The following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in the
financial statements of China HGS Real Estate Inc. for the fiscal years ended
September 30, 2021 and 2020 and should be read in conjunction with such
financial statements and related notes included in this report.

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 and 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 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

                                       43



information, future developments or otherwise. These forward-looking statements include, among other things, statements relating to:

? our ability to support the development of our projects

? our ability to obtain additional land use rights at favorable prices;

? the real estate market in Tier 3 and Tier 4 cities and counties;

? our ability to raise additional capital in future years to fund our

expansion; Where

? associated economic, political, regulatory, legal and currency risks

   with our operations.


Our Business Overview

We conduct substantially all of our business through Shaanxi Guangsha Investment
and Development Group Co., Ltd, in Hanzhong, Shaanxi Province. Since the
initiation of our business, we have been focused on expanding our business in
certain Tier 3 and Tier 4 cities and counties in China.

For fiscal 2021, our sales and net income were approximately $58.9 million and
$6.4 million, respectively, representing an increase of approximately 353.9% and
549.6% from fiscal 2020, respectively. The increase in revenue, gross profit and
net income was mainly due to more GFA sold during fiscal 2021.

For fiscal 2021, our average selling price ("ASP") for real estate projects
located in Yang County was approximately $585.7 per square meter, decreased from
ASP of $718 per square meter in fiscal 2020 due to less commercial units sold in
Yangzhou Palace during fiscal 2021. The ASP of our Hanzhong real estate projects
was approximately $638 per square meter for fiscal 2021, compared to the ASP of
$419 per square meter for fiscal 2020 due to the increased market price in
the
Hangzhong area.

Market Outlook

The Chinese government is expected to continue implementing measures to cool
down the real estate market. These measures may include restrictions on home
purchase, increase the down-payment requirement against speculative buying,
encourage the development of low-cost rental housing property to help low-income
groups while reducing the demand in the commercial housing market, increase the
real estate property tax to discourage speculation, and control of the land
supply and slowdown the construction land auction process. The pressure on home
sales and prices will be especially obvious in third and fourth-tier cities,
while the property market in the first and second-tier cities is expected to be
resilient.

The Company intends to remain focused on our existing construction projects in Hanzhong City and Yang County, deepening our institutional sales network, improving our cost and operating synergies, improving our cash flow and strengthening our balance sheet.

The Company has started the construction of the Liangzhou Road related projects after the local government approval of the road. These projects include residences for end users and valuers, shopping malls as well as serviced apartments and offices to meet 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 ended September 30, 2021, the
COVID-19 pandemic did not have a material net impact on the Company's financial
position and operating results. 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

                                       44



the future impact of the COVID-19 pandemic on its future business, financial condition, liquidity and results of operations if the current situation continues.

Liangzhou Road Related Projects

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 Liangzhou
Agreement, the Company was contracted to reform and expand the Liangzhou Road, a
commercial street in downtown Hanzhong City, with a total length of 2,080 meters
and width of 30 meters and to resettle the existing residents in the Liangzhou
Road area. The government's original road construction budget was approximately
$33 million in accordance with the Liangzhou Agreement. The Company, in return,
is being compensated by the local government to have an exclusive right on
acquiring at least 394.5 Mu (approximately 65 acres) land use rights in a
specified residential zone of Hanzhong City. The Liangzhou Road Project's road
construction started at the end of 2013. In 2014, the original scope and budget
on the Liangzhou Road reformation and expansion project was extended, because
the local government included more area and resettlement residences into the
project, which resulted in additional investments from the Company. In return,
the Company was authorized by the local government to develop and manage the
commercial and residential properties surrounding the Liangzhou Road project.

From September 30, 2021, the actual costs incurred by the Company were approximately $180.4 million (September 30, 2020$164.9 million). Liangzhou Road related projects mainly consist of Oriental Garden Phase II,
Liangzhou Mansion and Pearl Trading Square around Liangzhou road area:




Oriental Garden Phase II

Oriental Garden Phase II project is
planned to consist of 8 high-rise               [[Image Removed: Graphic]]
residential buildings and 6 commercial
buildings with total planned GFA of
370,298 square meters. The project will
also include a farmer's market.









Liangzhou Mansion                            [[Image Removed: Graphic]]

Liangzhou Mansion project is
planned to consist of 7 high-rise
building and commercial shops on
the first floor with total planned
GFA of 160,000 square meters.
 Pearl Commercial Plaza                      [[Image Removed: Graphic]]

Pearl Commercial Plaza is planned
to consist one office building, one
service apartment (or hotel),
classical architecture style of
Chinese traditional houses and
shopping malls with total planned
GFA of 124,191 square meters.




                                       45



The Company plans to start these three real estate projects in 2022 after the
road construction passes the local government's inspection and approval. These
related projects may take 2-3 years to be fully completed.

road construction

Other road construction projects mainly included the Yang County East 2nd Ring
Road construction project. The Company was engaged by the Yang County local
government to construct the East 2nd Ring Road with a total length of 2.15 km.
The local government is required to repay the Company's project investment costs
within 3 years after completion of the project with interest at the interest
rate based on the commercial borrowing rate with the similar term published by
the China Construction Bank (which as of September 30, 2021 -was 4.75%). The
local government's repayment could be used by the Company to reduce local
surcharges or taxes otherwise required in the real estate development. The road
construction was substantially completed as of September 30, 2021 and is in the
process of government review and approval. For the year ended September 30,
2021, the Company received local government' installment payments of
approximately $2.3 million and the final payment approximately of $5 million is
pending the local government's approval. The installment received was included
in the Company's customer deposits as of September 30, 2021.

In September 2012, the Company was approved by the Hanzhong local government to
construct four municipal roads with a total length of approximately 1,192
meters. The project was deferred and then restarted during the quarter ended
March 31, 2014. As of September 30, 2021, the local government was still in the
process of assessing the budget for these projects, which is expected to be
completed in fiscal 2022




Under development:                      Estimated Completion time of construction
                                          The road construction was substantially
Hanzhong City Hanfeng Beiyuan         completed and is pending local government's
East Road                                                             acceptance.
                                          The road construction was substantially
Hanzhong City Liangzhou Road          completed and is pending local government's
related projects                                                      acceptance.
                                       Under planning stage and waiting for local
Hanzhong City Beidajie project                           government's zoning plan
                                          The road construction was substantially
                                      completed and is pending local government's
Yang County East 2nd Ring Road                                        acceptance.




RESULTS OF OPERATIONS


Year ended September 30, 2021 compared to the year ended September 30, 2020


Revenues



The following is a breakdown of revenue for the years ended September 30, 2021
and 2020:




                                                                For the years ended September 30,
                                                                   2021                  2020

Turnover recorded for completed condominium real estate projects,

                                                    $      58,915,239     $      12,979,227
Less: sales tax                                                      (424,074)             (193,719)
Revenue net of sales tax                                     $      58,491,165     $      12,785,508



Recognized revenue for completed condominium projects

The following table summarizes our revenues generated by different projects:



                                                 For the Years Ended September 30,
                                       2021                  2020                           Variance
                                  Revenue       %       Revenue       %       Variance         %
Projects:
Yangzhou Pearl Garden Phase
I and II                        $   564,758    1.0 %  $ 1,312,921    10.1 %  $ (748,163)      (57.0) %
Oriental Pearl Garden             2,186,355    3.7 %      187,284     1.4 %    1,999,071     1,067.4 %


                                       46



Nanyuan II Project               43,625,590   74.0 %             -      -       43,625,590      100 %
Mingzhu Garden (Nanyuan and
Beiyuan) Phase I and II             768,494    1.3 %     3,500,750   27.0 %    (2,732,256)   (78.0) %
Yangzhou Palace                  11,770,042   20.0 %     7,978,272   61.5        3,791,770     47.5 %
Total Revenue                    58,915,239    100 %    12,979,227    100 %     45,936,012    353.9 %
Sales Tax                         (424,074)      -       (193,719)      -        (230,355)    118.9 %
Revenue net of sales tax       $ 58,491,165           $ 12,785,508           $  45,705,657    357.5 %



Our revenues are derived from the sale of residential buildings, commercial
store-fronts and parking spaces in projects that we have developed. Compared to
last year, revenues before sales tax increased by $45.9 million to approximately
$58.9 million for the year ended September 30, 2021 from approximately $13.0
million in last year. For the year ended September 30, 2021, we sold all
residential units in the Nanyuan II project to the local government for
residence reallocation purposes with total revenue of approximately $43.6
million, which represented 74% of our revenue.  The total GFA sold for the
remaining real estate projects during the year September 30, 2021 and 2020 was
25,687 square meters and 21,735 square meters, respectively. The sales tax for
the years ended September 30, 2021 was approximately $0.4 million, increased by
118.9% from fiscal 2020, consistent with the increased revenue in fiscal 2021.
The percentage of increase in sales taxes was less than the growth rate in
revenue was due to the fact that sales tax charged was based on the customers'
payments, the location of the properties and other factors.

Cost of sales

The following table sets forth a breakdown of our cost of revenues for the years
indicated.




                                                       For the Years Ended September 30,
                                         2021                         2020
                                                                                                         Variance
                                  Cost        Percentage       Cost        Percentage      Variance          %
Land use rights               $  4,418,450           9.5 %  $   843,284           9.0 %  $  3,575,166        424.0 %
Construction costs              42,091,551          90.5 %    8,526,536          91.0 %    33,565,015        393.7 %
Total                         $ 46,510,001           100 %  $ 9,369,820           100 %  $ 37,140,181        396.4 %




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 approximately $46.5 million for the year ended September 30,
2021 compared to $9.4 million for last year. The $36.7 million increase in cost
of sales was mainly attributable to more GFA sold for the year ended September
30, 2021, which led to more cost of sales.

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 year ended September 30, 2021 were
approximately $4.4 million, as compared to approximately $0.8 million for fiscal
2020, representing an increase of approximately $3.6 million from the same
period of last year. The increase was consistent with the fact that total GFA
sold in fiscal 2021 was significantly increased from last year.

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

                                       47



costs for the year ended September 30, 2021 were approximately $42.1 million as
compared to approximately $8.5 million for last year, representing an increase
of approximately $33.6 million. The increase in construction cost was due to
more real estate property units sold during fiscal 2020.

In addition, for the year ended September 30, 2020, we recognized about
$2.7 million depreciation of certain slow real estate developments carried out.

Gross profits

Gross profit was approximately $12.0 million for the year ended September 30,
2021 as compared to gross profit of approximately $0.7 million in the prior
year, representing an increase of $11.3 million, which was mainly attributable
to approximately $8.6 million gross profit from the sales of the Nanyuan II
project to the local government and no impairment charge recognized for the real
estate property completed during fiscal 2021. The gross margin was 20.3% in
fiscal 2021 as compared to gross margin of 5.5% in last year. For year ended
September 30, 2020, we recognized approximately $2.7 million impairment losses
for certain slow moving real estate property development completed. For the year
ended September 30, 2021, the ASP for our real estate projects located in Yang
County was approximately $585.7 per square meter, decreased from the ASP of $719
per square meter due to less commercial units sold in Yangzhou Palace and
Yangzhou Pearl Garden Phase II project during fiscal 2021.  For the years ended
September 30,2021 and 2020,  the Company sold commercial units at  average ASP
of approximately $1,500 per square meter in the Yang County area with higher
margin comparing to the residential units.  The ASP of our Hanzhong real estate
projects (excluding sales of parking spaces) was approximately $638 per square
meter for the year ended September, 30, 2021, increased from the ASP of $419 per
square meter for fiscal 2020 due to increasing real estate prices in the local
market and more commercial units sold in fiscal 2021.



The overall gross profit as a percentage of real estate sales was 20.3% for the
year ended September 30, 2021, increased from 5.5% for the year ended September
30, 2020, was mainly due to no impairment losses recognized in fiscal 2021.


                                                       For the Year Ended September 30
                                        2021                       2020
                                  Gross        Gross         Gross         Gross                      Variance
          Project                 Profit       Margin        Profit        Margin      Variance           %
Yangzhou Pearl Garden Phase
I and II                       $    122,007         22 %  $     289,032        22 %  $   (167,025)       (57.8) %
Yangzhou Palace                   2,822,485         24 %      2,424,864        30 %        397,621        16.4) %
Mingzhu Garden (Mingzhu
Nanyuan and Beiyuan) Phase
I and II                            211,825         28 %        842,776        24 %      (630,951)       (74.9) %
Nanyuan II project                8,619,750         20 %              -         -        8,619,750          100 %
Oriental Garden                     629,171         29 %         52,735        28 %        576,436       1093.1 %
Sales Tax                         (424,074)          0        (193,719)         -        (230,355)      (118.9) %
Impairment losses on real
estate property development
completed                                 0                 (2,703,031)                (2,703,031)          100 %
Total Gross Profit             $ 11,981,164       20.3 %  $     712,657       5.5 %  $  11,268,507         1581 %




Operating expenses



Total operating expenses remained fairly constant at approximately $2.9 million
for each of the year sended September 30, 2021 and 2020, as a result of
increases in general administrative expenses of approximately $0.4 million
offset with a decrease in selling expenses of $0.4 million. The Company incurred
more marketing expense in fiscal 2020 to promote the sales in Yangzhou Palace
project, which resulted higher selling expense in last year. The $0.4 million
increase in general and administrative expense was due to more consulting and
professional fees incurred for the year ended September 30, 2021.




                                          For the years ended September 30,
                                             2021                  2020
General and administrative expenses    $       2,691,170     $       2,324,057


                                       48



Selling expenses                             186,886        580,639
Total Operating expenses                 $ 2,878,056    $ 2,904,696
Percentage of Revenue before sales tax           4.9 %         22.4 %




Interest expense, net


Net interest expense was less than $0.1 million for the year ended September 30, 2021 and 2020.

Other income, net

For the year ended September 30, 2020, the Company had net other income of $4.1
million due to the fact that the Company disposed certain real estate properties
in the existing real estate property completed and under-development to
suppliers with settlement of their related payables. For the year ended
September 30, 2021, the Company incurred net other expense of $0.2 million for
certain non-operating related expenditures.

Income taxes



PRC Taxes

Our Company is governed by the Enterprise Income Tax Law of the People's
Republic of China concerning private-run enterprises, which are generally
subject to tax at a statutory rate of 25% on income reported in the statutory
financial statements after appropriate tax adjustments. For the years ended
September 30, 2021 and 2020, the Company is subject to income tax rate of 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. For the years ended September 30, 2021, the
Company's effective income tax rate was 28%, decreased from effective income tax
rate of 46% for the year ended September 30, 2020. The higher effective income
tax rate in fiscal 2020 was caused by additional tax accruals out of PRC.

Net revenue



We reported net income of approximately $6.4 million for the year ended
September 30, 2021, as compared to approximately $1.0 million for fiscal 2020.
The increase of $5.4 million in our net income was primarily due to more revenue
reported for fiscal 2021 as discussed above under Revenues and Gross Profit

The other extended result



We operate primarily in the PRC and the functional currency of our operating
subsidiary is the Chinese Renminbi ("RMB"). 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 USD at the rates used in
translation.

Translation adjustments amounted to approximately $9.4 million and $8.6 million
for the years ended September 30, 2021 and 2020, respectively. The balance sheet
amounts with the exception of equity at September 30, 2021 were translated at
RMB6.4434 to 1.00 USD as compared to 6.7896 RMB to 1.00 USD at September 30,
2020. The equity accounts were stated at their historical rate. The average
translation rates applied to the income statements accounts for the years ended
September 30, 2021 and 2020 were 6.5072 RMB to 1.00 USD and 7.0056 RMB to 1.00
USD, respectively.

                                       49


Cash 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. Historically we mainly financed our
operations primarily through cash flows from operations and borrowings from our
principal shareholder.

In recent years, the Chinese government has implemented measures to control
overheating residential and commercial property prices including but not limited
to restrictions on home purchase, increasing the down-payment requirement
against speculative buying, development of low-cost rental housing properties to
help low-income groups while reducing the demand in the commercial housing
market, increasing real estate property taxes to discourage speculation, control
of the land supply and slowdown the construction land auction process, etc. In
addition, in December 2019, a novel strain of coronavirus (COVID-19) surfaced.
COVID-19 has spread rapidly throughout China and worldwide, 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. To reduce the spread of the COVID-19, the Chinese government has
employed measures including city lockdowns, quarantines, travel restrictions,
suspension of business activities and school closures. Due to difficulties
resulting from the COVID-19 pandemic, including, but not limited to, the
temporary closure of the Company's facilities and operations beginning in early
February through early March 2020, limited support from the Company's employees,
delayed access to construction raw material supplies, reduced customer visits to
the Company's sales office, and inability to promote real estate property sales
to customers on a timely basis, our revenue during the year ended September 30,
2020 were significantly lower. The Company is experiencing recovery of its real
estate development business in fiscal 2021 due to increasing demand from the
local real estate market. The Company had revenue of approximately $58.9 million
for the year ended September 30, 2021, increased from $13.0 million in last
year. Based on the assessment of current economic environment, customer demand
and sales trends, we believe that consumer spending has been restored in the
local real estate market and the real estate sales are expected to grow in the
coming periods. On the other side, due to the negative impact from the COVID-19
pandemic and spread, the development period of real estate properties and our
operating cycle has been extended and we may not be able to liquidate our large
balance of completed real estate property within the short term as we originally
expected. In addition, as of September 30, 2021, we had large construction loans
payable of approximately $119.6 million and large accounts payable of
approximately $18.3 million to be paid to subcontractors. The extent of the
impact of COVID-19 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 crisis, future government actions in response to the
crisis 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 expected impact of the COVID-19 pandemic on its future
operations, financial condition, liquidity and results of operations if the
current situation continues. The above- mentioned facts raise substantial doubt
about the Company's ability to continue as a going concern from the date of this
filing.

In assessing its 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 September 30, 2021, our
total cash balance was approximately $0.2 million decreased from approximately
$0.5 million as of September 30, 2020. With respect to capital funding
requirements, the Company budgeted its capital spending based on ongoing
assessments of needs to maintain adequate cash. As of September 30, 2021, we had
approximately $88.1 million of completed residential apartments and commercial
units available for sale to potential buyers. Although we reported approximately
$18.3 million accounts payable as of September 30, 2021, 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 September 30, 2021, we
reported approximately $119.6 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 developments and operations. For the year
ended September 30, 2021, we had six large ongoing construction projects, which
were under the preliminary development stage due to delayed inspection and
acceptance of the development plans by the local

                                       50



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. For the other four projects, we expect we will be able to
obtain the government's approval of the development plans on these projects in
the coming fiscal year and start the pre-sale of the real estate properties to
generate cash when certain property development milestones have been achieved.

Cash Flow


Year ended September 30, 2021 compared to the year ended September 30, 2020

Comparison of cash flow results for the year ended September 30, 2021
and the year ended September 30, 2020 are summarized as follows:



                                                          For the years ended September 30,
                                                             2021                  2020              Variance

Net cash (used in) provided by operating activities ($604,167) $2,217,264 $(2,821,431)
Net cash (used) from financing activities $

              0     $       (2,415,924)    $   2,415,924
Effect of changes of foreign exchange rate on cash     $        201,820    
$         (135,921)    $     337,741
Net (decrease) in cash                                 $      (402,347)     $         (334,581)    $    (67,766)




Operating activities


Net cash used in operating activities during fiscal 2021 was approximately $0.6
million, consisting of net income of approximately $6.4 million, noncash
adjustments of approximately $0.04 million and net changes in our operating
assets and liabilities, which mainly included a decrease in real estate property
completed of approximately $11.5 million due to the sales of real estate
properties, a $2.2 million increase in other payables to suppliers and an
increase of $2.2 million in tax payables, offset by the continuous spending on
real estate property under development of $21.8 million.

Net cash provided by operating activities during fiscal 2020 was approximately
$2.2 million, consisting of net income of approximately $1.0 million, noncash
adjustments of approximately $2.7 million impairment on the real estate property
completed and deficit of $5.0 million due to gain on settlement of certain
payables with suppliers and settlements on shareholder loans and net changes in
our operating assets and liabilities, which mainly included a decrease in real
estate property completed of approximately $9.4 million due to the sales of real
estate properties, a decrease of security deposit with government of $6.3
million due to the fact that the Company started the construction of Liangzhou
road and affiliated projects in September 2020 and the local government refunded
such deposits to support the Company's working capital and an increase of $1.3
million in customers deposit received from buyers, offset by the continuous
spending on real estate property under development of $7.5 million, a reduction
of accounts payable of $1.5 million due to payments to suppliers based on
development progress and a reduction of tax payable of $2.6 million.

Fundraising activities

Net cash from financing activities in fiscal 2021 was nil.

Net cash used in financing activities was approximately $2.4 million for fiscal
2020, mainly representing the repayment of construction loan of $2.4 million
during fiscal 2020.

Off-balance sheet arrangements

We have no 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 completion of obtaining
the "Certificate of Ownership" of the properties from the government, which
generally takes six to twelve months. Because the banks provide loan proceeds
without getting the "Certificate of Ownership" as loan collateral during the six
to twelve months' period, the mortgage banks require the Company to maintain, as
security for the Company's obligations under such

                                       51



guarantees, restricted cash of at least 5% of the mortgage proceeds. 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 made necessary
reserves in its restricted cash account to cover any potential mortgage defaults
as required by the mortgage lenders. The Company has not experienced any
delinquent mortgage loans and has not experienced any losses related to this
guarantee. As of September 30, 2021 and September 30, 2020, our outstanding
guarantees in respect of our customers' mortgage loans amounted to approximately
$66 million and $68 million, respectively. As of September 30, 2021 and
September 30, 2020, the amount of security deposits provided for these
guarantees was approximately $3.3 million and $3.4 million, respectively, and
the Company believes that such reserves are sufficient.

Inflation

Inflation has not had a material impact on our business and we do not expect inflation to have a material impact on our business in the near future.

Significant Accounting Policies and Management Estimates


Revenue recognition



The Company adopted FASB ASC Topic 606 Revenue from Contracts with Customers
("ASC 606") on October 1, 2018 using the modified retrospective approach. 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(s) with a customer;

? identification of performance obligations in the contract;

? determination of the transaction price, including the constraint on the

consideration;

? allocation of the transaction price to the performance obligations in the

Contract; and

? recognition of revenue when (or as and when) the Group satisfies a performance obligation.


Most of the Company's revenue is derived from real estate sales of condominiums
and commercial property in the PRC. The majority of the Company's contracts
contain a single performance 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 projects, 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.

Under the stage of completion method, revenue and profits from sales of long-term real estate development properties are recognized under the stage of completion method on the sale of individual units when all of the following criteria are met:

a. Construction is beyond a preliminary stage.

                                       52


b. The buyer agrees to the extent of not being able to demand reimbursement

except non-delivery of the share or interest.

vs. Enough units have already been sold to ensure that the entire property

will not revert to the rental property.

D. Sale prices are collectible.

e. The proceeds and total costs of sales can be reasonably estimated.

If any of the above criteria are not met, proceeds will be counted as deposits until the criteria are met.

Under the percentage of completion method, revenues from individual real estate
condominium units sold under development and related costs are recognized over
the course of the construction period, based on the completion progress of a
project. The progress towards complete satisfaction of the performance
obligation is measured based on the Company's efforts or inputs to the
satisfaction of the performance obligation, by reference to the contract costs
incurred up to the end of reporting period as a percentage of total estimated
costs for each contract. In relation to any project, revenue is determined by
calculating the ratio of incurred costs, including land use rights costs and
construction costs, to total estimated costs and applying that ratio to the
contracted sales amounts. Cost of sales is recognized by determining the ratio
of contracted sales during the period to total estimated sales value and
applying that ratio to the incurred costs. Current period amounts are calculated
based on the difference between the life-to-date project totals and the
previously recognized amounts.

Any changes in significant judgments and/or estimates used in determining
construction and development revenue could significantly change the timing or
amount of construction and development revenue recognized. Changes in total
estimated project costs or losses, if any, are recognized in the period in which
they are determined.

Revenue from the sales of completed real estate condominium units is recognized
at the time of the closing of an individual unit sale. This occurs when the
customer obtains the physical possession, the legal title, or the significant
risks and rewards of ownership of the assets and the Company has present right
to payment and the collection of the consideration is probable. For municipal
road construction projects, fees are generally recognized at the time of the
projects are completed.

Contract balances

Timing of revenue recognition may differ from the timing of billing and cash
receipts from customers. The Company records a contract asset when revenue is
recognized prior to invoicing, or a contract liability when cash is received in
advance of recognizing revenue. A contract asset is a right to consideration
that is conditional upon factors other than the passage of time. Contract assets
include billed and billable receivables, which are the Company's unconditional
rights to consideration other than to the passage of time. Contract liabilities
include cash collected in excess of revenues. Customer 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.
Contract assets and liabilities are generally classified as current based on our
contract operating cycle.

The Company provides "mortgage loan guarantees" only with respect to buyers who
make down-payments of 20%-50% of the total purchase price of the property. The
period of the mortgage loan guarantee begins on the date the bank approves the
buyer's mortgage and we receive the loan proceeds in our bank account and ends
on the date the "Certificate of Ownership" evidencing that title to the property
has been transferred to the buyer. The procedures to obtain the Certificate of
Ownership take six to twelve months (the "Mortgage Loan Guarantee Period"). If,
after investigation of the buyer's income and other relevant factors, the bank
decides not to grant the mortgage loan, our mortgage-loan based sales contract
terminates and there will be no guarantee obligation. If, during the Mortgage
Loan Guarantee Period, the buyer defaults on his or her monthly mortgage payment
for three consecutive months, we are required to return the loan proceeds back
to the bank, although we have the right to keep the customer's deposit and
resell the property to a third party. Once the Certificate of Property has been
issued by the relevant government authority, our loan guarantee terminates.
If
the buyer

                                       53



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.

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 promotion 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).

The cost of amenities transferred to buyers is allocated to specific units as a component of the total construction cost. The cost of amenities includes landscaping, road paving, etc. Once the projects are completed, the developments are under the 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 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 reviewed all of its real estate projects for future losses and
impairment by comparing the estimated future undiscounted cash flows for each
project to the carrying value of such project. For the years ended September 30,
2021, the Company did not recognize any impairment for real estate property
under development or completed. For the years ended September 30, 2020, the
Company recognized approximately $2.7 million impairment for real estate
property under development or completed.

Capitalization of interest



Interest incurred during and directly related to real estate development
projects is capitalized to the related real estate property under development
during the active development period, which generally commences when borrowings
are used to acquire real estate assets and ends when the properties are
substantially complete or the property becomes inactive. Interest is capitalized
based on the interest rate applicable to specific borrowings or the weighted
average of the rates applicable to other borrowings during the period. Interest
capitalized to real estate property under development is recorded as a component
of cost of real estate sales when related units are sold. All other interest is
expensed as incurred.

© Edgar Online, source Previews