**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**





**FORM
      10-QSB**





**[x]
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**


For
      the
      quarterly period ended September 30, 2006





**[
      ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**


For
      the
      transition period from __________ to __________


*Commission
      File Number 000-32585*





**SUNRISE
      REAL ESTATE GROUP, INC.**


(Exact
      Name of Small Business Issuer 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)





Issuer's
      telephone number: +  86-21-6422-0505





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


Yes
xNo
o





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act): Yes oNo x





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: November 10, 2006 - 23,001,614 shares of
      Common Stock





Transitional
      Small Business Disclosure Format (check one): Yes oNo x














**FORM
      10-QSB**




**For
      the Quarter Ended September 30, 2006**




**INDEX** ****


**Page**PART
                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.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
            
            
            24




2




**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1. F** **INANCIAL
      STATEMENTS**




**Sunrise
      Real Estate Group, Inc.**





**Consolidated
      Balance Sheets**


( Expressed
      in US Dollars)


**September
                  30,**
                **2006**
            
            **December
                  31,**
                **2005****(Unaudited)**ASSETSCurrent
                assetsCash
                and cash equivalents
            
            $
            878,637
            
            $
            855,588Accounts
                receivable
            
            
            3,139,678
            
            
            1,359,246Deposits
                for acquisition of properties (Note 7)
            
            
            592,539
            
            
            4,150,476Promissory
                deposits (Note 3)
            
            
            252,886
            
            
            247,924Amounts
                due from venturers (Note 10)
            
            
            1,896,949
            
            
            820,040Other
                receivables and deposits (Note 4)
            
            
            811,279
            
            
            168,709Total
                current assets
            
            
            7,571,968
            
            
            7,601,983Plant
                and equipment - net (Note 5)
            
            
            541,719
            
            
            531,458Deferred
                tax assets (Note 6)
            
            
            189,467
            
            
            144,333Deposits
                for acquisitions of properties (Note 7)
            
            
            12,869,620
            
            
            7,488,899Goodwill
            
            
            204,849
            
            
            187,783Total
                assets
            
            $
            21,377,623
            
            $
            15,954,456LIABILITIES
                AND SHAREHOLDERS’ EQUITYCurrent
                liabilitiesBank
                loans (Note 8)
            
            $
            1,385,556
            
            $
            1,073,650Promissory
                notes payable (Note 9)
            
            
            1,012,500
            
            
            1,123,962Accounts
                payable
            
            
            28,847
            
            
            73,522Amounts
                due to venturers (Note 10)
            
            
            2,072,810
            
            
            -Amount
                due to director (Note 11)
            
            
            176,813
            
            
            169,416Other
                payables and accrued expenses (Note 12)
            
            
            630,728
            
            
            1,914,622Other
                tax payable (Note 13)
            
            
            172,185
            
            
            158,439Income
                tax payable
            
            
            1,235,322
            
            
            511,700Total
                current liabilities
            
            
            6,714,761
            
            
            5,025,311Commitments
                and contingencies (Note 15)Long-term
                bank loans (Note 8)
            
            
            4,723,826
            
            
            5,306,506Minority
                interest
            
            
            261,619
            
            
            223,580Shareholders’
                equityCommon
                stock, par value $0.01 per share; 200,000,000 shares authorized;
                23,001,614 and 21,636,614 shares issued and outstanding as of September
                30, 2006 and December 31, 2006, respectively
            
            
            230,016
            
            
            216,366Additional
                paid-in capital
            
            
            2,922,997
            
            
            2,233,844Statutory
                reserve (Note 16)
            
            
            241,664
            
            
            241,664Retained
                earnings
            
            
            5,941,851
            
            
            2,559,836Accumulated
                other comprehensive income (Note 17)
            
            
            340,889
            
            
            147,349Total
                shareholders’ equity
            
            
            9,677,417
            
            
            5,399,059Total
                liabilities and shareholders’ equity
            
            $
            21,377,623
            
            $
            15,954,456





See
      accompanying notes to consolidated financial statements.




3




**Sunrise
      Real Estate Group, Inc.**





**Consolidated
      Statements of Operations**





(Expressed
      in US Dollars)


Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2006
            
            2005
            
            2006
            
            2005(Unaudited)Net
                revenue
            
            $
            2,760,874
            
            $
            1,978,409
            
            $
            12,715,223
            
            $
            6,206,707Cost
                of revenue
            
            
            (1,511,759
            )
            
            (759,297
            )
            
            (5,111,246
            )
            
            (2,017,725
            )Gross
                profit
            
            
            1,249,115
            
            
            1,219,112
            
            
            7,603,977
            
            
            4,188,982Operating
                expenses
            
            
            (259,381
            )
            
            (271,764
            )
            
            (697,128
            )
            
            (823,195
            )General
                and administrative expenses
            
            
            (720,890
            )
            
            (647,113
            )
            
            (2,071,733
            )
            
            (1,802,876
            )Operating
                profit
            
            
            268,844
            
            
            300,235
            
            
            4,835,116
            
            
            1,562,911Interest
                income
            
            
            2,478
            
            
            2,353
            
            
            5,559
            
            
            7,630Other
                income, net
            
            
            2,269
            
            
            13,084
            
            
            13,017
            
            
            66,743Interest
                expenses
            
            
            (137,202
            )
            
            (51,423
            )
            
            (393,955
            )
            
            (124,341
            )Profit
                before income tax and minority interest
            
            
            136,389
            
            
            264,249
            
            
            4,459,737
            
            
            1,512,943Income
                tax
            
            
            (149,933
            )
            
            (93,580
            )
            
            (1,045,457
            )
            
            (256,869
            )(Loss)/profit
                before minority interest
            
            
            (13,544
            )
            
            170,669
            
            
            3,414,280
            
            
            1,256,074Minority
                interest
            
            
            25,339
            
            
            (33,108
            )
            
            (32,265
            )
            
            (57,632
            )Net
                profit
            
            $
            11,795
            
            $
            137,561
            
            $
            3,382,015
            
            $
            1,198,442Earnings
                per share-
                basic and fully diluted
            
            $
            0.00
            
            $
            0.01
            
            $
            0.15
            
            $
            0.06Weighted
                average common shares outstanding-
                basic and fully diluted
            
            
            23,001,614
            
            
            21,636,614
            
            
            23,001,614
            
            
            21,636,614





See
      accompanying notes to 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)


**Nine
                Months Ended September 30,****2006**
            
            **2005****(Unaudited)****Cash
                flows from operating activities****Net
                income**
            
            $
            3,382,015
            
            $
            1,198,442Adjustments
                to reconcile net income tonet
                cash provided by/(used in) operating activitiesDepreciation
                of plant and equipment
            
            
            108,469
            
            
            98,559Loss
                on disposal of fixed assets
            
            
            2,108
            
            
            12,243Deferred
                tax credit
            
            
            (42,245
            )
            
            -Minority
                interest
            
            
            32,265
            
            
            57,632Change
                in:Accounts
                receivable
            
            
            (3,983,594
            )
            
            821,765Promissory
                deposits
            
            
            -
            
            
            126,865Other
                receivables and deposits
            
            
            (629,480
            )
            
            (37,617
            )Accounts
                payable
            
            
            (45,586
            )
            
            (191,172
            )Amounts
                with venturers
            
            
            992,247
            
            
            -Deferred
                commission income
            
            
            278,207
            
            
            -Other
                payables and accrued expenses
            
            
            (595,580
            )
            
            (1,274,960
            )Interest
                payable on promissory notes
            
            
            12,500
            
            
            -Interest
                payable on amount due to director
            
            
            7,397
            
            
            -Other
                tax payable
            
            
            10,446
            
            
            (86,702
            )Income
                tax payable
            
            
            704,710
            
            
            1,858**Net
                cash provided by operating activities**
            
            
            233,879
            
            
            726,913**Cash
                flows from investing activities**Acquisition
                of plant and equipment
            
            
            (110,335
            )
            
            (65,775
            )Proceeds
                from disposal of plant and equipment
            
            
            -
            
            
            4,777Deposits
                paid for acquisition of properties
            
            
            (2,085,936
            )
            
            (798,826
            )Refund
                of deposits paid for acquisition of properties
            
            
            2,488,916
            
            
            -Acquisition
                of equity interest in subsidiary
            
            
            (60,000
            )
            
            39,714**Net
                cash****provided
                by/(used in) investing activities**
            
            
            232,645
            
            
            (820,110
            )**Cash
                flows from financing activities**Bank
                loan obtained
            
            
            2,085,936
            
            
            (195,434
            )Bank
                loans repayment
            
            
            (2,479,572
            )
            
            -Repayment
                of promissory note
            
            
            (723,962
            )
            
            -Proceeds
                from promissory note
            
            
            600,000
            
            
            120,824Capital
                contribution from minority interest
            
            
            47,469
            
            
            12,082Advances
                from director
            
            
            -
            
            
            106,432**Net
                cash (used in)/provided by financing activities**
            
            
            (470,129
            )
            
            43,904**Effect
                of exchange rate changes on cash and cash
                equivalents**
            
            
            26,654
            
            
            1,521**Net
                increase/(decrease) in cash and cash equivalents**
            
            
            23,049
            
            
            (47,772
            )**Cash
                and cash equivalents at beginning of****period**
            
            
            855,588
            
            
            969,913**Cash
                and cash equivalents at end of period**
            
            $
            878,637
            
            $
            922,141**Supplemental
                disclosure of cash flow****information**Cash
                paid during the period:Income
                tax paid
            
            
            364,914
            
            
            253,679Interest
                paid
            
            
            381,455
            
            
            117,362Non-cash
                activities (Note 20)




See
      accompanying notes to consolidated financial statements.




5




**NOTES
      TO 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 (“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 holds 80% equity interest in SZXJY.





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.





SHXJY,
      SZXJY, BJXJY, SHSY and SZGFH commenced operations in November 2001, June 2004,
      January 2004, February 2004 and January 2005, respectively. Each of SXJY, SZXJY,
      BJXJY, SHSY and SZGFH has been granted a twenty-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.





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.





6




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.





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





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




**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 and present
      the
      financial statements of SRRE and its subsidiaries, CY-SRRE, LRY, SHXJY, SZXJY,
      BJXJY, SHSY and SZGFH. All inter-company transactions and balances have been
      eliminated.





**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, BJXJY, SHSY and SZGFH 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 SFAS 52. 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.





Exchange
      rate between US$ and RMB had a little fluctuation during the periods presented.
      The rates ruling as of September 30, 2006 and December 31, 2005 are US$1:
      RMB7.9087 and US$1: RMB8.067, respectively.





**Plant,
      Equipment and Depreciation**





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
            5





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.




7




**Use
      of Estimates**





The
      preparation of financial statements in accordance with generally accepted
      accounting principles requires the Company’s 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 revenue and expenses during the reporting
      period. Actual results could differ from those estimates.





**Advertising
      Costs**





All
      advertising costs incurred in the promotion of the Company’s real estate
      projects are expensed as incurred.





**Revenue
      Recognition**





Agency commission revenue from property brokerage is recognized when the property
      developer and the buyer complete a property sales transaction, which 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
      when
      we can confirm that the balance of the bank loan to the buyer has been approved,
      or recognized under the sales schedule of agency sales agreement with
      developer.





Commission
      revenue from underwriting service is recognized when the property developer
      and
      the buyer complete a property sales transaction, which is normally at the time
      when the property developer has confirmed that the predetermined level of sales
      proceeds have been received from buyers.





Revenue
      from marketing consultancy services is recognized when services are provided
      to
      clients.





**Net
      Earnings per Common Share**





The
      Company computes net earnings per share in accordance with SFAS No. 128,
“Earnings per Share.” Under the provisions of SFAS No. 128, 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 gives effect to 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 SFAS No. 109 “Accounting
      for Income Taxes.” Under SFAS No. 109, 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.





**Guarantees**





The
      Company accounts for its liability for its obligations under a guarantee in
      accordance with FASB Interpretation No. 45, (FIN45) Guarantor's Accounting
      and
      Disclosure Requirements for Guarantees, Including Direct Guarantees of
      Indebtedness of Others. FIN 45 requires that guarantors recognize a liability
      for certain guarantees at the fair value of the guaranteed obligation at the
      inception of the guarantee, even if the likelihood of performance under the
      guarantee is remote.





**Non-employee
      stock based compensation**





The
      cost
      of stock based compensation awards issued to non-employees for services are
      recorded at either the fair value of the services rendered or the instruments
      issued in exchange for such services, whichever is more readily determinable,
      using the measurement date guidelines enumerated in Emerging Issues Task Force
      Issue ("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services" ("EITF 96-18").





8




**NOTE
      3 - PROMISSORY DEPOSITS**





The
      balance includes the deposits of $252,886 placed with several property
      developers in respect of a number of real estate projects where the Company
      is
      appointed as sales agent.








**NOTE
      4 - OTHER RECEIVABLES AND DEPOSITS**





September
                  30, 2006
            
            December
                  31, 2005(unaudited)Advances
                to staff
            
            $
            255,954
            
            $
            13,322Rental
                deposits
            
            
            52,475
            
            
            54,580Prepayments
            
            
            133,417
            
            
            -Prepaid
                rental
            
            
            148,288
            
            
            -Other
                receivables
            
            
            221,145
            
            
            100,807$
            811,279
            
            $
            168,709








**NOTE
      5 - PLANT AND EQUIPMENT, NET**





September
                  30, 2006
            
            December
                  31, 2005(unaudited)Furniture
                and fixtures
            
            $
            59,411
            
            $
            57,811Computer
                and office equipment
            
            
            215,761
            
            
            182,867Motor
                vehicles
            
            
            619,001
            
            
            532,887894,173
            
            
            773,565Less:
                Accumulated depreciation
            
            
            (352,454
            )
            
            (242,107
            )$
            541,719
            
            $
            531,458








**NOTE
      6 - DEFERRED TAX ASSETS**





The
      components of deferred tax assets are as follows:





Tax
                effect on deferred commission income (Note 7)(unaudited)The
                balance of deferred tax assets on December 31, 2005
            
            $
            144,333Tax
                effect on deferred commission income for the period
            
            
            42,245Effect
                on change in exchange rate
            
            
            2,889The
                balance of deferred tax assets onSeptember30, 2006
            
            $
            189,467





9




**NOTE
      7 - DEPOSITS FOR ACQUISITION OF PROPERTIES**





September
                  30, 2006
            
            December
                  31, 2005(unaudited)Deposits
                paid for acquisition of properties
            
            $
            14,725,269
            
            $
            12,601,596Less:
                Deferred commission income from properties acquired
            
            
            (1,263,110
            )
            
            (962,221
            )$
            13,462,159
            
            $
            11,639,375





During
      the past two years, the Company entered into sales and purchase agreements
      to
      acquire two floors and nine units of a commercial building at an aggregate
      consideration of $14,725,269, which is under development in Suzhou, the PRC.
      As
      of September 30, 2006, all the deposits have been paid to the property
      developer. As the Company acts as that property developer’s sole distribution
      agent and earns commission income, the corresponding commission income of
      $1,263,110 generated from the properties purchased by the Company was therefore
      deferred and offset against the deposits paid. The properties under development
      were completed on March 31, 2006, and title to these properties has not been
      transferred to the Company as of September 30, 2006. The Company decided that
      three units will be held for sale, one floor will be held for the Company’s own
      use, and the remaining properties will be held for long-term investment
      purposes. Accordingly, deposits of $849,009 paid for the properties available
      for sale were classified as current assets.








**NOTE
      8 - BANK LOANS**





Bank
      loans are guaranteed by the property developer mentioned in Note 7 above, bear
      interest at prevailing rates ranging from 5.85% to 6.435% per annum, and are
      repayable within five years by monthly installments. The bank loans will be
      secured by the properties as mentioned in Note 7 above when the title of the
      properties is transferred to the Company.








**NOTE
      9 - PROMISSORY NOTES PAYABLE**





The
      balance includes a promissory note of $400,000 and accrued interest of $5,000
      thereon. The promissory note of $400,000 bears interest at a rate of 5% per
      annum. The promissory note is unsecured and the term of repayment is not
      specifically defined .





The
      balance includes a promissory note of $300,000 and accrued interest of $3,750
      thereon. This promissory note of $300,000 bears interest at a rate of 5% per
      annum. This promissory note is unsecured and the term of repayment is not
      specifically defined .





The
      balance includes another promissory note of $300,000 and accrued interest of
      $3,750 thereon. This promissory note of $300,000 bears interest at a rate of
      15%
      per annum. This promissory note is unsecured and will be repayable before
      December 27, 2006 .








**NOTE
      10 - AMOUNTS DUE FROM/TO VENTURERS**





The
      Company has entered into co-operation agreements with two venturers (one of
      them
      is an independent third party; the other is the Company’s ex-director, Chang
      Shu-Ching) to jointly carry out a property underwriting project for a commercial
      building under development in Suzhou, the PRC. According to the agreements,
      the
      Company, Chang Shu-Ching and the other venturer are entitled to share 65%,
      10%
      and 25% of the net results of the project, respectively.





10




**NOTE
      11 - RELATED PARTY**





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 director


Prior
      to
      April 25, 2005, the amount due to one of the directors was interest-free.
      Thereafter, the amount due to this director has borne interest at a rate of
      9.6%
      per annum. As of September 30, 2006, the balance includes principal of $159,026
      and accrued interest of $17,787 thereon. The principal is unsecured and the
      term
      of repayment is not specifically defined .






**NOTE
      12 - OTHER PAYABLES AND ACCRUED EXPENSES**





September
                  30,
                2006
            
            December
                  31,
                2005(unaudited)Accrued
                staff commission & bonus
            
            $
            304,007
            
            $
            1,022,333Accrued
                consulting services fees
            
            
            -
            
            
            693,600Rental
                deposits received
            
            
            149,858
            
            
            -Other
                payables
            
            
            176,863
            
            
            198,689$
            630,728
            
            $
            1,914,622








**NOTE
      13 - OTHER TAX PAYABLE**





Other
      tax
      payable represents PRC business tax which is charged at a rate of 5% on the
      revenue from services rendered.






**NOTE
      14 - EARNINGS PER COMMON SHARE**





Basic
      earnings per common share is computed by dividing net income to common
      stockholders by the weighted average number of common shares outstanding for
      the
      period. Diluted earnings per share includes the effect of our outstanding
      warrants, if including such instruments is dilutive.





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2006
            
            2005
            
            2006
            
            2005Weighted
                average shares outstanding used to compute basic earnings per
                share
            
            
            23,001,614
            
            
            21,636,614
            
            
            23,001,614
            
            
            21,636,614Diluted
                effect of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                weighted average shares of dilutive securities outstanding used to
                compute
                diluted earnings per share
            
            
            23,001,614
            
            
            21,636,614
            
            
            23,001,614
            
            
            21,636,614





For
      the
      three months and the nine months ended September 30, 2006, 15,000 common
      shares potentially issuable under our warrants were excluded from diluted
      weighted average shares outstanding as their effects were anti-dilutive
      (i.e., increased the net income per share)  .





11




**NOTE
      15- COMMITMENTS AND CONTINGENCIES**





Operating
      Lease Commitments





During
      the nine months ended September 30, 2006
      and 2005, the Company incurred lease expenses amounting to $233,481 and
      $249,942, respectively. As of September 30, 2006, the Company had commitments
      under operating leases, requiring annual minimum rentals as
      follows:





September30,
                2006
            
            December
                  31,
                2005(unaudited)Within
                one year
            
            $
            145,734
            
            $
            183,816Two
                to five years
            
            
            -
            
            
            46,169Operating
                lease commitments
            
            $
            145,734
            
            $
            229,985





In
      order
      to distribute the properties of the property underwriting project mentioned
      in
      Note 7 above, during the year of 2005, the Company launched a promotional
      package by entering into leasing agreements with certain buyers to lease the
      properties for them. In accordance with the leasing agreements, the owners
      of
      the properties can enjoy an annual rental return of 8.5% and 8.8% per annum
      for
      a period of 5 years and 8 years, respectively. The leasing period started in
      the
      second quarter, 2006, and the Company has the right to sublease the leased
      properties to cover these lease commitments in the leasing period. As of September 30,
      2006, 29 sub-leasing agreements have been signed, the area of these sub-leasing
      agreements represented 27% of total area under these lease
      commitments.





As
      of
      September 30, 2006, the lease commitments under the above promotional package
      are as follows:





September30,
                2006
            
            December
                  31,
                2005(unaudited)Within
                one year
            
            $
            2,803,857
            
            $
            1,630,983Two
                to five years
            
            
            9,602,361
            
            
            9,210,256Over
                five years
            
            
            2,891,495
            
            
            4,216,715Operating
                lease commitments arising from the promotional package
            
            $
            15,297,713
            
            $
            15,057,954





According
      to the leasing agreements, the Company has an option to terminate any agreement
      by paying a predetermined amount of compensation. As of September 30, 2006,
      the
      compensation to terminate all leasing agreements is $3,325,579. As of September
      30, 2006, the management of the Company considers that no provision should
      be
      made for the Company’s obligations under the foregoing guarantees.





Other
      commitments





One
      of
      the buyers of the properties of the property underwriting project mentioned
      above appointed the Company as an agent to sell the properties held by him.
      As
      of September 30, 2006, the Company has sold 30% of total area of these
      properties at a consideration of $1,423,142. In accordance with this agreement
      with the buyer, the Company must sell the remaining properties on or before
      November 30, 2006; otherwise, the Company has to acquire the properties at
      a
      consideration of $3,605,435 or pay compensation of $849,032 to the buyer. We
      expect we can sell out all these properties on or before November 30, 2006.








**NOTE
      16 - STATUTORY RESERVE**





According
      to the relevant corporation laws in the PRC, a PRC company is required to
      transfer a 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
      17 - ACCUMULATED OTHER COMPREHENSIVE INCOME**





As
      of September 30,
      2006, the only component of accumulated other comprehensive income was
      translation reserve.




12




**NOTE
      18 - WARRANTS**





On
      June
      15, 2006, the Company entered into a Placement Agent Agreement (the “Placement
      Agent Agreement”) with Midtown Partners & Co., LLC (“Midtown”) whereby the
      Company engaged Midtown as the Company’s exclusive placement agent, for a four
      month period expiring on October 14, 2006. Upon execution of the Placement
      Agent
      Agreement, the Company issued to Midtown as an engagement fee 5,000 unregistered
      shares of common stock and 15,000 underlying warrants. The warrants were issued
      with an exercise price of $2.25 per share with a 5-year term from issuance
      and
      valued at $203. The
      warrants are considered an equity instrument, and all ot her
      criteria in EITF 00-19 required for the instrument to be accounted for as
      an equity instrument have been fulfilled.








**NOTE
      19 - CONCENTRATION OF CUSTOMERS**





During
      the three months and nine months ended September 30, 2006 and 2005,
      respectively, the following customer accounted for more than 10% of total net
      revenue:





Percentage
                of
              Net
                Sales
              Three
                Months
              EndedSeptember30,
            
            Percentage
                of
              Net
                Sales
              Nine
                Months
              EndedSeptember30,
            
            Percentage
                of
              Accounts
                Receivable
              as
                ofSeptember30,2006
            
            2005
            
            2006
            
            2005
            
            2006
            
            2005Customer
                A
            
            
            31
            %
            
            13
            %
            
            68
            %
            
            32
            %
            
            82
            %
            
            65
            %Customer
                B
            
            
            18
            %
            
            *
            
            
            *
            
            
            *
            
            
            *
            
            
            *Customer
                C
            
            
            *
            
            
            24
            %
            
            *
            
            
            15
            %
            
            *
            
            
            *Customer
                D
            
            
            *
            
            
            12
            %
            
            *
            
            
            12
            %
            
            *
            
            
            17
            %Customer
                E
            
            
            *
            
            
            11
            %
            
            *
            
            
            11
            %
            
            *
            
            
            *





*
      less
      than 10%








**NOTE
      20 - NON-CASH ACTIVITIES**





During
      the nine months ended September 30, 2006, deposits for the acquisition of
      properties were settled by the accounts receivable from the property developer
      from whom the properties were acquired, and accrued consulting services fees
      were settled by the issuance of common stock.





The
      non-cash financial information is as follows:





Nine
                months
              Ended
              September30,
              2006Deposits
                for acquisition of properties
            
            $
            2,251,676Accrued
                consulting services fees
            
            
            702,803$
            2,954,479**Satisfied
                by:**Accounts
                receivable
            
            $
            2,251,676Issuance
                of common stock
            
            
            702,803$
            2,954,479





13





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





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





**OVERVIEW**





In
      October 2004, the former shareholders of Sunrise Real Estate Development Group,
      Inc. (Cayman Islands) (“CY-SRRE”) and LIN RAY YANG Enterprise Ltd. (“LRY”)
      acquired a majority of our voting interests in a merger, and the transaction
      was
      treated as a reverse acquisition, with CY-SRRE and LRY treated as the acquirer
      for accounting purposes. Before the completion of the merger, 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 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
      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”), and Suzhou Gao Feng Hui Property
      Management Company Limited (“SZGFH”) 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, property
      leasing services and property management services in the PRC .








**RECENT
      DEVELOPMENTS**





Before
      2004, our major business was an agency business, whereby our only subsidiary
      then, SHXJY, contracted with property developers to market and sells their
      newly
      developed property units; in return we earned a commission fee calculated as
      a
      percentage of the sales price. SHXJY has focused its sales on the whole China
      market, especially at the secondary city level. To expand our agency business,
      SHXJY has established branches in NanChang, YangZhou, ZhenJiang, NanJing and
      ChongQing; subsidiaries in Suzhou and Beijing; and we also plan to establish
      a
      new subsidiary in Suzhou, named Suzhou Shangyang Real Estate Agency Co., Ltd.
      (“SZSY”). Because of our diverse market locations, our performance did not
      decline in the first three quarters of 2006 under the current macro economic
      policies, and we plan to continue this stable growth trend in 2006. Our business
      operations in SHXJY have demonstrated revenue growth in 2006.





In
      2004,
      through another subsidiary, SHSY, we ventured into a higher risk business model
      (the “Underwriting Model”) whereby our commission was not calculated as a
      percentage of the sales price. Instead, our commission revenue is equal to
      the
      price difference between the final sales price and the underwriting price.
      In
      this model, we negotiate with the developer for an underwriting price that
      is as
      low as possible, with the guarantee that all units will be sold by a specific
      date. In return, we have the flexibility to establish the final sales price,
      and
      earn the price difference between the final sales price and the underwriting
      price. The risk in this kind of agreement is that, if there are any unsold
      units
      on the expiry date, we may have to absorb the unsold units from developers
      at
      the underwriting price, and hold these units in our inventory or as
      investments.





14




SHSY
      has
      entered into a Property Underwriting Agreement with an independent property
      developer to underwrite the Sovereign Building Project, a commercial building
      located in the Suzhou Industry Park in Suzhou, PRC, at a fixed underwriting
      price. Being
      the
      sole distribution agent for the foregoing office building, SHSY committed
      to a sales target of $52.21 million, we started selling units in the building
      in
      December 2004, and as of September 30, 2006, we achieved the sales target by
      selling 46,223 square meters with a total sales price of $68.91 million. The
      properties under development were completed on March 31, 2006, and title to
      the
      properties has been transferred to the respective buyers. However,
      there are still unsold properties with floor area of 869 square meters, which
      represents 2% of total floor area underwritten, as of September 30, 2006. We
      plan
      to sell the unsold properties out in the fourth quarter of 2006.





For
      the
      past two years, we have also made some property investments in Suzhou by
      acquiring two floors and nine units of the aforesaid building at an aggregate
      consideration of $14,725,269. The Company decided that three units will be
      held
      for sale, one floor will be held for the Company’s own use, and the remaining
      properties will be held for long-term investment purpose. As of September 30,
      2006, all the deposits have been paid to the property developer. The properties
      under development have been completed on March 31, 2006, and the title of these
      properties has not been transferred to the Company as of September 30, 2006.
      We
      also plan to sell out three units under current assets in the fourth quarter
      of
      2006.





In
      order
      to distribute all the properties of the aforesaid property underwriting project,
      during the year of 2005, SZGFH launched a promotional package by entering into
      leasing agreements with certain buyers to lease the properties for them. In
      accordance with the leasing agreements, the owners of the properties can enjoy
      an annual rental return at 8.5% and 8.8% per annum for a period of 5 years
      and 8
      years, respectively. The leasing period started in the second quarter, 2006,
      and
      as of September 30, 2006, 29 sub-leasing agreements have been signed. The area
      of these sub-leasing agreements represents 27% of total area under these lease
      commitments. As of October 20, 2006, 35 sub-leasing agreements have been signed,
      the area of these sub-leasing agreements represent 30% of total area under
      these
      lease commitments. We expect the income from the sub-leasing business will
      cover
      the lease commitments for the leasing period as a whole.








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





In
      addition to historical information, this Form 10-QSB contains forward-looking
      statements. Forward-looking statements are based on our current beliefs and
      expectations, information currently available to us, estimates, projections
      about our industry, and certain assumptions made by our management. These
      statements are not historical facts. We use words such as "anticipates",
      "expects", "intends", "plans", "believes", "seeks", "estimates", and similar
      expressions to identify our forward-looking statements, which include, among
      other things, our anticipated revenue and cost of our agency and investment
      business.





Because
      we are unable to control or predict many of the factors that will determine
      our
      future performance and financial results, including future economic,
      competitive, and market conditions, our forward-looking statements are not
      guarantees of future performance. They are subject to risks, uncertainties,
      and
      errors in assumptions that could cause our actual results to differ materially
      from those reflected in our forward-looking statements. We believe that the
      assumptions underlying our forward-looking statements are reasonable. However,
      you should not place undue reliance on these forward-looking statements. They
      only reflect our view and expectations as of the date of this Form 10-QSB.
      We
      undertake no obligation to publicly update or revise any forward-looking
      statement in light of new information, future events, or other
      occurrences.





There
      are
      several risks and uncertainties, including those relating to our ability to
      raise money and grow our business and potential difficulties in integrating
      new
      acquisitions with our current operations, especially as they pertain to foreign
      markets and market conditions. These risks and uncertainties can materially
      affect the results predicted. The Company’s future operating results over both
      the short and long term will be subject to annual and quarterly fluctuations
      due
      to several factors, some of which are outside our control. These factors include
      but are not limited to fluctuating market demand for our services, and general
      economic conditions.





15





**RECENTLY
      ISSUED ACCOUNTING STANDARDS**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued a
      revision of Statement of Financial Accounting Standard (“SFAS”) No. 123, (“SFAS
      123R”) “Accounting for Stock-Based Payment”. This Statement supersedes APB
      Opinion No. 25, Accounting for Stock Issued to Employees, and its related
      implementation guidance. SFAS 123R establishes standards for the accounting
      for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity, equity instruments or that may be settled by the issuance of those
      equity instruments. SFAS 123R focuses primarily on accounting for transactions
      in which an entity obtains employee services in share-based payment
      transactions. SFAS 123R does not change the accounting guidance for share-based
      payment transactions with parties other than employees provided in SFAS 123
      as
      originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments
      That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services”. SFAS 123R does not address the accounting for
      employee share ownership plans, which are subject to AICPA Statement of Position
      93-6, “Employers Accounting for Employee Stock Ownership Plans.” For small
      business issuers, SFAS 123R is effective for fiscal years beginning after
      December 15, 2005. The adoption of SFAS 123R has no material impact on our
      financial statements.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
      clarifies the accounting for uncertainty in income taxes in an enterprise’s
      financial statements in accordance with SFAS 109. FIN 48 provides a recognition
      threshold and measurement attribute for the financial statement recognition
      and
      measurement of a tax position taken or expected to be taken in a tax return.
      The
      interpretation also provides guidance on de-recognition, classification,
      interest and penalties, accounting in interim periods, disclosure, and
      transition. FIN 48 is effective for fiscal years beginning after December 15,
      2006, although earlier application of the provisions of the interpretation
      is
      encouraged. The Company has not yet determined what the implications of its
      adoption, if any, will be on the consolidated financial position or results
      of
      operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosure requirements regarding fair value measurement.
      This statement simplifies and codifies fair value related guidance previously
      issued and is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. The Company does not believe that SFAS No. 157 will significantly impact
      its financial statements.




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on the
      consideration of the effects of prior year unadjusted errors in quantifying
      current year misstatements for the purpose of a materiality assessment. SAB
      108
      requires registrants to apply the new guidance the first time that it identifies
      material errors in existence at the beginning of the first fiscal year ending
      after November 15, 2006 by correcting those errors through a one-time cumulative
      effect adjustment to beginning-of-year retained earnings. The Company does
      not
      believe that SAB 108 will significantly impact its financial
      statements.








**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 impairment of
      goodwill, accounting for income taxes and revenue recognition.





16




**Goodwill**





SFAS
      No.
      142, “Goodwill and Other Intangible Assets,” 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.





**Income
      Taxes**





SFAS
      No.
      109, “Accounting for Income Taxes,” establishes financial accounting and
      reporting standards for the effect of income taxes. The objectives of accounting
      for income taxes are to recognize the amount of taxes payable or refundable
      for
      the current year and deferred tax liabilities and assets for the future tax
      consequences of events that have been recognized in an entity’s financial
      statements or tax returns. Judgment is required in assessing the future tax
      consequences of events that have been recognized in our financial statements
      or
      tax returns. Variations in the actual outcome of these future tax consequences
      could materially impact our financial position or results of our
      operations.





**Revenue
      Recognition**





Agency
      commission revenue from property brokerage is recognized when the property
      developer and the buyer complete a property sales transaction, which 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 when we can confirm that the balance of the bank loan to the
      buyer
      has been approved, or recognized under the sales schedule of agency sales
      agreement with developer.





Commission
      revenue from underwriting service is recognized when the property developer
      and
      the buyer complete a property sales transaction, which is normally at the time
      when the property developer has confirmed that the predetermined level of sales
      proceeds have been received from buyers.





Revenue
      from marketing consultancy services is recognized when services are provided
      to
      clients.





**Warrants**





During
      the third quarter of 2006, we adopted EITF 96-18. Accordingly, we have expensed
      the cost for the warrants
      issued for services at either the fair value of the services rendered or the
      fair value at the warrant grant dates.





17




**RESULTS
      OF OPERATIONS**





We
      provide the discussion and analysis of our changes in financial condition and
      results of operations for the three and nine months ended September 30, 2006,
      with comparisons to the historical three and nine months ended September 30,
      2005.





**Revenue**





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





Three
                Months Ended September 30,
            
            Nine
                Months Ended September 30,2006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                change
            
            2006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                changeAgency
                sales
            
            
            1,859,642
            
            
            67.4
            
            
            1,713,609
            
            
            87
            
            
            9
            
            
            4,362,515
            
            
            34.3
            
            
            4,196,603
            
            
            68
            
            
            4Underwriting
                sales
            
            
            876,438
            
            
            31.7
            
            
            264,800
            
            
            13
            
            
            231
            
            
            8,322,479
            
            
            65.5
            
            
            2,010,104
            
            
            32
            
            
            314Property
                Management
            
            
            24,794
            
            
            0.9
            
            
            -
            
            
            -
            
            
            n/a
            
            
            30,229
            
            
            0.2
            
            
            -
            
            
            -
            
            
            n/aNet
                revenue
            
            
            2,760,874
            
            
            100
            
            
            1,978,409
            
            
            100
            
            
            40
            
            
            12,715,223
            
            
            100
            
            
            6,206,707
            
            
            100
            
            
            105





The
      net
      revenue of the third quarter, 2006 was $2,760,874, which increased 40% from
      $1,978,409 of the third quarter, 2005. The total net revenue of the first three
      quarters of 2006 was $12,715,223, which increased 105% from $6,206,707 of the
      first three quarters of 2005. In the third quarter of 2006, agency sales
      represented 67.4% of the total net revenue, underwriting sales represented
      31.7%
      and property management represented 0.9%. In the first three quarters of 2006,
      agency sale represented 34.3% of the total net revenue, underwriting sales
      represented 65.5% and property management represented 0.2%. The increase in
      net
      revenue in the third quarter and first three quarters, 2006 was mainly due
      to
      the increase in our underwriting sales revenues.





Agency
      sales





In
      the
      third quarter and first three quarters of 2006, 67.4% and 34.3%, respectively,
      of our net revenue was due to agency sales, which were from the business
      activities of SHXJY and its subsidiaries. As compared with same period in 2005,
      net revenue of agency sales in the third quarter and first three quarters of
      2006 increased 9% and 4% respectively.





The
      main
      reasons for the increase in the third quarter and first three quarters of 2006
      were:





i)
            In
                the first three quarters of 2006, there were 31 agency sales projects
                that
                contributed net revenue to the Company, compared with 25 projects
                in the
                same period in 2005.





ii)
            The
                net revenue of SZXJY and its branch increased 40% in the first three
                quarters of 2006, as compared to the same period in
                2005.





iii)
            SHXJY
                successfully closed a project in the third quarter of 2006, and
                contributed net revenue of $850,091 to the
                Company.





Because
      of our diverse market location and our professional performance in our agency
      sales business, the current macro economic policies have had little impact
      on
      our agency sales performance. We have kept this stable growth trend in our
      agency sales business in 2006.





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 the foregoing office building, SHSY committed
      to a sales target of $52.21 million. Property underwriting sales is
      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 as low as possible, with the condition that we guarantee
      all
      unsold units will be acquired within a certain period. In return, we are given
      the flexibility to establish the final selling price and earn the price
      difference between the final selling price and the underwriting price. The
      risk
      of this kind of arrangement is that, if there is any unsold unit upon the expiry
      period, we may have to absorb the unsold property units from developers at
      the
      underwriting price and hold them in our inventory or as an
      investment.





We
      started selling units in the building in December, 2004, and as of September
      30,
      2006, we have achieved the sales target by selling 46,223 square meters with
      a
      total sales price of $68.91 million and this underwriting project has
      contributed a total net revenue of $12,861,237 to the Company. However, there
      are still unsold properties with floor area of 869 square meters, which
      represents 2% of total floor area underwritten, as of September 30, 2006. We
      expect
      we can sell the unsold properties out in the fourth quarter of 2006. As we
      approach the completion of this project, the property developer will gradually
      receive all sales proceeds from the buyers; at that time, we can recognize
      the
      total underwriting sales revenue of this project.





Property
      Management





In
      order
      to distribute all the properties of the aforesaid underwriting project, during
      the year of 2005, SZGFH launched a promotional package by entering into leasing
      agreements with certain buyers to lease the properties for them. The leasing
      period started in the second quarter of 2006, and in the leasing period SZGFH
      has the right to sublease the leased properties to earn the rental income.
      As of
      September 30, 2006, 29 sub-leasing agreements have been signed, the area of
      these sub-leasing agreements represented 27% of total area under these leasing
      agreements. We expect the income from the sub-leasing business can keep a stable
      growth trend in 2006 and can cover the lease commitments in the leasing period
      as a whole.





**Cost
      of Revenue**





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





Three
                Months Ended September 30,
            
            Nine
                Months Ended September 30,2006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                change
            
            2006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                changeAgency
                sales
            
            
            808,753
            
            
            54
            
            
            666,049
            
            
            88
            
            
            21
            
            
            1,889,946
            
            
            37
            
            
            1,595,552
            
            
            79
            
            
            18Underwriting
                sales
            
            
            65,417
            
            
            4
            
            
            93,248
            
            
            12
            
            
            (30
            )
            
            2,317,114
            
            
            45
            
            
            422,173
            
            
            21
            
            
            449Property
                Management
            
            
            637,589
            
            
            42
            
            
            -
            
            
            -
            
            
            n/a
            
            
            904,186
            
            
            18
            
            
            -
            
            
            -
            
            
            n/aCostof
                revenue
            
            
            1,511,759
            
            
            100
            
            
            759,297
            
            
            100
            
            
            99
            
            
            5,111,246
            
            
            100
            
            
            2,017,725
            
            
            100
            
            
            153





The
      cost
      of revenue for the third quarter of 2006 was $1,511,759, which increased 99%
      from $759,297 for the third quarter of 2005. The total cost of revenue for
      the
      first three quarters of 2006 was $5,111,246, which increased 153% from
      $2,017,725 for the first three quarters of 2005. In the third quarter of 2006,
      agency sales represented 54% of the total cost of revenue, underwriting sales
      represented 4% and property management represented 42%. In the first three
      quarters of 2006, agency sale represented 37% of the total cost of revenue,
      underwriting sales represented 45% and property management represented 18%.
      The
      increase in cost of revenue in the third quarter and first three quarters of
      2006 was mainly due to the increase in our underwriting sales and property
      management.





Agency
      sales





The
      cost
      of revenue for agency sales in the third quarter and first three quarters of
      2006 increased 21% and 18%, respectively, from the same period in 2005. The
      primary reason was the increase of cost of revenue of SZXJY and its branch
      in
      2006, as the net revenue of SZXJY and its branch in the first three quarters
      of
      2006 increased 40% from the same period in 2005, the cost of revenue of SZXJY
      and its branch increased 83% relatively to support the increase of net
      revenue.




19




Underwriting
      sales





The
      Company has entered into co-operation agreements with two venturers to jointly
      carry out the underwriting project mentioned above. According to the agreements,
      the venturers are entitled to share 35% of the net results of the underwriting
      project.





A
      significant factor contributing to the increase of the cost of underwriting
      sales was that in the first three quarters of 2006, we recognized the profit
      sharing as the cost of the underwriting project of $2,047,618, which represented
      88% of total underwriting sales cost in the first three quarters of 2006, and
      there was no such cost in the same period of 2005.





Property
      Management





In
      order
      to distribute all the properties of the aforesaid underwriting project, during
      the year of 2005, SZGFH launched a promotional package by entering into leasing
      agreements with certain buyers to lease the properties for them. In accordance
      with the leasing agreements, the owners of the properties can enjoy an annual
      rental return at 8.5% and 8.8% per annum for a period of 5 years and 8 years,
      respectively. The leasing period started in the second quarter, 2006, and we
      recognized the rental return under these leasing agreements as our cost in
      the
      second and third quarter of 2006.





**Operating
      Expenses**





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





Three
                Months Ended September 30, 2006
            
            Nine
                Months Ended September 30, 20062006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                change
            
            2006
            
            %
                to total
            
            2005
            
            %
                to total
            
            %
                changeAgency
                sales
            
            
            204,325
            
            
            79
            
            
            248,806
            
            
            92
            
            
            (18
            )
            
            602,689
            
            
            87
            
            
            746,928
            
            
            90
            
            
            (19
            )Underwriting
                sales
            
            
            18,460
            
            
            7
            
            
            17,510
            
            
            6
            
            
            5
            
            
            50,567
            
            
            7
            
            
            70,819
            
            
            9
            
            
            (29
            )Property
                Management
            
            
            36,596
            
            
            14
            
            
            5,448
            
            
            2
            
            
            572
            
            
            43,872
            
            
            6
            
            
            5,448
            
            
            1
            
            
            705Operating
                Expenses
            
            
            259,381
            
            
            100
            
            
            271,764
            
            
            100
            
            
            (5
            )
            
            697,128
            
            
            100
            
            
            823,195
            
            
            100
            
            
            (15
            )





The
      operating expenses for the third quarter of 2006 were $259,381, which decreased
      5% from $271,764 for the third quarter of 2005. The total operating expenses
      for
      the first three quarters of 2006 were $697,128, which decreased 15% from
      $823,195 for the first three quarters of 2005. In the third quarter of 2006,
      agency sales represented 79% of the total operating expenses, underwriting
      sales
      represented 7% and property management represented 14%. In the first three
      quarters of 2006, agency sale represented 87% of the total operating expenses,
      underwriting sales represented 7% and property management represented 6%. This
      decrease was mainly due to our efficient cost control performed in the Company.





Agency
      sales





The
      operating expenses for agency sales in the first three quarters of 2006
      decreased 19% from the same period in 2005. This decrease was mainly due to
      the
      decrease in the staff cost and travel expenses of SHXJY and its subsidiaries
      and
      branches in the first three quarters of 2006; comparing to the same period
      in
      2005, the decrease of such expenses was $112,718.





Underwriting
      sales





The
      operating expenses for underwriting sales in the first three quarters of 2006
      decreased 29% from the same period in 2005. This decrease was mainly due to
      the
      decrease in the staff cost, travel expenses and official expenses of SHSY in
      the
      first three quarters of 2006; comparing to the same period in 2005, the decrease
      of such expenses was $19,403.





20




Property
      management





The
      operating expenses for property management in the first three quarters of 2006
      increased 705% from the same period in 2005. This increase was mainly due to
      the
      increase in the agency commissions of SZGFH in the first three quarters of
      2006;
      comparing to the same period in 2005, the increase of such expenses was $25,079.
      With the continued development of SZGFH, the operating expenses will be
      increased to support the business of property management.





**General
      and Administrative Expenses**





The
      general and administrative expenses in the third quarter of 2006 were $720,890,
      increasing 11% from $647,113 in the third quarter of 2005. The general and
      administrative expenses in the first three quarters of 2006 were $2,071,733,
      increasing 15% from $1,802,876 in the first three quarters of 2005. The increase
      in general and administrative expenses was mainly due to:





i)
            The
                increase in professional fees for the maintenance of the Company’s listing
                status, e.g., audit, legal and other professional fees in the first
                three
                quarters of 2006; comparing to the same period in 2005, the increase
                of
                such expenses was $122,529.





ii)
            The
                expansion of our agency sales business to diversified market locations
                also increased the general and administrative expenses of agency
                sales
                business in the first three quarter of 2006; compared to the same
                period
                in 2005, the increase of such expenses was $95,934.





iii)
            SZGFH
                launched its business in the second quarter of 2006, which also increased
                the general and administrative expenses of SZGFH in the first three
                quarter of 2006; compared to the same period in 2005, the increase
                of such
                expenses was $35,238.





**Interest
      Expenses**





Interest
      expenses in the third quarter of 2006 were $137,202, increasing 167% from
      $51,423 in the same period in 2005. Interest expenses in the first three
      quarters of 2006 were $393,955, increasing 217% from $124,341 in the same period
      in 2005. The interest expenses were mainly incurred for bank loans and
      promissory notes payable. The increase was mainly due to increases in interest
      on bank loans for the acquisition of properties.





**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company meets its working capital and capital investment requirements mainly
      by
      using operating cash flows and, to a limited extent, bank loans.





Our
      accounts receivable balance at September 30, 2006 was $3,139,678.





We
      ended
      the period with a cash position of $878,637. We had positive operating cash
      flow
      of $233,879. This was primarily attributable to the increase in amount with
      venturers.





The
      Company’s investing activities provided cash resources of $232,645 for the nine
      months ended September 30, 2006, which was mainly devoted to the refund of
      deposits paid for acquisition of properties.





The
      Company’s financing activities used cash resources of $470,129 for the nine
      months ended September 30, 2006, which was primarily attributable to the
      repayment of bank loans and promissory notes.





We
      anticipate that our current available funds, cash inflows from providing
      property agency services and underwriting services and sales proceeds from
      disposal of properties acquired will be sufficient to meet our anticipated
      needs
      for working capital expenditures, business expansion and the potential cash
      needs through 2006. We also expect SZGFH can contribute cash flow to the Company
      as it started its property management business in the second quarter of 2006.





21




We
      also
      plan to raise additional funds in the future in order to fund acquisitions,
      develop new projects, or if our business otherwise grows more rapidly than
      we
      currently predict, through the issuance of additional shares of our equity
      securities in one or more public or private offerings, or through credit
      facilities obtained with lending institutions. On June 15, 2006, the Company
      engaged Midtown Partners & Co., LLC as the Company’s exclusive placement
      agent, for a four month period expiring on October 14, 2006, in connection
      with
      a proposed placement in the United States of up to $5,000,000 of the Company’s
      securities upon the terms and conditions set forth in Exhibit 10.3 (Placement
      Agent Agreement dated June 15, 2006 between the Company and Midtown Partners
      & Co., LLC). The exclusive period of this Placement Agent Agreement expired
      on October 14, 2006. As of November 15, 2006, the Company has not received
      any
      proceeds from this financing activity. There can be no guarantee that we will
      be
      able to obtain such funding, whether through the issuance of debt or equity,
      on
      terms satisfactory to management and our board of directors.








**ITEM
      3. CONTROLS AND PROCEDURES**





Based
      on
      the most recent evaluation, which was completed as of the end of the period
      covered by this Form 10-QSB, the Chief Executive Officer and Chief Financial
      Officer have concluded that the Company's disclosure controls and procedures
      were effective at September 30, 2006, 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 September 30, 2006, that have materially affected, or are reasonably
      likely to materially affect, our internal controls for 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.**  **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**ITEM
      5.**  **OTHER INFORMATION**





None.


**ITEM
      6. EXHIBITS**




ExhibitNumber
            Description  2.1
            Exchange
                Agreement dated as of August 31, 2004 by and among Lin Ray Yang Enterprise
                Ltd., Lin Chi-Jung, as agent for the beneficial shareholders of such
                company, and the Company, incorporated by reference to our Current
                Report
                on Form 8-K filed on September 8,
                2004.





2.2
            Exchange
                Agreement dated as of August 31, 2004 by and among Sunrise Real Estate
                Development Group, Inc., a Cayman Islands company, Lin Chi-Jung,
                as agent
                for the beneficial shareholder of such company, and the Company,
                incorporated by reference to our Current Report on Form 8-K filed
                on
                September 8, 2004.  3.1
            Articles of Incorporation, incorporated
              by reference to Exhibit 3.1 of Form-10 QSB filed on April 23,
              2001.  3.1a
            Amendments to the Articles of Incorporation incorporated
              by reference to Exhibits 3.1a and 3.1b to Form-10-KSB for the fiscal
              year
              ended December 31,2003 filed on April 14, 2004.  3.1b
            Articles of Amendment to the Articles of Incorporation
              dated April 25, 2006; filed herewith.  3.2
            Bylaws, incorporated
              by reference to Exhibit 3.2 of Form-10SB filed on April 23,
              2001.  10.1
            Financial Advisory Agreement dated January 15, 2006
              between SunriseReal Estate Group, Inc.and
              Marco Partners, Inc., incorporated by reference to Exhibit 10.1 to
              Form
              SB-2 filed on February 13, 2006.  10.2
            Consultancy Service Agreement dated January 15,
              2006
              between SunriseReal Estate Group, Inc.and
              Chiang Hui Hsiung, incorporated by reference to Exhibit 10.2 to Form
              SB-2
              filed on February 13, 2006.  10.3
            Placement Agent Agreement dated June 15, 2006 between
              Sunrise Real Estate Group, Inc. and Midtown Partners & Co., LLC.




14
            Code of Ethics





21.1
              Subsidiaries of the Company, incorporated by reference
                to
                Exhibit 21.1 to Form SB-2 filed on February 13,
                2006.  31.1
              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.
  23




**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:
                November 14, 2006
            By:
            /s/
              Lin, Chi-JungLin,
              Chi-Jung, Chief Executive Officer




Date:
                November 14,
                2006
            By:
            /s/ /s/
              Art
              HonanyanArt
                Honanyan, Chief Financial Officer




24