UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
quarterly period ended March 31, 2010


 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
transition period from __________ to __________





Commission
File Number 000-32585





SUNRISE
REAL ESTATE GROUP, INC.





(Exact
name of registrant as specified in its charter)





Texas
                
                75-2713701(State
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      Employer Identification
No.)





Suite
701, No. 333, Zhaojiabang Road


Shanghai,
PRC 200032


(Address
of principal executive offices  Zip Code)





Registrant’s
telephone number: + 86-21-6422-0505





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
accelerated filer  ̈       Accelerated
filer  ̈


Non-accelerated
filer  ̈        Smaller
reporting company x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes x No  ̈





Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act): Yes  ̈ No x





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: May 10, 2010 - 23,691,925 shares of
Common Stock.







FORM
10-Q




For
the Quarter Ended March 31, 2010




INDEX


PagePART
      I. FINANCIAL INFORMATION
                  3Item
      1.
                  Financial
      Statements
                  3Consolidated Balance Sheets
                  3Consolidated Statements of Operations
                  4Consolidated Statements of Cash Flows
                  5Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  15Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  22Item
      4.
                  Controls
      and Procedures
                  22PART
      II. OTHER INFORMATION
                  23Item
      1.
                  Legal
      Proceedings
                  23Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  23Item
      3.
                  Defaults
      Upon Senior Securities
                  23Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  23Item
      5.
                  Other
      Information
                  23Item
      6.
                  Exhibits
                  23SIGNATURES
                  23




2


PART
I - FINANCIAL INFORMATION


ITEM
1.  FINANCIAL STATEMENTS





Sunrise
Real Estate Group, Inc.





Unaudited
Condensed Consolidated Balance Sheets





(Expressed
in US Dollars)


March
      31,
                                      
                                      
                                      December
      31,2010
                                      
                                      
                                      2009(Unaudited)
                                      
                                      
                                      (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                      
                                      $
                                      2,287,972
                                      
                                      
                                      $
                                      3,444,600Accounts
      receivable
                                      
                                      
                                      1,595,376
                                      
                                      
                                      
                                      651,329Promissory
      deposits (Note 3)
                                      
                                      
                                      1,171,938
                                      
                                      
                                      
                                      732,257Other
      receivables and deposits (Note 4)
                                      
                                      $
                                      529,956
                                      
                                      
                                      $
                                      177,001Total
      current assets
                                      
                                      
                                      5,585,242
                                      
                                      
                                      
                                      5,005,187Property,
      plant and equipment – net (Note 5)
                                      
                                      
                                      2,596,494
                                      
                                      
                                      
                                      2,291,995Investment
      properties (Note 6)
                                      
                                      
                                      7,447,775
                                      
                                      
                                      
                                      7,597,074Total
      assets
                                      
                                      $
                                      15,629,511
                                      
                                      
                                      $
                                      14,894,256LIABILITIES
      AND SHAREHOLDERS’ DEFICITCurrent
      liabilitiesBank
      loans (Note 7)
                                      
                                      
                                      
                                      
                                      
                                      $
                                      205,032Promissory
      notes payable (Note 8)
                                      
                                      
                                      907,394
                                      
                                      
                                      
                                      1,036,119Accounts
      payable
                                      
                                      
                                      136,556
                                      
                                      
                                      
                                      316,064Amount
      due to directors (Note 9)
                                      
                                      
                                      235,340
                                      
                                      
                                      
                                      290,210Amount
      due to related party (Note 9)
                                      
                                      
                                      128,032
                                      
                                      
                                      
                                      127,996Other
      payables and accrued expenses (Note 10)
                                      
                                      
                                      2,365,398
                                      
                                      
                                      
                                      2,283,359Other
      tax payable (Note 11)
                                      
                                      
                                      318,536
                                      
                                      
                                      
                                      384,290Income
      tax payable
                                      
                                      
                                      928,705
                                      
                                      
                                      
                                      987,187Total
      current liabilities
                                      
                                      $
                                      5,019,961
                                      
                                      
                                      $
                                      5,630,257Long-term
      bank loans (Note 7)
                                      
                                      
                                      8,057,073
                                      
                                      
                                      
                                      8,054,831Deposits
      received from underwriting sales (Note 13)
                                      
                                      
                                      4,079,736
                                      
                                      
                                      
                                      4,316,655Total
      liabilities
                                      
                                      $
                                      17,156,770
                                      
                                      
                                      $
                                      18,001,743Noncontrolling
      interests of consolidated subsidiaries
                                      
                                      
                                      1,273,986
                                      
                                      
                                      
                                      636,881Commitments
      and contingencies (Note 12)Shareholders’
      deficitCommon
      stock, par value $0.01 per share; 200,000,000 shares authorized;
      23,691,925 shares issued and outstanding as of March 31, 2010 and December
      31, 2009
                                      
                                      
                                      236,919
                                      
                                      
                                      
                                      236,919Additional
      paid-in capital
                                      
                                      
                                      3,620,008
                                      
                                      
                                      
                                      3,620,008Statutory
      reserve (Note 14)
                                      
                                      
                                      759,855
                                      
                                      
                                      
                                      759,855Accumulated
      losses
                                      
                                      
                                      (7,999,389
                                      )
                                      
                                      
                                      (9,023,506
                                      )Accumulated
      other comprehensive income (Note 15)
                                      
                                      
                                      581,362
                                      
                                      
                                      
                                      662,356Total
      shareholders’ deficit
                                      
                                      
                                      (2,801,245
                                      )
                                      
                                      
                                      (3,744,368
                                      )Total
      liabilities and shareholders’ deficit
                                      
                                      $
                                      15,629,511
                                      
                                      
                                      $
                                      14,894,256





See
accompanying notes to consolidated financial statements.


3


Sunrise
Real Estate Group, Inc.





Unaudited Condensed
Consolidated Statements of Operations





(Expressed
in US Dollars)





Three
      Months Ended March 31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Unaudited)Net
      Revenues
                          
                          $
                          4,699,519
                          
                          
                          $
                          1,495,528Cost
      of Revenues
                          
                          
                          (2,016,712
                          )
                          
                          
                          (1,230,271
                          )Gross
      Profit
                          
                          
                          2,682,807
                          
                          
                          
                          265,257Operating
      Expenses
                          
                          
                          (368,517
                          )
                          
                          
                          (191,640
                          )General
      and Administrative Expenses
                          
                          
                          (582,362
                          )
                          
                          
                          (481,555
                          )Operating
      Profit/(Loss)
                          
                          
                          1,731,928
                          
                          
                          
                          (407,938
                          )Interest
      Income
                          
                          
                          2,983
                          
                          
                          
                          899Other
      Income, Net
                          
                          
                          16,934
                          
                          
                          
                          14,613Interest
      Expenses
                          
                          
                          (148,503
                          )
                          
                          
                          (144,374
                          )Profit/(Loss)
      Before Income Tax and Minority Interest
                          
                          
                          1,603,342
                          
                          
                          
                          (536,800
                          )Income
      Tax
                          
                          
                          (23,129
                          )
                          
                          
                          (8,769
                          )Profit/(Loss)
      Before Minority Interest
                          
                          
                          1,580,213
                          
                          
                          
                          (545,569
                          )Minority
      Interest of Consolidated Subsidiaries
                          
                          
                          (556,096
                          )
                          
                          
                          62,688Net
      Profit/(Loss)
                          
                          $
                          1,024,117
                          
                          
                          $
                          (482,881
                          )Profit/(Loss)
      Per Share – Basic and Fully Diluted
                          
                          $
                          0.04
                          
                          
                          $
                          (0.02
                          )Weighted
      average common shares outstanding
                            –
      Basic and Fully Diluted
                          
                          
                          23,691,925
                          
                          
                          
                          23,691,925





See
accompanying notes to unaudited condensed consolidated financial
statements.


4





Sunrise
Real Estate Group, Inc.





Consolidated
Statements of Cash Flows





Increase/(Decrease)
in Cash and Cash Equivalents





(Expressed
in US Dollars)


Three
      Months Ended March 31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)Cash
      flows from operating activitiesNet
      Profit/(Loss)
                      
                      $
                      1,024,117
                      
                      
                      $
                      (482,881
                      )Adjustments
      to reconcile net profit/(loss) tonet
      cash used in operating activitiesDepreciation
      of property, plant and equipment
                      
                      
                      208,394
                      
                      
                      
                      217,343Loss
      on disposal of property, plant and equipment
                      
                      
                      741
                      
                      
                      
                      4,609Minority
      interest
                      
                      
                      556,096
                      
                      
                      
                      (62,688
                      )Change
      in:Accounts
      receivable
                      
                      
                      (943,754
                      )
                      
                      
                      81,755Promissory
      deposits
                      
                      
                      (439,426
                      )
                      
                      
                      75,876Other
      receivables and deposits
                      
                      
                      (352,864
                      )
                      
                      
                      (87,943
                      )Accounts
      payable
                      
                      
                      (179,575
                      )
                      
                      
                      362,351Other
      payables and accrued expenses
                      
                      
                      81,394
                      
                      
                      
                      (197,940
                      )Deposit
      from underwriting sales
                      
                      
                      (238,093
                      )
                      
                      
                      -Interest
      payable on promissory notes
                      
                      
                      36,026
                      
                      
                      
                      938Interest
      payable on amount due to director
                      
                      
                      5,226
                      
                      
                      
                      (1,600
                      )Other
      tax payable
                      
                      
                      (65,853
                      )
                      
                      
                      13,673Income
      tax payable
                      
                      
                      (58,750
                      )
                      
                      
                      (15,673
                      )Restricted
      cash
                      
                      
                      
                      
                      
                      
                      7,086Net
      cash used in operating activities
                      
                      
                      (366,321
                      )
                      
                      
                      (85,094
                      )Cash
      flows from investing activitiesAcquisition
      of property, plant and equipment
                      
                      
                      (361,121
                      )
                      
                      
                      (2,413
                      )Proceeds
      from disposal of property, plant and equipmentNet
      cash used in investing activities
                      
                      
                      (361,121
                      )
                      
                      
                      (2,413
                      )Cash
      flows from financing activitiesBank
      loans repayment
                      
                      
                      (205,065
                      )
                      
                      
                      (51,195
                      )Repayment
      of promissory note
                      
                      
                      (164,914
                      )
                      
                      
                      (33,333
                      )Proceeds
      from promissory note
                      
                      
                      
                      
                      
                      
                      146,272Repayment
      to director
                      
                      
                      (60,114
                      )
                      
                      
                      (43,881
                      )Advance
      from director
                      
                      
                      -
                      
                      
                      
                      80,130Net
      cash (used in)/provided by financing activities
                      
                      
                      (430,093
                      )
                      
                      
                      97,993Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      907
                      
                      
                      
                      (2,541
                      )Net
      (decrease)/increase in cash and cash equivalents
                      
                      
                      (1,156,628
                      )
                      
                      
                      7,945Cash
      and cash equivalents at beginning of period
                      
                      
                      3,444,600
                      
                      
                      
                      587,468Cash
      and cash equivalents at end of period
                      
                      $
                      2,287,972
                      
                      
                      $
                      595,413Supplemental
      disclosure of cash flow informationCash
      paid during the period:Income
      tax paid
                      
                      
                      81,611
                      
                      
                      
                      24,650Interest
      paid
                      
                      
                      152,756
                      
                      
                      
                      145,036





See
accompanying notes to unaudited condensed consolidated financial
statements.


5


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





(Expressed
in US Dollars)





NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS





Sunrise
Real Estate Development Group, Inc. (“CY-SRRE”) was established in the Cayman
Islands on April 30, 2004 as a limited liability company. CY-SRRE was wholly
owned by Ace Develop Properties Limited, a corporation, (“Ace Develop”), of
which Lin Chi-Jung, an individual, is the principal and controlling shareholder.
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”) was
established in the People’s Republic of China (the “PRC”) on August 14, 2001 as
a limited liability company.  SHXJY was originally owned by a
Taiwanese company, of which the principal and controlling shareholder was Lin
Chi-Jung. On June 8, 2004, all the fully paid up capital of SHXJY was
transferred to CY-SRRE. On June 25, 2004 SHXJY and two individuals established a
subsidiary, namely, Suzhou Xin Ji Yang Real Estate Consultation Company Limited
(“SZXJY”) in the PRC, at which point in time, SHXJY held a 90% equity interest
in SZXJY. On December 24, 2004, SHXJY acquired 85% of equity interest in Beijing
Xin Ji Yang Real Estate Consultation Company Limited (“BJXJY”), a PRC company
incorporated on April 16, 2003 with limited liability.  On August 9,
2005, SHXJY sold a 10% equity interest in SZXJY to a company owned by a director
of SZXJY, and transferred a 5% equity interest in SZXJY to
CY-SRRE.  Following the disposal and the transfer, CY-SRRE effectively
held an 80% equity interest in SZXJY. On November 24, 2006, CY-SRRE, SHXJY, a
director of SZXJY and a third party established a subsidiary, namely, Suzhou
Shang Yang Real Estate Consultation Company Limited (“SZSY”) in the PRC, with
CY-SRRE holding a 12.5% equity interest, SHXJY holding a 26% equity interest and
the director of SZXJY holding a 12.5% equity interest in SZSY. At the date of
incorporation, SRRE and the director of SZXJY entered into a voting agreement
that SRRE is entitled to exercise the voting right in respect of his 12.5%
equity interest in SZSY. Following that, SRRE effectively holds 51% equity
interest in SZSY. On September 24, 2007, CY-SRRE sold a 5% equity interest in
SZXJY to a company owned by a director of SZXJY.  Following the
disposal, CY-SRRE effectively holds 75% equity interest in SZXJY.  On
November 1, 2007, SZXJY established a wholly owned subsidiary, Suzhou Xin Ji
Yang Real Estate Brokerage Company Limited (“SZXJYB”) in the PRC as a limited
liability company.  On May 8, 2008, SHXJY established a wholly owned
subsidiary, Kunshan Shang Yang Real Estate Brokerage Company Limited (“KSSY”) in
the PRC as a limited liability company.





LIN RAY
YANG Enterprise Ltd. (“LRY”) was established in the British Virgin Islands on
November 13, 2003 as a limited liability company.  LRY was owned by
Ace Develop, Planet Technology Corporation (“Planet Tech”) and Systems &
Technology Corporation (“Systems Tech”).  On February 5, 2004, LRY
established a wholly owned subsidiary, Shanghai Shang Yang Real Estate
Consultation Company Limited (“SHSY”) in the PRC as a limited liability company.
On January 10, 2005, LRY and a PRC third party established a subsidiary, Suzhou
Gao Feng Hui Property Management Company Limited (“SZGFH”), in the PRC, with LRY
holding 80% of the equity interest in SZGFH. On May 8, 2006, LRY acquired 20% of
the equity interest in SZGFH from the third party. Following the acquisition,
LRY effectively holds 100% of the equity interest in SZGFH. On September 11,
2007 SHSY and other third parties established a subsidiary, namely, Suzhou Bin
Fen Nian Dai Administration Consultancy Company Limited (“SZBFND”) in the PRC,
with SHSY holding a 19% equity interest in SZBFND. On September 18, 2008, SHSY
established a wholly owned subsidiary, San Ya Shang Yang Real Estate
Consultation Company Limited (“SYSY”) in the PRC as a limited liability
company.





SHXJY,
SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB, KSSY and SYSY commenced operations in
November 2001, June 2004, January 2004, February 2004, January 2005, November
2006, November 2007, May 2008 and September 2008 respectively.  Each
of SHXJY, SZXJY, BJXJY, SHSY, SZGFH, SZSY, SZXJYB and KSSY has been granted a
twenty-year operation period and SYSY has been granted a thirty-year operation
period from the PRC, which can be extended with approvals from relevant PRC
authorities.





On August
31, 2004, Sunrise Real Estate Group, Inc. (“SRRE”), CY-SRRE and Lin Chi-Jung, an
individual and agent for the beneficial shareholder of CY-SRRE, i.e., Ace
Develop, entered into an exchange agreement under which SRRE issued 5,000,000
shares of common stock to the beneficial shareholder or its designees, in
exchange for all outstanding capital stock of CY-SRRE.  The
transaction closed on October 5, 2004.  Lin Chi-Jung is Chairman of
the Board of Directors of SRRE, the President of CY-SRRE and the principal and
controlling shareholder of Ace Develop.





Also on
August 31, 2004, SRRE, LRY and Lin Chi-Jung, an individual and agent for
beneficial shareholders of LRY, i.e., Ace Develop, Planet Tech and Systems Tech,
entered into an exchange agreement under which SRRE issued 10,000,000 shares of
common stock to the beneficial shareholders, or their designees, in exchange for
all outstanding capital stock of LRY.  The transaction was closed on
October 5, 2004. Lin Chi-Jung is Chairman of the Board of Directors of SRRE, the
President of LRY and the principal and controlling shareholder of Ace
Develop.  Regarding the 10,000,000 shares of common stock of SRRE
issued in this transaction, SRRE issued 8,500,000 shares to Ace Develop, 750,000
shares to Planet Tech and 750,000 shares to Systems Tech.


6





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.  All shares 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 was
initially incorporated in Texas on October 10, 1996, under the name of Parallax
Entertainment, Inc. (“Parallax”).  On December 12, 2003, Parallax
changed its name to Sunrise Real Estate Development Group, Inc.  On
April 25, 2006, Sunrise Estate Development Group, Inc. filed Articles of
Amendment with the Texas Secretary of State, changing the name of Sunrise Real
Estate Development Group, Inc. to Sunrise Real Estate Group, Inc., effective
from May 23, 2006.





On April
22, 2010, ACE Develop Properties Limited, whose sole beneficiary owner is Lin
Chi Jung, Chairman of the Board, CEO and director of the Company, transferred
4,511,400 shares of common stock of the Company to Robert Lin Investment, Inc.
whose sole beneficiary owner is Lin Chao Chin, President, COO and director of
the Company.





Figure 1:
Company Organization Chart











SRRE and
its subsidiaries, namely, CY-SRRE, LRY, SHXJY, SZXJY, SZXJYB, SZSY, KSSY, BJXJY,
SHSY, SZGFH and SYSY are sometimes hereinafter collectively referred to as “the
Company.”





The principal activities of the Company
are property brokerage services, real estate marketing services, property
leasing services and property management services in the
PRC.


7





NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Accounting and Principles of Consolidation





The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America that include the
financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
SZXJYB, SZSY, KSSY, BJXJY, SHSY, SZGFH and SYSY.  All inter-company
transactions and balances have been eliminated.





Use
of Estimates





The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.





Cash
and Cash Equivalents





Cash and
cash equivalents include cash in hand and all highly liquid investments with an
original maturity of three months or less.





Foreign
Currency Translation and Transactions





The
functional currency of SRRE, CY-SRRE and LRY is United States Dollars (“US$”)
and the financial records are maintained and the financial statements prepared
in US $. The functional currency of SHXJY, SZXJY, SZXJYB, SZSY, KSSY, BJXJY,
SHSY, SZGFH and SYSY is Renminbi (“RMB”) and the financial records are
maintained and the financial statements prepared in RMB.





Foreign
currency transactions during the period are translated into each company’s
denominated currency at the exchange rates ruling at the transaction dates. Gain
and loss resulting from foreign currency transactions are included in the
consolidated statement of operations. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company’s
denominated currency at period end exchange rates.  All exchange
differences are dealt with in the consolidated statements of
operations.





The
financial statements of the Company’s operations based outside of the United
States have been translated into US$ in accordance with Accounting Standards
Codification (ASC) Topic 830 “Foreign Currency Matters”.  Management
has determined that the functional currency for each of the Company’s foreign
operations is its applicable local currency.  When translating
functional currency financial statements into US$, period-end exchange rates are
applied to the consolidated balance sheets, while average period rates are
applied to consolidated statements of operations.  Translation gains
and losses are recorded in translation reserve as a component of shareholders’
equity.





The
exchange rate between US$ and RMB had little fluctuation during the periods
presented. The rates as of March 31, 2010 and December 31, 2009 are US$1:
RMB6.8263 and US$1: RMB6.8282, respectively.





Property,
Plant, Equipment and Depreciation





Property,
plant and equipment are stated at cost. Depreciation is computed using the
straight-line method to allocate the cost of depreciable assets over the
estimated useful lives of the assets as follows:





Estimated
      Useful Life (in years)Furniture
      and fixtures
                    5-10Computer
      and office equipment
                    5Motor
      vehicles
                    5Properties
                    20





Maintenance,
repairs and minor renewals are charged directly to the statement of operations
as incurred. Additions and improvements are capitalized. When assets are
disposed of, the related cost and accumulated depreciation thereon are removed
from the accounts and any resulting gain or loss is included in the statement of
operations.


8





Investment
property





Investment
properties are stated at cost. Depreciation is computed using the straight-line
method to allocate the cost of depreciable assets over the estimated useful
lives of 20 years.





Significant
additions that extend property lives are capitalized and are depreciated over
their respective estimated useful lives. Routine maintenance and repair costs
are expensed as incurred. The Company reviews its investment property for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an investment property may not be recoverable.





Goodwill





ASC Topic
350, “Intangible Assets - Goodwill and Other,” requires that goodwill be tested
for impairment on an annual basis (December 31 for us) and between annual tests
if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value. These events
or circumstances could include a significant change in the business climate,
legal factors, operating performance indicators, competition, sale or
disposition of a significant portion of a company. Application of the goodwill
impairment test requires judgment, including the determination of the fair value
of a company. The fair value of a company is estimated using a discounted cash
flow methodology. This requires significant judgments including estimation of
future cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, the useful life over which cash flows
will occur, and the determination of our weighted average cost of capital.
Changes in these estimates and assumptions could materially affect the
determination of fair value and/or goodwill impairment for a
company.





Revenue
Recognition





Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer grants confirmation to us to be able to invoice them accordingly. The
time when we receive the commission is normally at the time when the property
developer receives from the buyer a portion of the sales proceeds in accordance
with the terms of the relevant property sales agreement, or the balance of the
bank loan to the buyer has been funded, or recognized under the sales schedule
or other specific items of agency sales agreement with developer. At no point
does the Company handle any monetary transactions nor act as an escrow
intermediary between the developer and the buyer.





Revenue
from marketing consultancy services is recognized when services are provided to
clients, fees associated to services are fixed or determinable, and collection
of the fees is assured.





Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.





The
Company accounts for underwriting sales in accordance with the FASB guidance of
ASC Topic 360, “Property, Plant and Equipment”. The commission revenue on
underwriting sales is recognized when the criteria in ASC 360 have been met,
generally when title is transferred and the Company no longer has substantial
continuing involvement with the real estate asset sold. If the Company provides
certain rent guarantees or other forms of support where the maximum exposure to
loss exceeds the gain, it defers the related commission income and expenses by
applying the deposit method. In future periods, the commission income and
related expenses are recognized when the remaining maximum exposure to loss is
reduced below the amount of income deferred.





All
revenues represent gross revenues less sales and business tax.





Net
Earnings per Common Share





The
Company computes net earnings per share in accordance with the FASB guidance of
ASC Topic 260, “Earnings per Share.”  Under the provisions of ASC
Topic 260, basic net earnings per share is computed by dividing the net earnings
available to common shareholders for the period by the weighted average number
of shares of common stock outstanding during the period. The calculation of
diluted net earnings per share recognizes common stock equivalents, however;
potential common stock in the diluted EPS computation is excluded in net loss
periods, as their effect is anti-dilutive.


9





Income
Taxes





The
Company accounts for income taxes in accordance with the FASB ASC Topic 740
“Income Taxes.” Under ASC Topic 740, deferred tax liabilities or assets at the
end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.





We
continue to account for income taxcontingencies using a
benefit recognition model.Beginning January 1,
2007, if we considered that a tax position is 'more likely than not' of being
sustained upon audit, based solely on the technical merits of the position, we
recognize the benefit. We measure the benefit by determining the amount that is
greater than 50% likely of being realized upon settlement, presuming that the
tax position is examined by the appropriate taxing authority that has full
knowledge of all relevant information. These assessments can be complex and we
often obtain assistance from external advisors.





Under the
benefit recognition model, if our initial assessment fails to result in the
recognition of a tax benefit, we regularly monitor our position and subsequently
recognize the tax benefit if there are changes in tax law or analogous case law
that sufficiently raise the likelihood of prevailing on the technical merits of
the position to more likely than not; if the statute of limitations expires; or
if there is a completion of an audit resulting in a settlement of that tax year
with the appropriate agency.





Uncertain
tax positions, represented by liabilities on our balance sheet, are now
classified as current only when we expect to pay cash within the next 12 months.
Interest and penalties, if any, continue to be recorded in Provision for taxes
on income and are classified on the balance sheet with the related tax
liability.





Historically,
our policy had been to account for income tax contingencies based on whether we
determined our tax position to be 'probable' under current tax law of being
sustained, as well as an analysis of potential outcomes under a given set of
facts and circumstances. In addition, we previously considered all tax
liabilities as current once the associated tax year was under
audit.





Segment
information





The
Company believes that it operates in one business segment. Management views the
business as consisting of several revenue streams; however it is not possible to
attribute assets or indirect costs to the individual streams other than direct
expenses.





Recently
Issued Accounting Guidance





In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and liabilities between
Level 1 (quoted prices in active market for identical assets or liabilities) and
Level 2 (significant other observable inputs) of the fair value measurement
hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of activities
on purchases, sales, issuance, and settlements of the assets and liabilities
measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for us with the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
us with the reporting period beginning July 1, 2011. Other than requiring
additional disclosures, adoption of this new guidance did not have a material
impact on our financial statements.





We
adopted guidance issued by the FASB that changes the accounting and reporting
for non-controlling interests. Non-controlling interests are to be reported as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control are to be accounted
for as equity transactions. In addition, net income attributable to a
non-controlling interest is to be included in net income and, upon a loss of
control, the interest sold, as well as any interest retained, is to be recorded
at fair value with any gain or loss recognized in net income. Adoption of the
new guidance did not have a material impact on our financial
statements.





In June
2009, the FASB issued guidance on the consolidation of variable interest
entities, which is effective for us beginning July 1, 2010. The new
guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of this new
guidance will not have a material impact on our financial
statements.


10





In May
2009, the FASB Issued guidance on accounting for and disclosure of subsequent
events. The objective of this guidance is to establish general standards of
accounting and disclosure of events after the balance sheet date but before
financial statements are issued or are available to be issued.





The
Company does not anticipate that adoption of the above guidance will have a
material effect on the Company’s financial condition and results of
operations.




NOTE
3 - PROMISSORY DEPOSITS





The
balance of $732,461 represents the deposits placed with several property
developers in respect of a number of real estate projects where the Company is
appointed as sales agent.





The
balance of $439,477 represents
the deposit for participating in a land auction in SanDong, the
PRC.





As of
March 31, 2010, $439,477 out of the
total promissory deposits was pledged to secure a promissory note payable in
note 8.





NOTE
4 - OTHER RECEIVABLES AND DEPOSITS





March
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009Advances
      to staff
                      
                      $
                      90,096
                      
                      
                      $
                      80,288Rental
      deposits
                      
                      
                      71,726
                      
                      
                      
                      72,870Other
      receivables
                      
                      
                      368,134
                      
                      
                      
                      23,843$
                      529,956
                      
                      
                      $
                      177,001





NOTE 5 – PROPERTY, PLANT AND
EQUIPMENT – NET





March
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009Furniture
      and fixtures
                        
                        $
                        80,960
                        
                        
                        $
                        80,938Computer
      and office equipment
                        
                        
                        353,978
                        
                        
                        
                        349,964Motor
      vehicles
                        
                        
                        847,893
                        
                        
                        
                        491,799Properties
                        
                        
                        2,215,155
                        
                        
                        
                        2,214,5393,497,986
                        
                        
                        
                        3,137,240Less:
      Accumulated depreciation
                        
                        
                        (901,492
                        )
                        
                        (845,245
                        )$
                        2,596,494
                        
                        
                        $
                        2,291,995





NOTE
6 – INVESTMENT PROPERTIES





March
      31,
                
                
                December
      31,2010
                
                
                2009Investment
      property
                
                $
                9,070,920
                
                
                $
                9,068,396Less:
      Accumulated depreciation
                
                
                (1,623,145
                )
                
                
                (1,471,322
                )$
                7,447,775
                
                
                $
                7,597,074





The
investment properties included one floor and four units of a commercial building
in Suzhou, the PRC. The investment properties were acquired by the Company for
long-term investment purposes and were pledged to secure a bank loan in note
7. The
carrying amount of one floor as $2,426,446 was pledged to a promissory note
payable in note 8.


11


As of
March 31, 2010, the four units
of the investment properties were leased to SZBFND, a related party of the
Company, and 82% of the total area of the one remaining floor was leased
out.





NOTE
7 - BANK LOANS





The
balance includes one bank loan of $8,057,073, which has an interest rate equal
to 110% of the one year prime rate as announced by the People’s Bank of China to
5.84% in 2010, and is secured by the properties as mentioned in Note 6 above.
The period of this bank loan was 3 years and can be extended to the next 3 years
automatically.





NOTE
8 –
PROMISSORY NOTES PAYABLE





There are
four promissory notes, as listed below:





First,
the balance includes a promissory note of $2,257 and accrued interest of $19,168
thereon. This promissory note of $2,257 bears interest at a rate of 5% per
annum. This promissory note is unsecured and the term of repayment is not
specifically defined.





Second,
the balance includes a promissory note of $300,000. This promissory note of
$300,000 bears interest at a rate of 15% per annum. This promissory note is
unsecured and the term of repayment is not specifically defined.





Third,
the balance includes a promissory note of $146,492. This promissory note of
$146,492 bears interest at a rate of 15% per annum. This promissory note is
unsecured and the term of repayment is not specifically defined.





Fourth,
the balance includes a promissory note of $439,477. This promissory note of
$439,477 bears interest at a rate of 18% per annum. This promissory note is
secured by the promissory deposit of $439,477 as mentioned in Note 3 above and
one floor of the investment properties as mentioned in Note 6 above and the term
of repayment is not specifically defined.





NOTE
9 – AMOUNTS WITH RELATED PARTIES AND DIRECTORS





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





As of
March 31, 2010, the balance includes one loan and
advances obtained from Lin Chin-Jung.





The loan includes principal of $168,706
and accrued interest of $33,673 thereon. The principal is unsecured, bears
interest at a rate of 9.6% per annum and the term of repayment is not
specifically defined.





The
advances and reimbursements of $32,961 represented the salary payable and rental
reimbursement to Lin Chin-Jung outstanding as of March 31, 2010.





Amount due to related
party


The
amount includes a rental deposit received from SZBFND. This amount is unsecured,
interest free and repayable on demand.





NOTE
10 - OTHER PAYABLES AND ACCRUED EXPENSES





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Accrued
      staff commission & bonus
                  
                  $
                  665,851
                  
                  
                  $
                  694,717Rental
      deposits received
                  
                  
                  710,700
                  
                  
                  
                  596,090Accrual
      for onerous contracts
                  
                  
                  20,420
                  
                  
                  
                  39,360Other
      payables
                  
                  
                  968,427
                  
                  
                  
                  953,192$
                  2,365,398
                  
                  
                  $
                  2,283,359


12





NOTE
11 – OTHER TAX PAYABLE





Other tax
payable mainly represents the outstanding payables of business tax, urban real
estate tax and land appreciation tax in the PRC.





NOTE
12- COMMITMENTS AND CONTINGENCIES





Operating Lease
Commitments





During
the three months ended March 31, 2010 and 2009, the Company incurred lease
expenses amounting to $81,813 and $86,772, respectively. As of March 31, 2010,
the Company had commitments under operating leases, requiring annual minimum
rentals as follows:





March
      31,
                
                
                December
      31,2010
                
                
                2009Within
      one year
                
                $
                231,736
                
                
                $
                31,878Two
      to five years
                
                
                134,773
                
                
                
                4,394Operating
      lease commitments
                
                $
                366,509
                
                
                $
                36,272





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. In regards to
the leasing agreements, we have negotiated with the 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%. As of March 31, 2010,
65% of the buyers agreed upon the lowered rate and 22% of the buyers agreed to
cancel the leasing agreements. 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. As of March 31, 2010, 104
sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 87% of total area with these lease
commitments.





As of
March 31, 2010, the lease commitments are as follows:





March
      31,
                
                
                December
      31,2010
                
                
                2009Within
      one year
                
                $
                1,910,676
                
                
                $
                2,141,087Two
      to five years
                
                
                4,006,390
                
                
                
                4,478,477Over
      five years
                
                
                -
                
                
                
                -Operating
      lease commitments arising from the promotional package
                
                $
                5,917,066
                
                
                $
                6,619,564





An
accrual for onerous contracts was recognized which is equal to the difference
between the present value of the sublease income and the present value of the
associated lease expense at the appropriate discount rate. The accrual for
onerous contracts was $20,420 as of March 31, 2010 and $39,360 as
of December 31, 2009.





According
to the leasing agreements, the Company has an option to terminate any agreement
by paying a predetermined compensation. As of March 31, 2010, the
compensation to terminate all leasing agreements is $1,720,729. According to the
sub-leasing agreements that have been signed through March 31, 2010, the rental
income from these sub-leasing agreements will be $ 1,267,182 within one year and
$ 232,479 within two to five years. However, no assurance can be given that we
can collect all of the rental income.


13





NOTE
13 –DEPOSITS RECEIVED FROM UNDERWRTING SALES





The
Company accounts for its underwriting sales revenue with underwriting rent
guarantees in accordance with the FASB ASC Topic 360. Under ASC 360, the deposit
method should be 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.





NOTE
14 – STATUTORY RESERVE





According
to the relevant corporation laws in the PRC, a PRC company is required to
transfer at least 10% of its profit after taxes, as determined under accounting
principles generally accepted in the PRC, to the statutory reserve until the
balance reaches 50% of its registered capital. The statutory reserve can be used
to make good on losses or to increase the capital of the relevant
company.





NOTE
15 – ACCUMULATED OTHER COMPREHENSIVE INCOME





As of
March 31, 2010 andDecember 31, 2009, the only component of accumulated other comprehensive
income was translation reserve.





NOTE
16 – CONCENTRATION OF CUSTOMERS





During
the three months ended March 31, 2010 and 2009, the following customers
accounted for more than 10% of total net revenue:





Percentage of Net Revenue for
                      the three months ended March 31,
                    
                    
                    Percentage of Accounts Receivable
                      as at March 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Customer
      A
                    
                    
                    11
                    %
                    
                    
                    16
                    %
                    
                    
                    *
                    
                    
                    
                    *Customer
      B
                    
                    
                    18
                    %
                    
                    
                    *
                    
                    
                    
                    *
                    
                    
                    
                    *Customer
      C
                    
                    
                    19
                    %
                    
                    
                    *
                    
                    
                    
                    34
                    %
                    
                    
                    *Customer
      D
                    
                    
                    *
                    
                    
                    
                    15
                    %
                    
                    
                    *
                    
                    
                    
                    *





* less
than 10%





NOTE
17 – SUBSEQUENT EVENT





On April
22, 2010, ACE Develop Properties Limited, whose sole beneficial owner is Lin Chi
Jung, Chairman of the Board, CEO and director of the Company, transferred
4,511,400 shares of common stock of the Company to Robert Lin Investment, Inc.
whose sole beneficial owner is Lin Chao Chin, President, COO and director of the
Company.


14





ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND
RESULTS OF OPERATIONS





CAUTIONARY
STATEMENT





The
following Management’s Discussion and Analysis (“MD&A”) is intended to help
the reader understand Sunrise Real Estate Group, Inc. (“SRRE”). The MD&A is
provided as a supplement to, and should be read in conjunction with, our
financial statements and the accompanying notes. The information contained in
this quarterly report on Form 10-Q is not a complete description of our business
or the risks associated with an investment in our common stock. We urge you to
carefully review and consider the various disclosures made by us in this report
and in our other reports filed with the Securities and Exchange Commission, or
SEC, including but not limited to our annual report on Form 10-K for the year
ended December 31, 2009, which discusses our business in greater
detail.





In this
report we make, and from time to time we otherwise make, written and oral
statements regarding our business and prospects, such as projections of future
performance, statements of management’s plans and objectives, forecasts of
market trends, and other matters that are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements containing the words or phrases
“will likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimates,” “projects,” “seeks”, “believes,” “expects,” “anticipates,”
“intends,” “target,” “goal,” “plans,” “objective,” “should” or similar
expressions identify forward-looking statements, which may appear in documents,
reports, filings with the Securities and Exchange Commission, news releases,
written or oral presentations made by officers or other representatives made by
us to analysts, stockholders, current or potential investors, news organizations
and others, and discussions with management and other of our representatives,
customer and suppliers. For such statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.





Our
future results, including results related to forward-looking statements, involve
a number of risks and uncertainties. No assurance can be given that the results
reflected in any forward-looking statements will be achieved. Any
forward-looking statement speaks only as of the date on which such statement is
made. Our forward-looking statements are based upon assumptions that are
sometimes based upon estimates, data, communications and other information from
suppliers, government agencies and other sources that may be subject to
revision. Except as required by law, we do not undertake any obligation to
update or keep current either (i) any forward-looking statement to reflect
events or circumstances arising after the date of such statement, or (ii) the
important factors that could cause our future results to differ materially from
historical results or trends, results anticipated or planned by us, or which are
reflected from time to time in any forward-looking statement.





In
addition to other matters identified or described by us from time to time in
filings with the SEC, there are several important factors that could cause our
future results to differ materially from historical results or trends, results
anticipated or planned by us, or results that are reflected from time to time in
any forward-looking statement. Some of these important factors, but not
necessarily all important factors, include 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.  Please also refer to the section
entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended
December 31, 2009.





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 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 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.


15





SRRE and
its subsidiaries, namely, CY-SRRE, LRY, Shanghai Xin Ji Yang Real Estate
Consultation Company Limited (“SHXJY”), Suzhou Xin Ji Yang Real Estate
Consultation Company Limited (“SZXJY”), Beijing Xin Ji Yang Real Estate
Consultation Company Limited (“BJXJY”), Shanghai Shangyang Real Estate
Consultation Company Limited (“SHSY”), Suzhou Gao Feng Hui Property Management
Company Limited (“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company
Limited (“SZSY”), Suzhou Xin Ji Yang Real Estate Brokerage Company
Limited(“SZXJYB”), Kunshan Shang Yang Real Estate Brokerage Company Limited
(“KSSY”) and San Ya Shang Yang Real Estate Consultation Company Limited (“SYSY”)
are sometimes hereinafter collectively referred to as “the Company,” “our,” or
“us”.





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





RECENT
DEVELOPMENTS





Our major
business was agency sales, whereby our Chinese subsidiaries contracted with
property developers to market and sell their newly developed property
units.  For these services we earned a commission fee calculated as a
percentage of the sales prices. We have focused our sales on the whole China
market, especially in secondary cities. To expand our agency business, we have
established subsidiaries in Shanghai, Suzhou, Beijing, Kunshan and Hainan, and
branches in NanChang, YangZhou, NanJing, ChongQing and ChengDu.





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. In regards to
the leasing agreements, we have negotiated with the 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%. As of March 31, 2010,
65% of the buyers agreed upon the lowered rate and 22% of the buyers agreed to
cancel the leasing agreements. The leasing period started in the second quarter
of 2006, and the Company has the right to sublease the leased properties to
cover these lease commitments in the leasing period. As of May 10, 2010, 110
sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 94% of total area with these lease
commitments.





RECENTLY
ISSUED ACCOUNTING STANDARDS





In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and liabilities between
Level 1 (quoted prices in active market for identical assets or liabilities) and
Level 2 (significant other observable inputs) of the fair value measurement
hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of activities
on purchases, sales, issuance, and settlements of the assets and liabilities
measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for us with the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
us with the reporting period beginning July 1, 2011. Other than requiring
additional disclosures, adoption of this new guidance did not have a material
impact on our financial statements.





We
adopted guidance issued by the FASB that changes the accounting and reporting
for non-controlling interests. Non-controlling interests are to be reported as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control are to be accounted
for as equity transactions. In addition, net income attributable to a
non-controlling interest is to be included in net income and, upon a loss of
control, the interest sold, as well as any interest retained, is to be recorded
at fair value with any gain or loss recognized in net income. Adoption of the
new guidance did not have a material impact on our financial
statements.





In June
2009, the FASB issued guidance on the consolidation of variable interest
entities, which is effective for us beginning July 1, 2010. The new
guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of this new
guidance will not have a material impact on our financial
statements.


16





In May
2009, the FASB Issued guidance on accounting for and disclosure of subsequent
events. The objective of this guidance is to establish general standards of
accounting and disclosure of events after the balance sheet date but before
financial statements are issued or are available to be issued.





The
Company does not anticipate that adoption of the above guidance will have a
material effect on the Company’s financial condition and results of
operations.





APPLICATION
OF CRITICAL ACCOUNTING POLICIES





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Critical accounting policies for us include revenue
recognition, net earnings per common share, income taxes and segment
information.





Revenue
Recognition





Agency
commission revenue from property brokerage is recognized when the property
developer and the buyer complete a property sales transaction, and the property
developer grants confirmation to us to be able to invoice them accordingly. The
time when we receive the commission is normally at the time when the property
developer receives from the buyer a portion of the sales proceeds in accordance
with the terms of the relevant property sales agreement, or the balance of the
bank loan to the buyer has been funded, or recognized under the sales schedule
or other specific items of agency sales agreement with developer. At no point
does the Company handle any monetary transactions nor act as an escrow
intermediary between the developer and the buyer.





Revenue
from marketing consultancy services is recognized when services are provided to
clients, fees associated to services are fixed or determinable, and collection
of the fees is assured.





Rental
revenue from property management and rental business is recognized on a
straight-line basis according to the time pattern of the leasing
agreements.





The
Company accounts for underwriting sales in accordance with the FASB guidance of
ASC Topic 360, “Property, Plant and Equipment”. The commission revenue on
underwriting sales is recognized when the criteria in ASC 360 have been met,
generally when title is transferred and the Company no longer has substantial
continuing involvement with the real estate asset sold. If the Company provides
certain rent guarantees or other forms of support where the maximum exposure to
loss exceeds the gain, it defers the related commission income and expenses by
applying the deposit method. In future periods, the commission income and
related expenses are recognized when the remaining maximum exposure to loss is
reduced below the amount of income deferred.





All
revenues represent gross revenues less sales and business tax.





Net
Earnings per Common Share





The
Company computes net earnings per share in accordance with the FASB guidance of
ASC Topic 260, “Earnings per Share.”  Under the provisions of ASC
Topic 260, basic net earnings per share is computed by dividing the net earnings
available to common shareholders for the period by the weighted average number
of shares of common stock outstanding during the period. The calculation of
diluted net earnings per share recognizes common stock equivalents, however;
potential common stock in the diluted EPS computation is excluded in net loss
periods, as their effect is anti-dilutive.





Income
Taxes





The
Company accounts for income taxes in accordance with the FASB ASC Topic 740
“Income Taxes.” Under ASC Topic 740, deferred tax liabilities or assets at the
end of each period are determined using the tax rate expected to be in effect
when taxes are actually paid or recovered. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.





We
continue to account for income taxcontingencies using a
benefit recognition model.Beginning January 1,
2007, if we considered that a tax position is 'more likely than not' of being
sustained upon audit, based solely on the technical merits of the position, we
recognize the benefit. We measure the benefit by determining the amount that is
greater than 50% likely of being realized upon settlement, presuming that the
tax position is examined by the appropriate taxing authority that has full
knowledge of all relevant information. These assessments can be complex and we
often obtain assistance from external advisors.


17


Under the
benefit recognition model, if our initial assessment fails to result in the
recognition of a tax benefit, we regularly monitor our position and subsequently
recognize the tax benefit if there are changes in tax law or analogous case law
that sufficiently raise the likelihood of prevailing on the technical merits of
the position to more likely than not; if the statute of limitations expires; or
if there is a completion of an audit resulting in a settlement of that tax year
with the appropriate agency.





Uncertain
tax positions, represented by liabilities on our balance sheet, are now
classified as current only when we expect to pay cash within the next 12 months.
Interest and penalties, if any, continue to be recorded in Provision for taxes
on income and are classified on the balance sheet with the related tax
liability.





Historically,
our policy had been to account for income tax contingencies based on whether we
determined our tax position to be 'probable' under current tax law of being
sustained, as well as an analysis of potential outcomes under a given set of
facts and circumstances. In addition, we previously considered all tax
liabilities as current once the associated tax year was under
audit.





Segment
information





The
Company believes that it operates in one business segment. Management views the
business as consisting of several revenue streams; however it is not possible to
attribute assets or indirect costs to the individual streams other than direct
expenses.





RESULTS
OF OPERATIONS





We
provide the following discussion and analyses of our changes in financial
condition and results of operations for the first quarter, 2010, with
comparisons to the first quarter, 2009.





Revenue





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





Three months ended March 31,2010
                      
                      
                      % to total
                      
                      
                      2009
                      
                      
                      % to total
                      
                      
                      % changeAgency
      sales
                      
                      $
                      3,771,921
                      
                      
                      
                      80
                      %
                      
                      $
                      727,714
                      
                      
                      
                      49
                      %
                      
                      
                      418
                      %Underwriting
      sales
                      
                      $
                      310,745
                      
                      
                      
                      7
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      N/AProperty
      management
                      
                      $
                      616,853
                      
                      
                      
                      13
                      %
                      
                      $
                      767,814
                      
                      
                      
                      51
                      %
                      
                      
                      (20
                      )%Net
      revenue
                      
                      $
                      4,699,519
                      
                      
                      
                      100
                      %
                      
                      $
                      1,495,528
                      
                      
                      
                      100
                      %
                      
                      
                      214
                      %





The net
revenue in the first quarter, 2010 was $4,699,519, which was an increase of 214%
from $1,495,528 in the first quarter, 2009. In the first quarter, 2010, agency
sales represented 80% of net revenue, underwriting sales represented 7% and
property management represented 13%.  In the first quarter, 2009,
agency sales represented 49% of net revenue and property management represented
51%. The increase in net revenue in the first quarter, 2010 was mainly due to
the increase in our agency sales.





Agency
sales





Agency
sales represented 80% of our net revenue in the first quarter, 2010 and net
revenue of agency sales in the first quarter, 2010 increased 418% compared with
same period in 2009. The primary reason for the increase was that in the first
quarter, of 2010,there were 7 more agency sales project than in the same period
in 2009. Of such new agency sales projects, 4 of such projects generated net
revenue of $2,357,937.





We are
seeking stable growth in our agency sales business in 2010. However, there can
be no assurance that we will be able to do so.


18





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 of $56.53 million.
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
are any unsold units on the expiration date of the agreement, then we may have
to purchase the unsold property units from the developer at the underwriting
price and hold them in our inventory or as investments.





We
started selling units in the Sovereign Building in January, 2005. As of December
31, 2006, we have achieved the sales target by selling 46,779 square meters with
a total sales price of $70.45 million. However, there are still unsold
properties with floor area of 314 square meters, which represents 1% of total
floor area underwritten, as of December 31, 2006. As of the end of February,
2007, we have sold or acquired all of the units in the building, and we have
achieved the sales target by selling 47,093 square meters with a total sales
price of $75.96 million.





The
Company accounts for underwriting sales in accordance with the FASB guidance of
ASC Topic 360, “Property, Plant and Equipment”. The commission revenue on
underwriting sales is recognized when the criteria in ASC 360 have been met,
generally when title is transferred and the Company no longer has substantial
continuing involvement with the real estate asset sold. If the Company provides
certain rent guarantees or other forms of support where the maximum exposure to
loss exceeds the gain, it defers the related commission income and expenses by
applying the deposit method. In future periods, the commission income and
related expenses are recognized when the remaining maximum exposure to loss is
reduced below the amount of income deferred. In early 2009, the Company
renegotiated the rental payments with buyers. As of March 31, 2010, 65% of the
buyers agreed upon the lowered rate and 22% of the buyers agreed to cancel the
leasing agreements. Based on the renegotiated agreements, $310,745 of the
deferred revenue on underwriting sales was recognized in the first quarter of
2010.





Property
Management





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. In regards to
the leasing agreements, we have negotiated with the 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%. As of March 31, 2010,
65% of the buyers agreed upon a lowered rate and 22% of the buyers agreed to
cancel the leasing agreements. 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. As of March 31, 2010, 104
sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 87% of total area with these lease
commitments.





We
anticipate that the income from sub-leasing will be on a stable growth trend in
2010 and that we will be able to cover our lease commitments. However there can
be no assurance that we will achieve these objectives.





Cost of
Revenue





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





Three months ended March 31,2010
                      
                      
                      % to total
                      
                      
                      2009
                      
                      
                      % to total
                      
                      
                      % changeAgency
      sales
                      
                      $
                      1,259,242
                      
                      
                      
                      62
                      %
                      
                      $
                      245,310
                      
                      
                      
                      20
                      %
                      
                      
                      413
                      %Underwriting
      sales
                      
                      $
                      72,653
                      
                      
                      
                      4
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      N/AProperty
      management
                      
                      $
                      684,817
                      
                      
                      
                      34
                      %
                      
                      $
                      984,961
                      
                      
                      
                      80
                      %
                      
                      
                      (31
                      )%Cost
      of revenue
                      
                      $
                      2,016,712
                      
                      
                      
                      100
                      %
                      
                      $
                      1,230,271
                      
                      
                      
                      100
                      %
                      
                      
                      64
                      %


19





The cost
of revenue in the first quarter, 2010 was $2,016,712, an increase of 64% from
$1,230,271 in the same period in 2009. In the first quarter, 2010, agency sales
represented 62% of cost of revenue, underwriting sales represented 4% and
property management represented 34%. In the first quarter, 2009, agency sales
represented 20% of cost of revenue and property management represented 80%. The
increase in cost of revenue in first quarter, 2010 was mainly due to the
increase in our agency sales.





Agency
sales





The cost
of revenue for agency sales in the first quarter, 2010 was $1,259,242, an
increase of 413% from $245,310 in the same period in 2009. This increase was
mainly due to the increase in our commissions and consulting fees in the first
quarter, 2010, compared to the same period in 2009, the increase of such
expenses was $567,154 and $263,843 respectively.





Underwriting
Sales





The cost
of underwriting sales represents selling costs, such as staff costs and
advertising expenses, associated with underwriting sales.





Property
management





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. In regards to
the leasing agreements, we have negotiated with the 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%. As of March 31, 2010,
65% of the buyers agreed upon the lowered rate and 22% of the buyers agreed to
cancel the leasing agreements. 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. As of March 31, 2010, 104
sub-leasing agreements have been signed, the area of these sub-leasing
agreements represented 87% of total area with these lease commitments. We
anticipate that these properties will be leased out in 2010; the gross
margin will be improved. However, no assurance can be given that this will be
the case.





In
connection with our leasing guarantees to third party buyers in the Sovereign
Building, an accrual for onerous contracts was recognized equal to the
difference between the present value of the sublease income and the present
value of the associated lease expense at the appropriate discount rate. The
accrual for onerous contracts was $20,420 as of March 31, 2010 and $39,360 as
of December 31, 2009.





Operating
Expenses





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





Three months ended March 31,2010
                      
                      
                      % to total
                      
                      
                      2009
                      
                      
                      % to total
                      
                      
                      % changeAgency
      sales
                      
                      $
                      337,655
                      
                      
                      
                      92
                      %
                      
                      $
                      146,720
                      
                      
                      
                      77
                      %
                      
                      
                      130
                      %Property
      management
                      
                      $
                      30,862
                      
                      
                      
                      8
                      %
                      
                      $
                      44,920
                      
                      
                      
                      23
                      %
                      
                      
                      (31
                      )%Operating
      expenses
                      
                      $
                      368,517
                      
                      
                      
                      100
                      %
                      
                      $
                      191,640
                      
                      
                      
                      100
                      %
                      
                      
                      92
                      %





The
operating expenses in the first quarter, 2010 were $368,517, an increase of 92%
from $191,640 in the same period in 2009. In the first quarter, 2010, agency
sales represented 92% of operating expenses and property management represented
8%. In the first quarter, 2009, agency sales represented 77% of operating
expenses and property management represented 23%.  The increase in
operating expenses in the first quarter of 2010 was mainly due to the increase
in our agency sales.


20





Agency
sales





The
operating expenses for agency sales in the first quarter, 2010 were $337,655
which increased 130% from $146,720 in the same period in 2009.  This
increase was mainly due to the increase in staff costs and consulting fees in
the first quarter, 2010, compared to the same period in 2009, the increase of
such expenses was $37,920 and $117,858 respectively.





Property
management





The
operating expenses for property management in the first quarter, 2010 were
$30,862, a decrease of 31% from $44,920 in the same period in
2009.  This decrease was mainly due to the decrease in staff costs and
commissions in the first quarter, 2010, compared to the same period in 2009, the
decrease of such expenses was $4,772 and $7,446 respectively.





General and Administrative
Expenses





The
general and administrative expenses in the first quarter, 2010 were $582,362, an
increase of 21% from $481,555 in the same period in 2009.  This
increase was mainly due to the increase in staff costs and consulting fees in
the first quarter, 2010, compared to the same period in 2009, the increase of
such expenses was $60,249 and $57,017 respectively.





Interest
Expenses





Interest
expenses in the first quarter, 2010 were $148,503 increasing 3% from $144,374 in
the same period in 2009. The interest expenses were mainly incurred for bank
loans and promissory notes payable.





LIQUIDITY
AND CAPITAL RESOURCES





In
2010, our
principal sources of cash were revenues from our agency sales and property
management business. Most of our cash resources were used to fund our revenue
related expenses, such as salaries and commissions paid to the sales force,
daily administrative expenses and the maintenance of regional offices, and the
repayments of our bank loans and promissory notes.





We ended
the period with a cash position of $2,287,972.





The
Company’s operating activities used cash in the amount of $366,321, which was
primarily attributable to the increase of our accounts receivables.





The
Company’s investing activities used cash resources of $361,121, which was
primarily attributable to the acquisition of property, plant and
equipment.





The
Company’s financing activities used cash resources of $430,093, which was
primarily attributable to the repayment of bank loan and promissory
notes.





The
potential cash needs for 2010 will be the repayments of our bank loans and
promissory notes, the rental guarantee payments and promissory deposits for
various property projects. The Company anticipates that cash flow from
operations will be sufficient to enable the Company to satisfy to refinance the
obligations which are due and to otherwise meet its ongoing cash needs. However,
there can be no assurance that the Company will be able to do so.





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 that are with terms satisfactory to management and our board of
directors.





OFF BALANCE SHEET
ARRANGEMENTS





The Company has no off-balance sheet
arrangements.


21


ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





A smaller
reporting company is not required to provide the information required by this
item.





ITEM
4.  CONTROLS AND PROCEDURES





Our Chief
Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of March 31, 2010.
Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were effective at March 31, 2010, to ensure that information required to be
disclosed in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized, and reported within the time periods
specified in Securities and Exchange Commission rules and forms. There were no
changes in our internal controls over financial reporting during the quarter
ended March 31, 2010, that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial
reporting.


22





PART
II - OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





The
Company is not a party to any legal proceedings of a material
nature.





ITEM
2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





None.





ITEM
3.   DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4.    (Removed and Reserved)





ITEM
5.   OTHER INFORMATION





None.




ITEM
6.  EXHIBITS




ExhibitNumber
                  
                  Description31.1
                  
                  Section
      302 Certification by the Corporation's Chief Executive
      Officer.31.2
                  
                  Section
      302 Certification by the Corporation's Chief Financial
      Officer.32.1
                  
                  Section
      1350 Certification by the Corporation's Chief Executive Officer and
      Corporation's Chief Financial
Officer.





SIGNATURES




In
accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




SUNRISE
REAL ESTATE GROUP, INC.





Date:
      May 15, 2010
                      
                      By:
      /s/ Lin, Chi-JungLin,
      Chi-Jung, Chief Executive OfficerDate:
      May 15, 2010
                      
                      By:
      /s/ Wang Wen-YanWang
      Wen-Yan, Chief Financial
Officer


23