Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q

In addition to historical information, this Form 10-Q 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 agency 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-Q. 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.

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand Sunrise Real Estate Group, Inc. ("SRRE"). MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

OVERVIEW

In October 2004, the former shareholders of Sunrise Real Estate Development Group, Inc. (Cayman Islands) ("CY-SRRE") and LIN RAY YANG Enterprise Ltd. ("LRY") acquired a majority of our voting interests in 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 Securities and Exchange Commission reporting purposes. The historical financial statements prior to October 5, 2004 are those of CY-SRRE 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, Shanghai Xin Ji Yang Real Estate Consultation Company Limited ("SHXJY"), Shanghai Shang Yang Real Estate Consultation Company, Ltd. ("SHSY"), Suzhou Gao Feng Hui Property Management Company, Ltd, ("SZGFH"), Suzhou Shang Yang Real Estate Consultation Company ("SZSY"), Suzhou Xin Ji Yang Real Estate Consultation Company, Ltd. ("SZXJY"), Linyi Shang Yang Real Estate Development Company Ltd ("LYSH"), Shangqiu Shang Yang Real Estate Consultation Company, Ltd., ("SQSY"), Wuhan Gao Feng Hui Consultation Company Ltd.(WHGFH), Sanya Shang Yang Real Estate Consultation Company, Ltd. ("SYSH"), Shanghai Rui Jian Design Company, Ltd., ("SHRJ"), and Wuhan Yuan Yu Long Real Estate Development Company, Ltd. ("WHYYL") are sometimes hereinafter collectively referred to as "the Company", "we", "our" or "us".

The principal activities of the Company are real estate development and sales, real estate investments, property leasing services and property management services in the PRC.

RECENT DEVELOPMENTS

Our major business is real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC. Additionally, we expanded our business to the field of financial activities such as entity investment, fund management, financial services.

Since we started our agency sales operations in 2001, we have established a reputation as a sales and marketing agency for new projects. With our accumulated expertise and experience, we intend to take a more aggressive role by participating in property investments. We plan to select property developers with outstanding qualifications as our strategic partners, and continue to build strength in design, planning, positioning and marketing services.

In October 2011, we established LYSY and own 34% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. The LYSY project has divided into three phases. Phase 1 completed construction of 121 units in May 2015 and sold 119 units out of all 121 units by July 28, 2026. Phase 2 was divided into north and south areas and completed construction of 84 units at the end of 2020. All 84 units have been sold during phase 2 by July 28, 2026. Phase 3 began construction in the first quarter of 2021 and sold 34 units out of 51 units as of July 28, 2026. In September 2020, the Company expanded the Linyi project by purchasing an additional 54,312 square meters for 228 million RMB for future development.

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products from third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children's apparel. SHDEW has an online shopping app, "庭秘密," where consumers can purchase its cosmetics and skincare products as well as products imported into China. According to a resolution adopted by the shareholders of SHDEW in October 31,2023, SHDEW will close its operations at the end of 2026.

In October 2018, HATX purchased the property in Huai'an, Qingjiang Pu district with an area of 78,030 square meters. In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai'an property. The Huai'an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of July 28, 2026, the Company sold 655 units out of 679 units of the first phase and sold 600 out of 873 of the second phase.

RECENTLY ADOPTED ACCOUNTING STANDARDS

In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient that allows entities to assume current conditions as of the balance sheet date do not change for the remaining life of current accounts receivable and contract assets when estimating expected credit losses. The Company adopted ASU 2025-05 effective January 1, 2026. The adoption did not have a material impact on the condensed consolidated financial statements.

In September 2025, the FASB issued ASU 2025-07, Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract. The ASU expands the scope exception from derivative accounting for certain non-exchange-traded contracts and clarifies the accounting for share-based noncash consideration under ASC 606. The amendments are effective for annual periods beginning after December 15, 2026. The Company is evaluating the impact of this standard and does not expect it to have a material effect on the consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss new accounting pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

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 United States ("U.S. GAAP"), which requires us to make estimates and assumptions 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 revenue recognition, and the useful lives and impairment of property and equipment, and investment properties, the valuation of real estate property under development, the recognition of government subsidies, 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-Q 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 condensed 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.

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 recognizes revenue from real estate sales at a point in time when the customer obtains control of the property, which is generally upon delivery and acceptance of the completed unit. All revenues represent gross revenues less applicable value-added tax ("VAT") and other sales taxes.

Real Estate Property under Development

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.

Income Taxes

The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Deferred tax assets or liabilities were off-set by a 100% valuation allowance; therefore there has been no recognized benefit as of June 30, 2026 and December 31, 2025.

Results of Operations

We provide the following discussion and analyses of our changes in financial condition and results of operations for the 3 months and 6 months period ended June 30, 2026 with comparisons to the same periods ended June 30, 2025.

Revenue

The following table shows the net revenue detail by line of business:

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The net revenue in the second quarter of 2026 was $362,498, which decreased 77.9% from $1,642,693 in the second quarter of 2025. The net revenue in the first two quarters of 2026 was $1,042,332, which represented a decrease of 90.9% from $11,430,478, in the first two quarter of 2025. In the second quarter of 2026, property management, and house sales represented 83.7%, and 16.3% of our net revenues, respectively. For the first two quarters of 2026, property management, and house sales represented 58.6%, and 41.4% of our net revenues, respectively. The decrease in net revenue in the first two quarters of 2026 was mainly due to less amount of recognized sales revenue from the Huai'an project compared with the same period in 2025.

Property Management

Property management represented 58.6% of our revenue for the first two quarters of 2026 and revenue from property management decreased by 5% compared with the same period in 2025.

House sales

For the first two quarters of 2026, the Company recognized revenue of house sales of Huai'an project. House sales represented 41.4% of our revenue for the first two quarters of 2026 compared to 94.4% for the first two quarters of 2025.

Cost of Revenue

The following table shows the cost of revenue detail by line of business:

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The cost of revenues for the second quarter of 2026 was $677,225, which increased 8.6% from $623,376 during the second quarter of 2025. The cost of revenues for the first two quarters of 2026 was $1,549,172, which decreased 85.3% from $10,512,299 during the first two quarters of 2025. For the second quarter of 2026, property management, and house sales represented 79.2%, and 20.8% of our cost of revenues, respectively. For the first two quarters of 2026, property management, and house sales represented 64.6%, and 35.4% of our cost of revenues, respectively. The increase in the cost of revenue in the second quarter and decrease in the first two quarters of 2026 was mainly because less cost of revenue was recognized from the Huai'an project resulting from the reduction in house sales after the first quarter of 2026.

Property management

The cost of revenue for property management for the first two quarters of 2026 was $1,000,442, an increase of 5.4% from $949,514 for the same period in 2025. This was mainly due to more business for property management.

House sales

For the first two quarters of 2026, the Company recognized cost of revenue for house sales of the Huai'an project. House sales represented 35.4% of our cost of revenue for the first two quarters of 2026 compared to 91% of our cost of revenue for the first two quarters of 2025.

Operating Expenses

The following table shows the operating expenses detail by line of business:

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The operating expenses for the second quarter of 2026 were $317,012, which increased 27% from $248,933, for the same period in 2025. The total operating expenses for the first two quarters of 2026 were $585,774, which decreased 2.8% from $602,529 for the same period in 2025. In the second quarter of 2026, property management, and house sales represented 46%, and 54% of the total operating expenses, respectively. For the first two quarters of 2026, property management, and house sales represented 48% and 52% of the total operating expenses, respectively. The increase in total operating expenses for the second quarter of 2026 was primarily driven by the growth in both property management and house sales expenses. Conversely, the decrease in total operating expenses for the first two quarters of 2026 was primarily attributable to the decrease in house sales expenses, which offset the increase in property management expenses.

Property management

The operating expenses for property management for the first two quarters of 2026 were $281,309, an increase of 20.1% from $234,221 in the same period in 2025. The increase is mainly due to consulting expenses relating to the business in the period in 2026.

House sales

The operating expenses for house sales for the first two quarters of 2026 were $304,465, which decreased 15.7% from $361,253 for the same period in 2025.

General and Administrative Expenses

General and administrative expenses for the first two quarters of 2026 were $1,121,402, which decreased by 26.3% from $1,522,961 for same period in 2025.

Other income, net

Other income, net for the first two quarters of 2026 was a loss of $6,622,895, a decrease of 468% from a gain of $1,798,091 for the same period in 2025. The decrease was primarily due to a non-cash loss on interest debt relief to the Linyi 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 total amount due to directors as of June 30, 2026 was $784,590. The amounts due are as follows:

Amount due to Lin Chi-Jung

The balances due to Lin Chi-Jung consist of temporary advances in the amount of $763,310 and are unsecured, interest-free and have no fixed term of repayment.

Amount due to Lin Hsin Hung

The amount of $21,280 represents the salary payable to Lin Hsin Hung.

Amount due to affiliate

The amounts due to SHSJ and JXSY, in the amounts of $22,182,102 and $519,439 were intercompany transfers for day-to-day operation.

LIQUIDITY AND CAPITAL RESOURCES

For the first two quarters of 2026, our principal sources of cash were revenues from our house sales collection and property management business, as well as the dividend receipt from 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 $14,390,778.

The Company's operating activities used cash in the amount of $9,659,219, which was primarily attributable to the real estate under development and repayment to unconsolidated affiliates.

The Company's investing activities provided cash resources of $7,318,709, which was primarily attributable to the net cash from transaction financial assets.

The potential cash needs for 2026 include the investment in transactional financial assets, the rental guarantee payments and promissory deposits for various property projects as well as our development of the Linyi project and the Huai'an project. While the Company's reduction in net revenue from the six months ended Jund 30, 2025 compared to the six months ended June 30, 2026 resulted mainly from the reduction in sales from the Huai'an project, it is difficult for the Company to predict net revenue from the Huai'an project for the balance of 2026.

Capital Resources

Considering our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months. If our business otherwise grows more rapidly than we currently 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. There can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity or obtain funds that are with terms satisfactory to management and our board of directors.

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.