SUNRISE REAL ESTATE GROUP, INC. The following Management's Discussion and Analysis ("MD&A") is intended to help
the reader understand
OVERVIEW
In
As a result of the acquisition, the former owners of CY-SRRE and LRY hold a
majority interest in the combined entity. Generally accepted accounting
principles require in certain circumstances that a company whose shareholders
retain the majority voting interest in the combined business be treated as the
acquirer for financial reporting purposes. Accordingly, the acquisition has been
accounted for as a "reverse acquisition" arrangement whereby CY-SRRE and LRY are
deemed to have purchased SRRE. However, SRRE remains the legal entity and the
Registrant for
SRRE and its subsidiaries, namely, CY-SRRE, LRY,
The principal activities of the Company are real estate agency sales, real estate marketing services, real estate investments, property leasing services and property management services in the PRC.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K
In
In
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those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements. These financial statements
are prepared in accordance with generally accepted accounting principles in
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:
Revenue Recognition
Most of the Company's revenue is derived from real estate sales in the PRC. The majority of the Company's contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development project, the Company has an enforceable right to payment for performance completed to date, revenue is recognized at a point in time when the customer obtains control of the asset.
All revenues represent gross revenues less sales and business tax.
ASC 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASC 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, ASC 606 requires extensive disclosures.
The Company adopted ASC 606 on
Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.
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Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.
In accordance with ASC 360, "Property, Plant and Equipment" ("ASC 360"), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.
There is no impairment of real estate property under development during the
years ended
Impairment of Long-lived Assets
In accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company is required to review 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.
The Company tests long-lived assets, including property and equipment,
investment properties and other assets, for recoverability when events or
circumstances indicate that the net carrying amount is greater than its fair
value. Assets are grouped and evaluated at the lowest level for their
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the future estimated cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of impairment by comparing the carrying amount of the asset to its fair
value. The estimation of fair value is generally determined by using the asset's
expected future discounted cash flows or market value. The Company estimates
fair value of the assets based on certain assumptions such as budgets, internal
projections, and other available information as considered necessary. There is
no impairment of long-lived assets during the years ended
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740"), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company recognizes tax benefits that satisfy a greater than 50% probability
threshold and provides for the estimated impact of interest and penalties for
such tax benefits. The Company did not incur any interest or penalties related
to potential underpaid income tax expenses during the years ended
RESULTS OF OPERATIONS
We provide the following discussion and analyses of our changes in financial
condition and results of operations for the year ended
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Net Revenues
The following table shows the detail for net revenues by line of business:
Years Ended December 31,
2022 % to total 2021 % to total % change
Property management 1,101,389 1 1,340,951 2 (18)
House sales 78,918,800 99 52,799,457 98 49
Net revenues 80,020,189 100 54,140,409 100 48
The net revenue for 2022 was
Property Management
Property management represented 1% of our revenue in year of 2022 and revenue from property management decreased by 18% compared with 2021.
House Sales
House sales represented 99% of our revenue in year of 2022. The company has recognized a proportion of net revenue from the HATX project.
Cost of Revenues
The following table shows the Cost of Revenues detail by line of business:
Years Ended December 31,
2022 % to total 2021 % to total % change
Property management 1,672,063 2 1,668,434 4 1
House sales 68,891,739 98 39,564,623 96 74
Cost of revenues 70,563,802 100 41,233,057 100 71
The cost of revenues for 2022 was
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Property Management
The cost of revenue from property management for 2022 was
House Sales
House sales represented 98% of our cost of revenue in year of 2022. The Company has recognized its cost of revenue from the HATX project at a certain proportion.
Operating Expenses
The following table shows operating expenses detailed by line of business:
Years Ended December 31,
2022 % to total 2021 % to total % change
Property management 158,102 5 990,738 29 (84)
House sales 2,870,986 95 2,427,124 71 18
Operating expenses 3,029,088 100 3,417,862 100 (11)
The operating expenses for 2022 were
Property Management
In 2022, the operating expenses for property management decreased by 84% compared to the amount in 2021. The primary reason for the decrease was due to less relevant property renewing cost.
House sales
The operating expenses related to our house sales business in 2022 increased by 18% compared to 2021. The increase was mainly due to the increase in our sales promotion activities in HATX project and Linyi project.
General and Administrative Expenses
The general and administrative expenses in 2022 were
Operating Loss
In 2022, we had an operating loss of
The decrease in gain was mainly due to the loss from the house sales recognition of the HATX project in 2022 and settlement of LVAT of GXL project and LYSY project.
Major Related Party Transaction
A related party is an entity that can control or significantly influence the management or operating policies of another entity to the extent one of the entities may be prevented from pursuing its own interests. A related party may also be any party the entity deals with that can exercise that control.
Amount Due To Directors
The amounts due to directors as ofDecember 31, 2022 were$480,109 . The amounts due were as follows: 37 Table of Contents Amount Due ToLin Chi-Jung
The amount due to
Amount Due To
The balance due to
Amount Due From An Unconsolidated Affiliates
The unpaid portion of dividend announced of SHDEW, an unconsolidated affiliate,
at the amount of
Amount Due to Affiliates
As of
Equity Stock Option
On
Lin Chi Jung Director 2,000,000 shares Zhang Jian Chief Executive Officer 150,000 shares Lin Hsin Hung Chairman of the Board 100,000 shares Pan Yu Jen Director 100,000 shares Mi Yong Jun Chief Financial Officer 150,000 shares Wang Wenhua Director 25,000 shares
LIQUIDITY AND CAPITAL RESOURCES
In 2022, our principal sources of cash were revenues from our receipts in advance from real estate development projects, property management business, as well as the dividend distribution from our affiliates. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.
We ended the period with a cash position of
Net cash used in the Company's operating activities in 2022 was
Net cash used by the Company's investment activities was
Net cash provided by the Company's financing activities was
The cash needs for 2023 were for the funds required to finance the Company's future projects in property agency and real estate developments.
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If our business otherwise grows more rapidly than we predict, we plan to raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings. We will also consider raising funds through credit facilities obtained with lending institutions and affiliates, as we have done previously, but there can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity with terms satisfactory to management and our board of directors.
Management believes that the Company will generate sufficient cash flows to fund its operations and to meet its obligations on a timely basis for the next twelve months by successfully implementing its business plans, obtaining continued support from its lenders to roll over debts when they became due, and securing additional financing as needed. Based upon the equity income generated by SHDEW in 2022, we expect a substantial cash dividend from SHDEW in 2023, which will be our principal source of liquidity. We have been able to secure new bank lines of credit from banks and secure additional loans from affiliates to fund our operations to date. However, if events or circumstances occur such that the Company is unable to successfully implement its business plans, fails to obtain continued support from its lenders or to secure additional financing, the Company may be required to suspend operations or cease business entirely.
On
We do not know how any change in SHDEW's business practices will affect its
revenue and ability to pay a dividend, which has been a significant source of
our revenue in recent years. Dividends from SHDEW enabled us to declare a
dividend in 2023. On
Indebtedness
The Company's indebtedness is described under "Note 12-Promissory Notes Payable"
and "Note 13- Amounts Due to Directors" to the Company's accompanying
consolidated financial statements for the years ended
Promissory Notes: As of
Advances from Officers and Directors: The Company has also financed its
operations in part with advances from officers and directors. The Company had
loans with unpaid principals and interest expenses as of
Amount due to affiliates: As of
OFF BALANCE SHEET ARRANGEMENTS
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated
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entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
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