WEB NEWS Investor Alert
Item 8.01 Other Events.
The Company’s Form 10-K for the fiscal year ended December 31, 2014 is delayed. The Company’s prior accounting firm, Finesse CPA, P.C. has ceased operation, is no longer registered with the PCAOB and is no longer able to provide its consent to the use of its audit report for 2013, which must accompany the Form 10K for the fiscal year ended December 31, 2014. Therefore, the Company is required by the Securities and Exchange Act of 1934 to conduct a new audit of its financial statements for 2013, even though there would otherwise be no requirement to do so and there are no outstanding comments to the financial statements for 2013 included in the Form 10-K for the fiscal year ended December 31, 2013 from the Securities and Exchange Commission. Such new audit is currently in process.
Comments & Business Outlook
Item 1.01 Entry into a Material Definitive Agreement.
SHSY is a wholly-owned subsidiary of the Registrant. Daerwei is owned 58% by an entity that is majority-owned by the wife of the Chief Executive Officer of the Registrant, 19% by SHSY and 11% by LinyiRui Lin Construction and Design Company Limited, which is also a wholly-owned subsidiary of the Registrant.
The purchase price for the Office Space was RMB 51,820,480 (approximately USD $7,978,273.19 using the 12/31/2015 exchange rate of RMB 6.4951 per USD $1). This Office Space was initially purchased for RMB 42,476,600 (approximately USD $6,539,791.53 using the 12/31/2015 exchange rate of RMB 6.4951 per USD $1). Prior to the sale, SHSY obtained an independent appraisal which concluded that thevalue of the Office Space less than the ultimate sale price. On February 16, 2016, Daerwei and SHSY entered into a supplementary agreement to the Asset Purchase Agreement, pursuant to which Daerwei agreed to pay SHSY RMB 8,096,950 (approximately USD $1,236,037.82) as a reimbursement for fixtures previously installed in the Office Space.
Comments & Business Outlook
SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Expressed in U.S. Dollars)
Three Months Ended March 31,
2014
2013
Net revenues
$
2,721,154
$
2,113,429
Cost of revenues
(1,321,918
)
(1,163,939
)
Gross profit
1,399,236
949,490
Operating expenses
(631,074
)
(312,924
)
General and administrative expenses
(833,640
)
(1,051,759
)
Operating loss
(65,478
)
(415,193
)
Other income (expenses)
Interest income
100,269
157,948
Interest expense
(830,759
)
(915,147
)
Other income, net
(12,926
)
15,311
Total Other Expenses
(743,416
)
(741,888
)
Loss before income taxes and equity in net loss of an unconsolidated affiliate
(808,894
)
(1,157,081
)
Income tax benefit (expense)
204,726
15,781
Equity in net gain (loss) of an unconsolidated affiliate, net of income taxes
(112,379
)
(193,022
)
Net loss
(716,547
)
(1,334,322
)
Less: Net loss attributable to non-controlling Interests
334,420
130,069
Net loss attributable to shareholders of Sunrise Real Estate Group, Inc.
$
(382,127
)
$
(1,204,253
)
Loss per share – basic and fully diluted
$
(0.04
)
$
(0.04
)
Weighted average common shares outstanding
- Basic and fully diluted
28,691,925
28,691,925
Management Discussion and Analysis
The net revenue in the first quarter of 2014 was $2,721,154, which was increased by 29% from $2,113,429 in the first quarter of 2013. In the first quarter of 2014, agency sales represented 61% of net revenue, underwriting sales represented 0% and property management represented 39%.The increase in net revenue in the first quarter of 2014 was mainly due to the increase in our agency sales and property management
Auditor trail
Item 4.01. Changes in Registrant's Certifying Accountant.
None of the reports of Finesse on the Registrant’s financial statements for either of the past two fiscal years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the reports did contain a going concern paragraph. During the Registrant’s past two fiscal years and through March 13, 2015 there have been no disagreements or reportable events (as defined in Regulation S-K Item 304(a)(1)(v)) with Finesse on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreement in connection with its report. .
Comments & Business Outlook
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Years Ended December 31,
2013
2012
Net revenues
$
12,763,447
$
8,529,990
Cost of revenues
(4,841,337
)
(4,894,833
)
Gross income
7,922,110
3,635,157
Operating expenses
(2,148,198
)
(1,401,659
)
General and administrative expenses
(3,585,121
)
(3,345,635
)
Operating income (loss)
2,188,791
(1,112,137
)
Other income (expenses)
Interest income
394,201
239,079
Interest expense
(3,763,555
)
(2,420,375
)
Miscellaneous
8,294
39,156
Total other expenses
(3,361,060
)
(2,142,140
)
Loss before income taxes and equity in net loss of
unconsolidated affiliates
(1,172,269
)
(3,254,277
)
Income taxes (Note 15)
63,227
13,518
Equity in loss of unconsolidated affiliates, net of
income taxes
(822,267
)
(230,490
)
Net loss
(1,931,309
)
(3,471,249
)
Less: Net loss attributable to non-controlling
interests
763,015
377,965
Net loss attributable to stockholders of Sunrise Real
Estate Group, Inc.
$
(1,168,294
)
$
(3,093,284
)
Loss per share - basic and fully diluted
$
(0.04
)
$
(0.11
)
Weighted average common shares outstanding
- Basic and fully diluted
28,691,925
28,691,925
Management Discussion and Analysis
The net revenue for 2013 was $12,763,447, an increase of 49.63% from $8,529,990 for 2012. In 2013, agency sales represented 62.34% of the total net revenue, property management represented 17.75%, and underwriting sales represented 19.91%. The increase in 2013 was mainly due to the increases in the revenue from our agency sales and underwriting sales.
In 2013, 62.34% of our net revenue was derived from agency sales, which was primarily from the business activities of SHXJY, SHSY and their subsidiaries and branches. As compared with 2012, net revenue of agency sales in 2013 increased by 61.45%. This increase is primarily attributable to the receipt of revenues approximately $2,021,705 upon completion of a real estate agency project in the year.
Government policies enacted in 2011 aiming to stabilize real estate prices affected many businesses in the real estate industry. Despite these restrictive policies, we were able to increase our agency sales revenue. We are continually seeking stable growth in our agency sales business in 2014. However, there can be no assurance that we will be able to do so.
During the year of 2005 and 2006, SZGFH entered into leasing agreements with certain buyers of the Sovereign Building underwriting project to lease the properties for them. These leasing agreements on these properties are for 62% of the floor space that was sold to third party buyers. In accordance with the leasing agreements, the owners of the properties can have a rental return of 8.5% and 8.8% per annum for a period of 5 years and 8 years, respectively. The leasing period started in the second quarter, 2006, and the Company has the right to sublease the leased properties to cover these lease commitments in the leasing period. In regards to the leasing agreements, we have agreed with certain buyers and have lowered the annual rental return rate for the remaining leasing period from 8.5% for 5 years to 5.8%, and from 8.8% for 8 years to 6%. These sub-leasing agreements related to the underwriting project have been expired in mid-2014. Any sub-leasing agreements entered will not be related to the 2005/2006 leasing agreements but on a case by case basis.
We expect that the income from the sub-leasing business will be on a stable growth trend in 2014 and that it can cover the lease commitments in the leasing period as a whole. However there can be no assurance that we will achieve these objectives.
Underwriting Sales
In February 2004, SHSY entered into an agreement to underwrite an office building in Suzhou, known as Suzhou Sovereign Building. Being the sole distribution agent for this office building, SHSY committed to a sales target. Property underwriting sales are comparatively a higher risk business model compared to our pure commission based agency business. Under this higher risk business model, the Underwriting Model, our commission is not calculated as a percentage of the selling price; instead, our commission revenue is equivalent to the price difference between the final selling price and underwriting price. We negotiate with a developer for an underwriting price that is as low as possible, with the guarantee that all or a majority of the units will be sold by a specific date. In return, we are given the flexibility to establish the final selling price and earn the price difference between the final selling price and the underwriting price. The risk of this kind of arrangement is that if there is any unsold unit on the expiration date of the agreement, we may have to absorb the unsold property units from developers at the underwriting price and hold them in our inventory or as investments.
The Company accounts for its underwriting sales revenue with underwriting rent guarantees in accordance with ASC 967-605, “Accounting for Sales of Real Estate” (Formerly Statement of Financial Accounting Standards No. 66, “Accounting for Sales of Real Estate”. The deposit method has been used for the revenue from the sales of floor space with underwriting rent guarantees until the revenues generated by sub-leasing properties exceed the guaranteed rental amount due to the purchasers.
Deal Flow
Item 1.01 Entry into a Material Definitive Agreement.
On November 10, 2014, the registrant, Sunrise Real Estate Group, Inc. ("Sunrise"), entered into a Share Purchase Agreement with Ace Develop Properties Limited (“Ace”) to issue 20 million shares to Ace for RMB 10,460,000 (US $1,700,000 equivalent). This agreement, subject to standard closing terms and conditions, is scheduled to close on or before November 28, 2014. Ace is wholly-owned by Lin Chi-Jung, our Chief Executive Officer, President and Chairman of the Board. On November 27, 2014 Sunrise received the RMB 10,460,000 and issued 20 million shares to Ace, thereby closing the Share Purchase Agreement.
As set forth in above Item 1.01, upon the closing of the Share Purchase Agreement, Sunrise will issued 20 million shares to Ace and received RMB 10,460,000 (US $1,700,000 equivalent).
Reverse Merger Activity
Item 1.01 Entry into a Material Definitive Agreement.
On November 10, 2014, the registrant, Sunrise Real Estate Group, Inc. ("Sunrise"), entered into a Share Purchase Agreement with Ace Develop Properties Limited (“Ace”) to issue 20 million shares to Ace for RMB 10,460,000 (US $1,700,000 equivalent). This agreement, subject to standard closing terms and conditions, is scheduled to close on or before November 28, 2014. Ace is wholly-owned by Lin Chi-Jung, our Chief Executive Officer, President and Chairman of the Board.
As set forth in above Item 1.01, Sunrise, upon the closing of the Share Purchase Agreement, will issue 20 million shares to Ace for RMB 10,460,000 (US $1,700,000 equivalent).
In connection with the issue of its shares to Ace, Sunrise will rely on Regulation S as its exemption from the registration requirements of the Securities Act of 1933. The purchaser is a non-US person and has agreed that the shares may not be transferred or sold except in accordance with the provisions of Regulation S and/or compliance with the registration requirements of the Securities Act of 1933 or in reliance upon an applicable exemption therefrom. The certificates representing the Sunrise shares shall bear a legend reflecting such transfer restrictions and stop transfer orders will be placed with the transfer agent against these shares.
Reverse Merger Activity
Item 1.01 Entry into a Material Definitive Agreement.
entered into a Share Purchase Agreement with Ace Develop Properties Limited (“Ace”) to issue 20 million shares to Ace for RMB 10,472,000, US $1,700,000 equivalent, (“funds”). This agreement, subject to standard closing terms and conditions, is scheduled to close on or before August 31, 2014. Ace is wholly-owned by Lin Chi-Jung, our Chief Executive Officer, President and Chairman of the Board.
Item 3.02. Unregistered Sales of Equity Securities.
In connection with the issue of its shares to Ace or their designees, Sunrise will rely on Regulation S as its exemption from the registration requirements of the Securities Act of 1933. All of such persons are non-US persons and agree that the shares may not be transferred or sold except in accordance with the provisions of Regulation S and/or compliance with the registration requirements of the Securities Act of 1933 or in reliance upon an applicable exemption therefrom. The certificates representing the Sunrise shares shall bear a legend reflecting such transfer restrictions and stop transfer orders will be placed with the transfer agent against these shares.
Deal Flow
Item 1.01 Entry into a Material Definitive Agreement.
issue 20 million shares to Ace for RMB 10,472,000 (US $1,700,000 equivalent). This agreement, subject to standard closing terms and conditions, is scheduled to close on or before August 31, 2014. Ace is wholly-owned by Lin Chi-Jung, our Chief Executive Officer, President and Chairman of the Board.
Item 3.02. Unregistered Sales of Equity Securities.
In connection with the issue of its shares to Ace, Sunrise will rely on Regulation S as its exemption from the registration requirements of the Securities Act of 1933. The purchaser is a non-US person and has agreed that the shares may not be transferred or sold except in accordance with the provisions of Regulation S and/or compliance with the registration requirements of the Securities Act of 1933 or in reliance upon an applicable exemption therefrom. The certificates representing the Sunrise shares shall bear a legend reflecting such transfer restrictions and stop transfer orders will be placed with the transfer agent against these shares.
Investor Alert
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On May 24, 2012 our independent accountants, Kenne Ruan, CPA, P.C., (“Kenne Ruan”) advised Sunrise Real Estate Group, Inc. (the “Company”) that they identified an error on the consolidated financial statements for the year ended December 31, 2011 and such financial statements shall not be relied upon. The error was a miscalculation in our underwriting sales revenue and cost of sales under the Statement of Financial Accounting Standards No. 66 (“SFAS 66”). Proposed adjusted numbers to correct such error are summarized in the exhibit filled hereto.
