (5,200,000 | ) | |||||
| Net cash provided by financing activities | 7,747,011 | 5,201,470 | ||||||
| Effect of change of foreign exchange rate on cash and restricted cash | 2,295,058 | 92,539 | ||||||
| Net increase in cash and restricted cash | 4,566,289 | (578,952 | ) | |||||
| Cash and restricted cash, beginning of period | 2,677,690 | 4,368,177 | ||||||
| Cash and restricted cash, end of period | $ | 7,243,979 | $ | 3,789,225 | ||||
Operating Activities
Net cash used by operating activities during the three months ended December 31, 2023 was approximately $5.5 million, consisting of net loss of approximately $2.9 million and net changes in our operating assets and liabilities, which mainly included a decrease of other assets of approximately $0.6 million due to the reduction of receivables from housing buyers, an increase in real estate property under development of approximately $3.5 million.
Net cash used in operating activities during the three months ended December 31, 2022 was approximately $0.7 million, consisting of net loss of approximately $0.6 million and net changes in our operating assets and liabilities, which mainly included a decrease of other assets of approximately $0.08 million due to the reduction of receivables from housing buyers, a decrease in real estate property completed of approximately $0.08 million due to sales of our Yangzhou Palace and other projects and an decrease in customer deposits received of $0.3 million, offset by payments of other payables of approximately of $1.4 million and additional spending in real estate under development of $1.3 million.
Investing Activities
Net cash flows used in investing activities was approximately nil and $5.2 million for three months ended December 31, 2023 and 2022.
Financing Activities
Net cash flows provided by financing activities was approximately $7.7 million for three months ended December 31, 2023 from the private placement.
Net cash flows provided by financing activities was approximately $5.2 million for three months ended December 31, 2022 from the private placement completed on October 25, 2022.
30
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
As an industry practice, the Company provides guarantees to PRC banks with respect to loans procured by the purchasers of the Company’s real estate properties for the total mortgage loan amount until the buyer obtains the “Certificate of Ownership” of the properties from the government, which generally takes six to twelve months. Because the banks provide loan proceeds without getting the “Certificate of Ownership” as loan collateral during the six-to-twelve-month period, the mortgage banks require the Company to maintain, as restricted cash of at least 5% of the mortgage proceeds as security for the Company’s obligations under such guarantees. If a purchaser defaults on its payment obligations, the mortgage bank may deduct the delinquent mortgage payment from the security deposit and require the Company to pay the excess amount if the delinquent mortgage payments exceed the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers’ default on their payment obligations at around the same time, we will be required to make significant payments to the banks to satisfy our guarantee obligations. If we are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. The Company has the required reserves in its restricted cash account to cover any potential mortgage defaults as required by the mortgage lenders. Since inception through the release of this report, the Company has not experienced any delinquent mortgage loans and has not experienced any losses related to these guarantees. As of December 31, 2023 and September 30, 2023, our outstanding guarantees in respect of our customers’ mortgage loans amounted to approximately $24.9 million and $24.2 million, respectively. As of December 31, 2023 and September 30, 2023, the amount of restricted cash reserved for these guarantees was approximately $2.7 million and $2.6 million, respectively, and the Company believes that such reserves are sufficient.
Inflation
Inflationary factors, such as increases in the cost of our products and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.
We Conduct Substantially All Our Business in Foreign Country
Substantially all of our operations are conducted in China and are subject to various political, economic, and other risks and uncertainties inherent in conducting business in China. Among other risks, our Company and our subsidiaries’ operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in SEC Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective as of December 31, 2023, because of the material weakness in our internal control over financial reporting as described below.
31
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining internal controls over financial reporting. Internal Control Over Financial Reporting is a process designed by, and under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of its management and board of directors; and |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. |
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our chief executive officer and chief financial officer, has conducted a self-assessment, including attestation of the design and operational effectiveness of the Company’s internal controls over financial reporting as of December 31, 2023. In making its assessment, management used the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”). The 2013 COSO Framework outlines the 17 underlying principles and the following fundamental components of a company’s internal control: (i) control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Our management has implemented and tested our internal control over financial reporting based on these criteria and identified certain material weaknesses set forth below.
Based on this evaluation, our management concluded that our internal control over financial reporting as of December 31, 2023 was ineffective.
32
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are 116 on-going legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. Some of the Company’s property is the subject of on-going legal proceedings.
There were additional 4 new cases in the first quarter of fiscal 2024 totaled in RMB0.19 million ($0.03 million).
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Other than any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
33
ITEM 6. EXHIBITS
(a) Exhibits
| * | Filed herewith |
| ** | Furnished herewith |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Green Giant Inc. | ||
| Date: February 5, 2024 | By: | /s/ Yuhuai Luo |
| Yuhuai Luo | ||
| Chief Executive Officer | ||
| Date: February 5, 2024 | By: | /s/ Rongrong Dai |
| Rongrong Dai | ||
| Chief Financial Officer | ||
35