The following Management’s Discussion and Analysis (“MD&A”) is intended to help
the reader understand
as a supplement to, and should be read in conjunction with, our financial
statements and the accompanying notes.
OVERVIEW
In
Group, Inc.
(“LRY”) acquired a majority of our voting interests in a share exchange. Before
the completion of the share exchange, SRRE had no continuing operations, and its
historical results would not be meaningful if combined with the historical
results of CY-SRRE, LRY and their subsidiaries.
As a result of the acquisition, the former owners of CY-SRRE and LRY hold a
majority interest in the combined entity. Generally accepted accounting
principles require in certain circumstances that a company whose shareholders
retain the majority voting interest in the combined business be treated as the
acquirer for financial reporting purposes. Accordingly, the acquisition has been
accounted for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are
deemed to have purchased SRRE. However, SRRE remains the legal entity and the
Registrant for
historical financial statements prior to
and LRY and their subsidiaries. All equity information and per share data prior
to the acquisition have been restated to reflect the stock issuance as a
recapitalization of CY-SRRE and LRY.
SRRE and its subsidiaries, namely, CY-SRRE, LRY,
Estate Consultation Company Limited
Management
Estate Consultation Company Limited
Consultation Company Limited
Company Limited
Limited
Jian Design Company Limited
(“SHGXL”),
investments in affiliates, namely
Company Limited
“the Company,” “our” or “us”.
The principal activities of the Company are real estate development, 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 addition to historical information, this Form 10-K contains forward-looking
statements. Forward-looking statements are based on our current beliefs and
expectations, information currently available to us, estimates and projections
about our industry, and certain assumptions made by our management. These
statements are not historical facts. We use words such as “anticipates”,
“expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and similar
expressions to identify our forward-looking statements, which include, among
other things, our anticipated revenue and cost of our property development and
investment business.
Because we are unable to control or predict many of the factors that will
determine our future performance and financial results, including future
economic, competitive, and market conditions, our forward-looking statements are
not guarantees of future performance. They are subject to risks, uncertainties,
and errors in assumptions that could cause our actual results to differ
materially from those reflected in our forward-looking statements. We believe
that the assumptions underlying our forward-looking statements are reasonable.
However, the investor should not place undue reliance on these forward-looking
statements. They only reflect our view and expectations as of the date of this
Form 10-K. We undertake no obligation to publicly update or revise any
forward-looking statement in light of new information, future events, or other
occurrences.
There are several risks and uncertainties, including those relating to our
ability to raise money and grow our business and potential difficulties in
integrating new acquisitions with our current operations, especially as they
pertain to foreign markets and market conditions. These risks and uncertainties
can materially affect the results predicted. The Company’s future operating
results over both the short and long term will be subject to annual and
quarterly fluctuations due to several factors, some of which are outside our
control. These factors include but are not limited to fluctuating market demand
for our services, and general economic conditions.
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Recently Adopted Accounting Standards
In
accounting standard that amends the guidance for measuring and recording credit
losses on financial assets measured at amortized cost by replacing the
incurred-loss model with an expected-loss model. Accordingly, these financial
assets are now presented at the net amount expected to be collected. This new
standard also requires that credit losses related to available-for-sale debt
securities be recorded as an allowance through net income rather than reducing
the carrying amount under the former other-than-temporary-impairment model. We
adopted this standard as of
approach. Adoption of the standard did not have a material impact on our
consolidated financial statements.
In
eliminates, adds and modifies certain disclosure requirements for fair value
measurements. The update eliminates the requirement to disclose the amount of
and reasons for transfers between Level 1 and Level 2 of the fair value
hierarchy, and introduces a requirement to disclose the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value
measurements. The Company adopted this new accounting standard on
2020
impact on our consolidated financial statements.
In
“Collaborative Arrangements (Topic 808): Clarifying the Interaction between
Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain
transactions between participants in a collaborative arrangement should be
accounted for under Topic 606, “Revenue from Contracts with Customers” when the
counterparty is a customer. In addition, the update precludes an entity from
presenting consideration from a transaction in a collaborative arrangement as
customer revenue if the counterparty is not a customer for that transaction. On
an impact on our consolidated financial statements.
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
United States
that affect the reported amounts of our assets and liabilities and revenues and
expenses, to disclose contingent assets and liabilities on the date of the
consolidated financial statements, and to disclose the reported amounts of
revenues and expenses incurred during the financial reporting period. The most
significant estimates and assumptions include the collection of accounts
receivable, and the useful lives and impairment of property and equipment,
goodwill and intangible assets, the valuation of deferred tax assets and
inventories and the provisions for income taxes. We continue to evaluate these
estimates and assumptions that we believe to be reasonable under the
circumstances. We rely on these evaluations as the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Since the use of estimates is an integral component
of the financial reporting process, actual results could differ from those
estimates. Some of our accounting policies require higher degrees of judgment
than others in their application. We believe critical accounting policies as
disclosed in this Form 10-K reflect the more significant judgments and estimates
used in preparation of our consolidated financial statements. We believe there
have been no material changes to our critical accounting policies and estimates.
The following critical accounting policies rely upon assumptions and estimates
and were used in the preparation of our 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.
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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
approach with no restatement of comparative periods and no cumulative-effect
adjustment to retained earnings recognized as of the date of adoption. A
significant portion of the Company’s revenue is derived from development and
sales of condominium real estate property in the PRC, with revenue previously
recognized using the percentage of completion method. Under the new standard, to
recognize revenue over time is similar to the percentage of completion method,
contractual provisions need to provide the Company with an enforceable right to
payment and the Company has no alternative use of the asset. Historically, all
contracts executed contained an enforceable right to home purchase payments and
the Company had no alternative use of assets, therefore, the adoption of ASC 606
did not have a material impact on the Company’s consolidated financial
statements.
Real estate property under development, which consists of residential unit sites
and commercial and residential unit sites under development, is stated at the
lower of carrying amounts or fair value less selling costs.
Expenditures for land development, including cost of land use rights, deed tax,
pre-development costs and engineering costs, are capitalized and allocated to
development projects by the specific identification method. Costs are allocated
to specific units within a project based on the ratio of the sales value of
units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers are allocated as common costs of the
project that are allocated to specific units as a component of total
construction costs. For amenities retained by the Company, costs in excess of
the related fair value of the amenity are also treated as common costs. Results
of operations of amenities retained by the Company are included in current
operating results.
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
2020.
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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
2021
RESULTS OF OPERATIONS
We provide the following discussion and analyses of our changes in financial
condition and results of operations for the year ended
comparisons to the historical year ended
Net Revenues
The following table shows the detail for net revenues by line of business:
Years Ended December 31,
2021 % to total 2020 % to total % change
Property management 1,340,951 2 1,047,092 18 28
House sales 52,799,457 98 4,844,476 82 990
Net revenues 54,140,409 100 5,891,568 100 819
The net revenue for 2021 was
2020. In 2021, property management and house sales represented 2%, and 98% of
our total net revenue. The increase in 2021 was mainly due to the recognition of
house sales of the Linyi project and the HATX project in 2021.
Property Management
Property management represented 2% of our revenue in year of 2021 and revenue
from property management increased by 28% compared with 2020.
House Sales
House sales represented 98% of our revenue in year of 2021. The company has
recognized a proportion of net revenue from the Linyi project and the HATX
project.
Cost of Revenues
The following table shows the Cost of Revenues detail by line of business:
Years Ended December 31,
2021 % to total 2020 % to total % change
Property management 1,668,434 4 1,705,765 32 (2)
House sales 39,564,623 96 3,646,445 68 985
Cost of revenues 41,233,057 100 5,352,210 100 670
The cost of revenues for 2021 was
4%, and 96% of total cost of revenues. The increase in cost of revenues is
mainly due to the recognition of cost of revenue of house sales from the Linyi
project and the HATX project in 2021.
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Property Management
The cost of revenue from property management for 2021 was
decrease of 2% from
House Sales
House sales represented 96% of our cost of revenue in year of 2021. The Company
has recognized its cost of revenue from the Linyi project and the HATX project
at a certain proportion.
Operating Expenses
The following table shows operating expenses detailed by line of business:
Years Ended December 31,
2021 % to total 2020 % to total % change
Property management 990,738 29 1,481,147 40 (33)
House sales 2,427,124 71 2,217,917 60 9
Operating expenses 3,417,862 100 3,699,065 100 (8)
The operating expenses for 2021 were
house sales represented 29%, and 71% of the total operating expenses.
Property Management
In 2021, the operating expenses for property management decreased by 33%
compared to the amount in 2020. The primary reason for the decrease was due to
less relevant consulting service costs and property renewing cost.
House sales
The operating expenses related to our house sales business in 2021 increased by
9% compared to 2020. This 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 2021 were
decrease from
to the accrued bonus to be paid to Mr.
Operating Loss
In 2021, we had an operating gain of
from an operating loss of
The increase in gain was mainly due to the gain from the house sales recognition
of the Linyi project and the HATX project in 2021 and accrued bonus to be paid
to Mr.
Other income, Net
Other income in 2021 was
SHDEW this year.
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.
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Amount Due To Directors
The amounts due to directors as of
due were as follows:
Amount Due To
The amount due to
unpaid loan.
Amount Due To
The balance due to
unsecured, interest-free and has no fixed term of repayment.
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
shareholder of HATX,
transfer for day-to-day operations.
Equity Stock Option
On
Company to issue options to purchase an aggregate of 3,000,000 shares of common
stock as a bonus incentive to 13 individuals, who has each served the Company
for a minimum of eight years. The options vested immediately and are exercisable
until
and Executive Officers who were granted options include:
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 Wen Hua Director 25,000 shares
LIQUIDITY AND CAPITAL RESOURCES
In 2021, 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 2021 was
representing an decrease of receipts in cash in the amount of
compared to the cash provided for 2020. The decrease was primarily attributable
to the decrease in cash used in unconsolidated affiliates of
payment of bonus to the director, Mr.
Net cash provided by the Company’s investment activities was
representing a increase of
investing activities for 2020. The increase in cash from investment activities
was primarily attributable to the increase in cash provided in dividend
distribution from SHDEW, an affiliate, of
transactional financial assets in 2021.
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Net cash used by the Company’s financing activities was
representing an decrease from
attributable to restricted cash of
The cash needs for 2022 were for the funds required to finance the Company’s
future projects in property development and real estate developments.
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 2021, we expect a substantial cash dividend from SHDEW in 2022, 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.
According to the public records, the Market Supervision Administrations of
Baokang County (located in Xiangyang City,
(located in
into the business practices of SHDEW and some of its affiliates. SHDEW is in the
business of selling cosmetics and other consumer goods online. While we own
approximately 19.91% of SHDEW, we do not have any control or influence over its
business practices. We are not related to this investigation, and we are unable
to evaluate the merits of any allegations. At this stage, we are also unable to
evaluate the impact on our future cash flow resulting from this investigation.
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
in Item 8.
Promissory Notes: As of
due under outstanding promissory notes to parties other than banks in the amount
of
promissory notes amounted to $NIL and $NIL as of
respectively.
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
are unsecured and interest free.
Amount due to affiliates: As of
Jiaxing Shangyang (“JXSY”), in the amount of
transfers for day-to-day operation.
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 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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