UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON,
D.C. 20549









FORM
10-Q







(Mark
One)




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              For
      the quarterly period ended September 30,
    2009.




or




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              For
      the transition period from _______________ to
    _______________.




Commission
File No. 000-50675




Excellency
Investment Realty Trust, Inc. (Exact
name of registrant as specified in its charter)


Maryland
            20-8635424(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)245
      Park Avenue, 39th
      Floor
              New
      York, New York
            10167(Address
      of principal executive offices)
            (Zip
      Code)


Registrant’s
telephone number, including area code: (646)
712-2012


Indicate
by check mark if the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes x  No o




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




Large
      accelerated filer  o
            Accelerated
      filer  oNon-accelerated
      filer  (Do not check if a smaller reporting company) o
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes o  No x




Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock as of August 17,2009: 43,861,537 shares of common stock, with a par value
of $0.01 per share.




Table of Contents





TABLE OF CONTENTS





PART
      I – FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements
              2Item
      2.
              Management’s Discussion and Analysis
      of Financial Condition and Results of
Operations
              16Item
      3.
              Quantitative and Qualitative
      Disclosures About Market Risk
              26Item
      4.
              Controls and
      Procedures
              26PART
      II – OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              27Item
      1A.
              Risk
    Factors
              27Item
      2.
              Unregistered Sales of Equity
      Securities and Use of Proceeds
              27Item
      3.
              Defaults Upon Senior
      Securities
              27Item
      4.
              Submission of Matters to a Vote of
      Security Holders
              27Item
      5.
              Other
      Information
              27Item
      6.
              Exhibits
              28








Table of Contents





Financial
Information




Item 1.
            Financial
      Statements.




As used
herein, the term “Excellency” refers to Excellency Investment Realty Trust,
Inc., a Maryland corporation, and its subsidiaries and predecessors unless
otherwise indicated.  Unaudited, interim, condensed, consolidated
financial statements including a balance sheet for Excellency as of the period
September 30, 2009, and statements of operations, and statements of cash flows,
for interim periods up to the date of such balance sheet and the comparable
period of the preceding year are set forth below in this report.






2
 Table of Contents


EXCELLENCY
      INVESTMENT REALTY TRUST, INC.CONSOLIDATED
      BALANCE SHEETSAs
      of September 30, 2009 and December 31, 2008(unaudited)September
      30,
                
                
                December
      31,ASSETS
                
                2009
                
                
                2008Real
      EstateLand
                
                $
                811,402
                
                
                $
                811,402Building
      and improvements
                
                
                4,956,390
                
                
                
                5,001,0535,767,792
                
                
                
                5,812,455Less:
      accumulated depreciation
                
                
                (1,664,523
                )
                
                
                (1,553,962
                )4,103,269
                
                
                
                4,258,493Cash
      and cash equivalents
                
                
                42,933
                
                
                
                47,268Accounts
      receivable-tenants, net of allowance for doubtfulaccounts
      of $893,966 at 9/30/09 and $820,795 at 12/31/08
                
                
                5,525
                
                
                
                8,254Deferred
      financing costs, net of accumulated amortization ofof
      $48,416 at 9/30/09 and $37,163 at 12/31/08
                
                
                129,104
                
                
                
                139,224Escrow
      account
                
                
                33,381
                
                
                
                80,677Other
      assets
                
                
                -
                
                
                
                95TOTAL
      ASSETS
                
                $
                4,314,210
                
                
                $
                4,534,011LIABILITIES
      AND STOCKHOLDERS' DEFICITMortgage
      notes payable
                
                $
                7,795,480
                
                
                $
                7,890,446Promissory
      notes payable-related party
                
                
                1,970,407
                
                
                
                2,166,698Security
      deposits
                
                
                106,030
                
                
                
                116,136Line
      of credit -White Knight Management
                
                
                68,605
                
                
                
                70,991Accounts
      payable and accrued expenses
                
                
                411,980
                
                
                
                420,211Accured
      interest payable - related party
                
                
                315,651
                
                
                
                216,522Accrued
      Registration Rights Penalty and contingent portion
                
                
                9,789,394
                
                
                
                8,169,394TOTAL
      LIABILITIES
                
                
                20,457,546
                
                
                
                19,050,398Minority
      Interest
                
                
                153,025
                
                
                
                149,024STOCKHOLDERS'
      DEFICIT:Preferred
      stock, $0.001 par value, 1,000,000 shares authorized;Series
      A Convertible Preferred Stock, par value $0.01, 10,000 shares authorized,
      10,000issued
      and outstanding, as of September 30, 2009 and December 31,
      2008. Aggregate liquidationpreference
      of $9,100 ($0.91 per share)
                
                
                100
                
                
                
                100Common
      stock, par value $0.01, 200,000,000 shares authorized,
      43,861,537issued
      and outstanding as of September 30, 2009 and December 31, 2008
      respectively.
                
                
                438,615
                
                
                
                438,615Treasury
      stock, at cost- 2,469 shares
                
                
                (34,168
                )
                
                
                (34,168
                )Additional
      paid-in capital
                
                
                1,849,939
                
                
                
                1,846,939Accumulated
      deficit
                
                
                (18,550,848
                )
                
                
                (16,916,897
                )TOTAL
      STOCKHOLDERS’ DEFICIT
                
                
                (16,296,362
                )
                
                
                (14,665,411
                )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                $
                4,314,210
                
                
                $
                4,534,011
  See
accompanying notes to consolidated financial
statements.


3
 Table of Contents




EXCELLENCY
INVESTMENT REALTY TRUST, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(RESTATED)
 (unaudited)
  Three
      Months
                
                
                Three
      Months
                
                
                Nine
      Months
                
                
                Nine
      MonthsEnded
                
                
                Ended
                
                
                Ended
                
                
                EndedSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008(RESTATED)
                
                
                
                
                
                (RESTATED)Rental
      revenue
                
                $
                424,814
                
                
                $
                456,324
                
                
                $
                1,348,644
                
                
                $
                1,327,082Operating
      expenses:Property
      operating costs
                
                
                215,447
                
                
                
                326,287
                
                
                
                568,900
                
                
                
                842,357General
      and administrative
                
                
                51,883
                
                
                
                79,208
                
                
                
                258,324
                
                
                
                253,090Depreciation
      and amortization
                
                
                55,181
                
                
                
                48,326
                
                
                
                165,347
                
                
                
                153,810Total
      operating expenses
                
                
                322,511
                
                
                
                453,821
                
                
                
                992,571
                
                
                
                1,249,257Operating
      income
                
                
                102,303
                
                
                
                2,503
                
                
                
                356,073
                
                
                
                77,825Non-operating
      (expenses) and income:Interest
      expense
                
                
                (151,412
                )
                
                
                (164,319
                )
                
                
                (437,108
                )
                
                
                (490,979
                )Other
      income
                
                
                59,408
                
                
                
                94
                
                
                
                63,338
                
                
                
                538Loss
      on registration rights penalty
                
                
                (540,000
                )
                
                
                -
                
                
                
                (1,620,000
                )
                
                
                (1,833,473
                )Total
      non-operating expenses
                
                
                (632,005
                )
                
                
                (164,225
                )
                
                
                (1,993,770
                )
                
                
                (2,323,914
                )Minority
      Interest
                
                
                1,316
                
                
                
                1,294
                
                
                
                3,747
                
                
                
                3,882Net
      Loss
                
                $
                (528,386
                )
                
                $
                (160,428
                )
                
                $
                (1,633,950
                )
                
                $
                (2,242,207
                )Loss
      per share — basic and diluted
                
                
                (0.01
                )
                
                
                (0.00
                )
                
                
                (0.04
                )
                
                
                (0.05
                )Weighted
      average common shares outstanding basic and diluted
                
                
                43,861,537
                
                
                
                43,761,537
                
                
                
                43,861,537
                
                
                
                43,761,537
 
 See
accompanying notes to consolidated financial statements.
 4
 Table of Contents
  EXCELLENCY
INVESTMENT REALTY TRUST, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (unaudited)
  Nine
      Months
                    
                    
                    Nine
      MonthsEnded
                    
                    
                    EndedSeptember
      30,
                    
                    
                    September
      30,2009
                    
                    
                    2008(RESTATED)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
                    
                    $
                    (1,633,950
                    )
                    
                    $
                    (2,242,207
                    )Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Minority
      Interest Expenses
                    
                    
                    (3,747
                    )
                    
                    
                    (3,882
                    )Compensation
      expense added as paid in capital
                    
                    
                    3,000
                    
                    
                    
                    4,500Amortization
      of Deferred Financing Costs
                    
                    
                    10,120
                    
                    
                    
                    9,821Depreciation
      expense
                    
                    
                    155,226
                    
                    
                    
                    143,989Bad
      debt expense
                    
                    
                    86,375
                    
                    
                    
                    89,366Loss
      on registration rights penalty
                    
                    
                    1,620,000
                    
                    
                    
                    1,833,473Loss
      on sale of marketable securities
                    
                    
                    -
                    
                    
                    
                    -Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (75,900
                    )
                    
                    
                    (862
                    )Escrow
                    
                    
                    47,296
                    
                    
                    
                    46,134Other
      Assets
                    
                    
                    95
                    
                    
                    
                    11,137Accounts
      payable and accrued expenses
                    
                    
                    (8,231
                    )
                    
                    
                    (81,890
                    )Accrued
      interest payable - related party
                    
                    
                    99,129
                    
                    
                    
                    78,085Security
      Deposits
                    
                    
                    (10,106
                    )
                    
                    
                    (21,914
                    )CASH
      PROVIDED BY OPERATING ACTIVITIES
                    
                    
                    289,308
                    
                    
                    
                    (134,250
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESConributions
      of capital
                    
                    
                    -
                    
                    
                    
                    5,480Borrowings
      on Related Party debt
                    
                    
                    -
                    
                    
                    
                    180,929Payments
      on Related Party debt
                    
                    
                    (196,291
                    )
                    
                    
                    (151,140
                    )Borrowings
      (payments) on White Knight Management line of credit
                    
                    
                    (2,386
                    )
                    
                    
                    9,718Payments
      on Mortgage Notes Payable
                    
                    
                    (94,966
                    )
                    
                    
                    (89,777
                    )CASH
      USED FOR FINANCING ACTIVITIES
                    
                    
                    (293,643
                    )
                    
                    
                    (44,790
                    )NET
      DECREASE IN CASH
                    
                    
                    (4,335
                    )
                    
                    
                    (179,040
                    )CASH
      AT BEGINNING OF YEAR
                    
                    
                    47,268
                    
                    
                    
                    241,551CASH
      AT YEAR END
                    
                    $
                    42,933
                    
                    
                    $
                    62,511NON-CASH
      TRANSACTIONSConversion
      of preferred into common stock
                    
                    
                    -
                    
                    
                    
                    1,430SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for Interest
                    
                    
                    331,111
                    
                    
                    
                    291,660Cash
      paid for Income Taxes
                    
                    
                    -
                    
                    
                    
                    -
  See
accompanying notes to consolidated financial statements.
  5
 Table of Contents


EXCELLENCY
INVESTMENT REALTY TRUST, INC.
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
 JANUARY
1, 2007 THROUGH  SEPTEMBER 30, 2009
 (unaudited)
  Preferred
      StockSeries A
                  
                  
                  Common
      Stock
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  StockShares
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  at
      Cost
                  
                  
                  TotalBalance
      at January 1, 2007
                  
                  
                  11,000
                  
                  
                  $
                  110
                  
                  
                  
                  43,618,537
                  
                  
                  $
                  436,185
                  
                  
                  $
                  1,835,359
                  
                  
                  $
                  (8,130,173
                  )
                  
                  $
                  (34,168
                  )
                  
                  $
                  (5,892,687
                  )-Conversion
      of preferred stock
                  
                  
                  (1,000
                  )
                  
                  
                  (10
                  )
                  
                  
                  143,000
                  
                  
                  
                  1,430
                  
                  
                  
                  (1,420
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,621,450
                  )
                  
                  
                  -
                  
                  
                  
                  (6,621,450
                  )-Balance
      at December 31, 2007
                  
                  
                  10,000
                  
                  
                  $
                  100
                  
                  
                  
                  43,761,537
                  
                  
                  $
                  437,615
                  
                  
                  $
                  1,833,939
                  
                  
                  $
                  (14,751,623
                  )
                  
                  $
                  (34,168
                  )
                  
                  $
                  (12,514,137
                  )Compensation
      Expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,000Shares
      issued for Services
                  
                  
                  
                  
                  
                  
                  100,000
                  
                  
                  
                  1,000
                  
                  
                  
                  7,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,000Net
      (loss)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,165,274
                  )
                  
                  
                  -
                  
                  
                  
                  (2,165,274
                  )-Balance
      at December 31, 2008
                  
                  
                  10,000
                  
                  
                  $
                  100
                  
                  
                  
                  43,861,537
                  
                  
                  $
                  438,615
                  
                  
                  $
                  1,846,939
                  
                  
                  $
                  (16,916,897
                  )
                  
                  $
                  (34,168
                  )
                  
                  $
                  (14,665,411
                  )Compensation
      Expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,000Net
      (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,633,951
                  )
                  
                  
                  
                  
                  
                  
                  (1,633,951
                  )Balance
      at September 30, 2009
                  
                  
                  10,000
                  
                  
                  $
                  100
                  
                  
                  
                  43,861,537
                  
                  
                  $
                  438,615
                  
                  
                  $
                  1,849,939
                  
                  
                  $
                  (18,550,848
                  )
                  
                  $
                  (34,168
                  )
                  
                  $
                  (16,296,362
                  )
  See
accompanying notes to consolidated financial
statements.


6
 Table of Contents




EXCELLENCY
INVESTMENT REALTY TRUST, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008




NOTE
1 - NATURE OF OPERATIONS, ORGANIZATION AND FINANCIAL STATEMENT
PRESENTATION




Unaudited Consolidated
Financial Statements




The
September 30, 2009 consolidated financial statements presented herein are
unaudited, and in the opinion of management, include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
financial position, results of operations and cash flows. Such financial
statements do not include all of the information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America. This quarterly
report has not been reviewed by the Company’s auditors as is normally
done.  This quarterly report on Form 10-Q should be read in
conjunction with Annual Report on Form 10-K for Excellency Investment Realty
Trust, Inc. ("Excellency" and "the Company") for the year ended December 31,
2008. The December 31, 2008 consolidated balance sheet is derived from the
audited balance sheet included therein.




Company
Background




Excellency
Investment Realty Trust, Inc. (f/k/a Gift Liquidators, Inc.) and its predecessor
companies were originally incorporated in 1963 as Dorsett Educational Systems,
Inc. ("Dorsett"). From 1963 through the mid-1980's, Dorsett was in the business
of developing and marketing educational material. During that same period, the
stock of Dorsett was publicly traded.




In 1990,
Dorsett acquired, in a stock for stock exchange, a privately owned business that
developed, marketed and distributed a diverse line of gift and novelty products,
and changed its name to Laid Back Enterprises, Inc. ("Laid Back"). From that
date, until December 2002, Laid Back continued its development, marketing and
distribution of gift products, seasonal retailing and closeout liquidation of
gift products.




On
December 20, 2002, Laid Back's shareholders voted to split-off its gift
inventory liquidation business from its gift design and merchandising business.
Pursuant to a Split-Off Agreement, dated December 20, 2002 (the "Split-Off
Agreement"), Laid Back distributed its gift design and merchandising business to
Max Colclasure and Ronald Hurt in exchange for a substantial portion of the
shares of Laid Back owned by Mr. Colclasure and Mr. Hurt. The shareholders also
voted to approve a change of name from Laid Back to Gift Liquidators,
Inc.




Prior to
the split-off, Mr. Colclasure and Mr. Hurt owned 64.72% and 6.42% of the stock
of Laid Back, respectively. Minority shareholders owned the remaining
outstanding stock. Subsequently, Mr. Colclasure and Mr. Hurt acquired all of the
remaining outstanding stock of the gift design and merchandising business,
thereafter known as Laid Back, and Mr. Colclasure acquired 25.78% of the gift
inventory liquidation business now known as Gift Liquidators, Inc. (hereinafter,
the "Company"), with the remaining shareholders owning 74.22% of the
Company.




Pursuant
to the Split-Off Agreement, on December 20, 2002, all of the assets, liabilities
and operations were transferred to Laid Back, except for gift liquidation
inventory valued at $400,019, which was retained by the Company. In addition,
all employees of the Company became employees of Laid Back. Since the Company
had no employees, it entered into an Administrative Services Agreement with Laid
Back, dated December 20, 2002 (the "Administrative Services Agreement"), to
share administrative functions and personnel. The administrative services, for
which the Company reimbursed Laid Back, included sales, marketing, accounting
and customer service. In addition, the Company entered into a Tax Sharing
Agreement with Laid Back, dated December 20, 2002 (the "Tax Sharing Agreement"),
pursuant to which the Company shared certain tax responsibilities with Laid
Back.




During
the third quarter of 2005, the Company's management determined that it would no
longer pursue its interests in the gift liquidation business. As of September
28, 2005 (the "Closing Date"), the Company entered into a Preferred Stock
Purchase Agreement with David Mladen, pursuant to which Mr. Mladen purchased
11,000 shares of the Company's Series A Convertible Preferred




Stock,
$0.01 par value per share ("Series A Preferred Stock"), for an aggregate
purchase price of $10,000 (the "Preferred Stock Purchase Transaction"). As of
the Closing Date, each share of the Company's Series A Preferred Stock was
convertible at any time, at the holder's option, into 5 shares of the Company's
common stock, $0.01 par value per share ("Common Stock"), subject to adjustment
for stock dividends, stock splits, reclassifications, and similar
events.




In
addition, as of the Closing Date, two of the Company's former stockholders,
including Mr. Colclasure, a former officer and director of the Company, sold an
aggregate of 33,761 shares of the Company's Common Stock to Mr. Mladen, which
amount represented 28.6% of the Company's issued and outstanding Common Stock,
for an aggregate purchase price of $325,000 (the "Common Stock Purchase
Transaction").




Further,
as of the Closing Date, the Company's existing officers and directors resigned,
and Mr. Mladen was appointed as the Company's sole officer and
director.




7
 Table of Contents





As a
result of the Preferred Stock Purchase Transaction and the Common Stock Purchase
Transaction (jointly, the "Purchase Transactions"), as of the Closing Date, Mr.
Mladen owned and/or controlled approximately 51% of the Company's voting power.
By virtue of (i) the percentage of the Company's Common Stock Mr. Mladen
acquired, (ii) the number of shares of Common Stock Mr. Mladen would receive
upon conversion of the shares of Preferred Stock he purchased, (iii) the
resignation of all of the Company's officers and directors, and (iv) the
appointment of Mr. Mladen as the Company's sole officer and director, there was
deemed to have been a "change in control" of the Company as of the Closing
Date.




As
of the Closing Date, the Company:




·
            terminated
      its Administrative Services Agreement with Laid
  Back;




·
            terminated
      its Tax Sharing Agreement with Laid Back;
and




·
            entered
      into an Asset Sale Agreement with Laid Back (the "Asset Sale
      Agreement").




Pursuant
to the Asset Sale Agreement, effective as of the Closing Date, the Company sold
all of its non-cash assets, including certain inventory, to Laid Back, in
exchange for the cancellation of the Company's indebtedness to Laid Back in the
aggregate amount of $50,485. As a result of the above transactions, the Company
became a "shell company", as defined by Securities Act Rule 405 and Exchange Act
Rule 12b-2 as a company other than an asset-backed issuer, with (a) no or
nominal operations, and (b) either (i) no or nominal assets; (ii) assets
consisting solely of cash and cash equivalents; or (iii) assets consisting of
any amount of cash and cash equivalents and other nominal assets.




FIN 46R,
which amended FIN 46, "Consolidation of Variable Interest Entities," an
interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," requires an existing unconsolidated variable interest entity to be
consolidated by its primary beneficiary if the entity does not effectively
disperse risk among all parties involved or if other parties do not have
significant capital to finance activities without subordinated financial support
from the primary beneficiary. White Knight Management, LLC is now considered a
VIE and the Company its primary beneficiary both as of September 30, 2009 and
2008.




David D.
Mladen (“Mr. Mladen”), a Director, President and the Chief Executive Officer of
the Company resigned his positions as of August 13, 2009. Mr. Mladen voluntarily
resigned in his capacities in keeping with the agreement reached in settlement
of the civil litigation previously initiated by the U.S. Securities and Exchange
Commission against the Company and Mr. Mladen, individually. Mr. Mladen’s
agreement, as it relates to his inability to serve as an Officer or Director of
the Company, which is to not serve as an Officer or a Director for a period of
five (5) years, was approved by the United States District Court, District of
Connecticut in SEC v. Excellency Investment Realty Trust, Inc. and David D.
Mladen, Case No. 3:08-cv-0158-JBA, by Final Judgment dated July 15, 2009, which
becomes non-appealable on August 17, 2009.  There is no disagreement
between Mr. Mladen and the Company regarding his voluntary resignation announced
in this Form 8-K, as settlement of the SEC litigation by consenting to the five
year bar that was included in the Final Judgment was believed to be in the
Company’s and Mr. Mladen’s best interest.





Effective
prior to the date and time of Mr. Mladen’s voluntary resignation as an Officer
and Director of the Company, Gorica Adduci, who has worked in the real estate
industry for quite some time, was appointed by the Directors of the Company as a
replacement Director, President and the Interim Chief Executive Officer to
replace those roles historically filled by Mr. Mladen until the next regularly
scheduled meeting of shareholders where Directors stand for
re-election.





Although
the terms and conditions of Mr. Mladen’s consulting agreement entered into with
the Company have not yet been finalized, Mr. Mladen has preliminarily agreed to
remain available to the Company’s management as a consultant to provide
consulting services that may be requested of him by the Company’s management
from time-to-time.


8
 Table of Contents




NOTE
2 - BASIS OF PRESENTATION AND CHANGES IN OR NEW ACCOUNTING POLICIES




Principles of
Consolidation




The
accompanying consolidated financial statements include the accounts of
Excellency Investment Realty Trust, Inc., its controlled subsidiaries comprised
of certain Limited Partnerships (see Note 1), and Eternal Enterprise, Inc.
(wholly owned in the aggregate by the Limited Partnerships) (hereinafter
collectively referred to as the "Company"). As noted above, the historical
financial statements as presented reflect the operations of Eternal as a result
of the Reverse Merger. The Company records minority interest for the non-owned
portions of consolidated subsidiaries, however, these subsidiaries have not
generated any income to warrant the recording of such minority interests through
September 30, 2009. All significant inter-company transactions and accounts have
been eliminated in the consolidated financial statements.




The
accompanying consolidated financial statements include accounts of White Knight
Management, LLC. in which the Company has a controlling financial
interest.   The usual condition for a controlling financial
interest is ownership of a majority of the voting interests of an entity.
However, a controlling financial interest may also exist in entities, such a
special purpose entity ("SPE"), through arrangements that do not involve voting
interest. The Company has determined that White Knight Management, LLC is a VIE
and that the Company is the primary beneficiary as of September 30, 2009 and
2008.




Loss Per Common
Share




Net loss
per common share is based on the weighted average number of shares of common
stock outstanding during the applicable period. Basic loss per share is computed
by dividing loss available to common stockholders by the weighted average number
of common shares outstanding during the period. The common stock equivalents for
the Company's preferred stock and treasury shares were not included in the
computation of diluted loss per share because that would have diluted earnings
per share that had a basic loss per share of $0.04 and $0.05, for the nine
months ended September 30, 2009 and 2008, respectively.




Recently Adopted and
Recently Issued Accounting Guidance






Adopted


On
September 30, 2009, Excellency Investment Realty Trust, Inc. adopted changes
issued by the Financial Accounting Standards Board (FASB) to the authoritative
hierarchy of GAAP.These changes
establish the FASB Accounting Standards CodificationTM
(Codification) as the source of authoritative accounting principles recognized
by theFASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of theSecurities
and Exchange Commission (SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The FASBwill no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead the FASB will issueAccounting
Standards Updates. Accounting Standards Updates will not be authoritative in
their own right as they will only serve to update the Codification.These changes
and the Codification itself do not change GAAP. Other than the manner in which
new accounting guidance is referenced, the adoption of thesechanges had
no impact on the Financial Statements.




Fair Value Accounting. On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to fair value disclosures of financial instruments. These changesrequire a
publicly traded company to include disclosures about the fair value of its
financial instruments whenever it issues summarized financial information
forinterim
reporting periods. Such disclosures include the fair value of all financial
instruments, for which it is practicable to estimate that value, whether
recognizedor not
recognized in the statement of financial position; the related carrying amount
of these financial instruments; and the method(s) and significant
assumptionsused to
estimate the fair value. The adoption of these changes had noimpact on the
Financial Statements.




On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to fair value accounting. These changes provide additional guidance for
estimating fairvalue when
the volume and level of activity for an asset or liability have significantly
decreased and includes guidance for identifying circumstances that indicatea transaction
is not orderly. This guidance is necessary to maintain the overall objective of
fair value measurements, which is that fair value is the price thatwould be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date under
currentmarket
conditions. The adoption of these changes had no impact on the Financial
Statements.




On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to the recognition and presentation of other-than-temporary impairments.
These changesamend
existing other-than-temporary impairment guidance for debt securities to make
the guidance more operational and to improve the presentation anddisclosure of
other-than-temporary impairments on debt and equity securities. The adoption of
these changes had no impact on the Financial Statements.




On
January 1, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued
by the FASB to fair value accounting and reporting as it relates to nonfinancial
assets and nonfinancialliabilities
that are not recognized or disclosed at fair value in the financial statements
on at least an annual basis. These changes define fair value, establish aframework for
measuring fair value in GAAP, and expand disclosures about fair value
measurements. This guidance applies to other GAAP that require orpermit fair
value measurements and is to be applied prospectively with limited exceptions.
The adoption of these changes, as it relates to nonfinancial assets andnonfinancial
liabilities, had no impact on the Financial Statements. These provisions will be
applied at such time a fair value measurement of a nonfinancial assetor
nonfinancial liability is required, which may result in a fair value that is
materially different than would have been calculated prior to the adoption of
thesechanges.





9
 Table of Contents





Financial Statement
Presentation




Because
the Company is engaged in the rental and sale of real estate, the operating
cycle may extend beyond one year. Accordingly, following the usual practice of
the real estate industry, the accompanying consolidated balance sheet is
unclassified.




Use of
Estimates




The preparation of the Company's
consolidated financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the reporting period. Management makes these estimates using the
best information available at the time the estimates are made; however actual
results could differ materially from those estimates.




Note
3 – GOING CONCERN





The
Company has suffered recurring losses from operations. During the nine months
ended September 30, 2009, the Company had a net loss of ($1,633,951), and has a
net accumulated deficit of $18,550,848 as of September 30, 2009, all of which
raise substantial doubt about the Company's ability to continue as a going
concern. Management does plan to raise capital through any combination of debt
and equity financing. However, the Company has no assurance that sufficient cash
flow will be generated in the future to meet its operating requirements. As a
result of the above, the accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




Note
4 – NOTES PAYABLE




Fiscal
      Year
              
              Amount2009
              
              -2010
              
              
              19704072011
              
              
              -2012
              
              
              -2013
              
              
              -Thereafter
              
              
              -Total
              
              
              1970407


Promissory Notes Payable -
Related Parties




On
November 4, 2005 (the "Loan Date"), the Pre-Acquisition Eternal Stockholders of
Eternal Enterprise, Inc., which were comprised of David Mladen, the Company's
majority shareholder and the then sole officer and director, and Mr. Mladen's
son, daughter-in-law, daughter, and son-in-law, exchanged, in the aggregate,
100% of the issued and outstanding shares of common stock of Eternal, for (i)
limited partnership interests representing 20% of the total partnership
interests in each of the Limited Partnerships, and (ii) unsecured promissory
notes payable to the Pre-Acquisition Eternal Stockholders in the aggregate
principal amount of $2,610,006 (the "LP Notes"), pursuant to Contribution
Agreements between the Pre-Acquisition Eternal Stockholders and the Limited
Partnerships. In consideration for the Company's ownership of 80% of the total
partnership interests of each of the Limited Partnerships, the Company agreed to
assume the LP Notes.




The
interest rate on the LP Notes is 7% per annum. The entire balance of principal
and interest of the LP Notes is due and payable on November 4, 2010. The LP
Notes may be prepaid without penalty. All payments shall be applied first toward
the payment of interest and the balance towards the reduction of
principal.




As of
September 30, 2009 and December 31, 2008, the LP Notes payable were $1,970,407
and $2,166,698, respectively.




Principal
payment maturities on the related party notes outstanding at September 30, 2009
are:




Mortgage Notes
Payable




On
December 27, 2005, the Company borrowed an aggregate of $8,224,000 from Astoria
Federal Mortgage Corp. ("Astoria"), in connection with the refinancing of the
Properties, evidenced by eight notes payable (the "Mortgage Notes"). The initial
interest rate on the Mortgage Note of 5.625% will remain in effect for eighty
four (84) months. Thereafter, the Mortgage Notes bear interest at a rate equal
to the five (5) year "Fixed Rate Advance" as determined by the Federal Home Bank
of New York, plus two and one half percent (2.5%), rounded to the nearest
one-eighth of one percent (0.125%) and the interest rate will be adjusted every
sixty (60) months. The loans are repayable in monthly installments of principal
and interest (which total $43,040), due on the first day of each month,
commencing February 1, 2006. The principal and interest payments are based on a
360 month amortization. The Mortgage Notes mature on January 1, 2018, at which
time the entire unpaid principal balance, plus accrued interest thereon, shall
be due.




10
 Table of Contents





The
Mortgage Notes are collateralized by each respective Property.  David
Mladen, the Company's majority stockholder and an officer and director, has
guaranteed up to 5% of the outstanding balance of the principal with interest
for the life of the loan. The Company incurred approximately $178,000 of
deferred financing costs related to these loans, which is being amortized over
the life of the mortgage notes payable (twelve years). Amortization expense,
calculated using the effective interest method, was $10,120 and $9,821 for the
nine months ended September 30, 2009 and 2008, respectively.





The
following sets forth the amounts outstanding on each of the Notes as of
September 30, 2009, and the required monthly principal and interest
payments:




Monthly
                
                
                MortgagePrincipal
      &
                
                
                Prin.
      Bal.Property
                
                Interest
                
                
                9/30/200956
      Webster
                
                
                2,763
                
                
                
                454,989270
      Laurel
                
                
                11,513
                
                
                
                1,895,788252
      Laurel
                
                
                3,362
                
                
                
                553,570243
      - 255 Laurel
                
                
                6,493
                
                
                
                1,069,22521
      Evergreen
                
                
                4,053
                
                
                
                667,317117-145
      S. Marshall
                
                
                8,243
                
                
                
                1,357,384154-160A
      Collins
                
                
                7,507
                
                
                
                1,236,054360
      Laurel
                
                
                3,408
                
                
                
                561,15347,342
                
                
                
                7,795,480


In
connection with the refinancing described above, the Company defeased its
existing mortgage with Credit Suisse First Boston Mortgage Capital, LLC. The
Company incurred approximately $654,000 in costs associated with the defeasance.
Additionally, the Company wrote-off the remaining deferred financing costs
related to the mortgage totaling approximately $110,000. The remaining funds
have been used to purchase all of the limited partnership interests of our
subsidiary Limited Partnerships owned by Goran Mladen, the son of the Company's
sole officer and director and majority stockholder, and for working capital
purposes.




Principal
payment maturities on the mortgage outstanding at September 30, 2009
are:




FiscalYear
              
              Amount2009
              
              $
              60,9452010
              
              
              134,8812011
              
              
              142,6672012
              
              
              150,9032013
              
              
              158,845Thereafter
              
              
              7,147,239Total
              
              $
              7,795,480




Note
5 – RELATED PARTY TRANSACTIONS




Rent-Free
Apartments




The
Company provided a rent-free apartment to David Mladen, its majority shareholder
and an officer and director. As a result, the Company has recorded compensation
expense to David Mladen in the aggregate amount of $4,500, for the nine months
ended September 30, 2009 and 2008, which was the fair value of apartment
rental.




See
related party note disclosure in Note 4.




Note
6 - STOCKHOLDERS' DEFICIT




Liquidated
Damages




In
connection with David Mladen's purchase of 11,000 shares of the Company's Series
A Preferred Stock (the "Series A Preferred Stock"), the Company entered into a
Registration Rights Agreement with Mr. Mladen (the "Registration Rights
Agreement"), pursuant to which the Company agreed to prepare and, on or prior to
the sixtieth (60th) day following the date of such purchase, file with the
Securities and Exchange Commission ("SEC"), a Resale Registration Statement on
Form SB-2 (the "Resale Registration Statement"), to register all of the shares
of the Company's Common Stock underlying the Series A Preferred Stock (the
"Conversion Shares"). Further, pursuant to the Registration Rights Agreement,
the Company is required to use best efforts to (a) have the SEC declare the
Resale Registration Statement effective within ninety (90) days after filing the
Resale Registration Statement with the SEC (or one hundred and twenty (120) days
in the event any comments on the Registration Statement are received from the
SEC), and (b) maintain the effectiveness of the Resale Registration Statement
until all such common shares have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) of the Securities Act of 1933, as
amended.




11
 Table of Contents





If the
Company (i) fails to file the Resale Registration Statement, or (ii) fails to
have the Registration Statement declared effective within the required period,
or (iii) if effectiveness is not maintained, the Registration Rights Agreement
requires the Company to make payments to Mr. Mladen in an aggregate amount equal
to two percent (2%) per month of $9,000,000 (assuming the sale of $9,000,000 of
the aggregate fair market value of the Conversion Shares) ("Outstanding
Principal Amount"), multiplied by the number of months (prorated for partial
months) until the failure is cured.




As of
September 30, 2006, the Resale Registration Statement had not been filed. At
that time, Mr. Mladen agreed to waive $1,174,000 of liquidated damages due to
him, and such amount was accounted for as a contribution of capital as of that
date.




On
October 24, 2006, the Resale Registration Statement had still not been filed. At
that time, Mr. Mladen agreed to waive an additional $720,000 in liquidated
damages, for the period between July 1, 2006, and October 31, 2006, in
consideration for 43,500 shares of the Company's Series C Preferred
Stock.




As of
December 31, 2006, $720,000 of these liquidated damages have been issued as
preferred stock and subsequently converted to common stock.




As of
December 31, 2007, the Resale Registration Statement had still not been filed,
and the accrued liability of $2,264,000  had been
recorded.




As of
December 31, 2008, the Resale Registration Statement had still not been filed,
and the accrued liability of $2,160,000 had been recorded, resulting in a
balance of $4,424,000.




As of
September 30, 2009, the Resale Registration Statement had still not been filed,
and the accrued liability of $1,620,000 had been recorded, resulting in a
balance of $6,044,000, which combined with a contingent liability of $3,745,394
totaled $9,789,394 as shown on the September 30, 2009 balance
sheet.




On
November 29, 2006, the Company filed a Registration Statement on Form SB-2 (the
"Resale Registration Statement") with the Securities and Exchange Commission
(the "Commission") to register (i) 5,000,000 shares of common stock issuable to
Dutchess Private Equities Fund, LP ("Dutchess") in connection with an Investment
Agreement between the Company and Dutchess and (ii) 1,573,000 shares of Common
Stock issuable upon conversion of shares of the Company's Series A Convertible
Preferred Stock held by David Mladen, the Company's sole officer, director and
majority shareholder.




On
February 2, 2007, the Company filed a request to withdraw the Registration
Statement with the Commission. Mr. Mladen had agreed to waive the liquidated
damages which were due to him through June 30, 2007, but as a result of the
withdrawal of the Registration Statement the accrued registration rights penalty
increased to $8,169,394 as of December 31, 2008 and $9,789,394 as of September
30, 2009.




The
Company had adopted View C of EITF 05-4, "Effect of Liquidated Damages Clause on
a Freestanding Financial Instrument Subject to EITF 00-19" ("EITF 05-4").
Accordingly, the Company classified as liability instruments, the fair value of
registration rights agreements when such agreements (i) require it to file, and
cause to be declared effective under the Securities Act, a registration
statement with the SEC within contractually fixed time periods, and (ii) provide
for the payment of liquidating damages in the event of its failure to comply
with such agreement.




Previously
under View C of EITF 05-4, (i) registration rights with these characteristics
were accounted for as derivative financial instruments at fair value and (ii)
contracts that are (a) indexed to and potentially settled in an issuer's own
stock and (b) permit gross physical or net share settlement with no net cash
settlement alternative were classified as equity instruments. The Company has
adopted EITF 00-19-2 and as a result no longer classifies these registration
rights as a derivative instrument.




Note
7 – CONTINGENCY




Periodic
Filings




Under a
2005 rule change, OTC Bulletin Board ("OTCBB") issuers that are cited for filing
delinquency three times in a 24-month period and those removed for failure to
file two times in a 24-month period will be ineligible for quotation by an NASD
member. Following removal under this new rule, an issuer's securities would
again become eligible for quotation on the OTCBB when the issuer has filed
periodic reports for one year in a timely manner.




In 2008
the Company has been late in two of its periodic filings with the Securities and
Exchange Commission ("SEC"). Accordingly, the Company may be ineligible for
quotation by an NASD member if it is delinquent one more time in its periodic
filings with the SEC during the applicable 24-month period.




Litigation:





Securities and Exchange Commission
v. Excellency Investment Realty Trust, Inc. and David D. Mladen, Case No.
308CV01583 filed in the United Stated District Court District of Connecticut on
October 16, 2008.  The case was filed by the SEC alleging that a
market manipulation scheme in which Defendants Excellency Investment Realty
Trust, Inc. and David D. Mladen, our president, chief executive officer and
majority shareholder, allegedly engaged in a number of transactions designed to
artificially inflate the price of our common stock by making purchases and sales
in the stock.  After this case had been pending for a number of
months, on July 14, 2009, a final judgment was filed in the US District Court of
New Haven, CT.  It was ordered that David D. Mladen is prohibited for
five years following the date of the filing from acting as an officer or
director of any issuer that has a class of securities registered pursuant to
Section 12 of the Exchange Act.  Additionally, Mr. Mladen was ordered
to pay a disgorgement of $5,000, representing profits gained as a result of the
conduct alleged in the original complaint, together with prejudgment interest of
$254.  Finally, Mr. Mladen was ordered to pay a civil penalty in the
amount of $50,000.




12
 Table of Contents




David D.
Mladen (“Mr. Mladen”), resigned his positions as of August 13, 2009. Mr. Mladen
voluntarily resigned in his capacities in keeping with the agreement reached in
settlement of the civil litigation previously initiated by the U.S. Securities
and Exchange Commission against the Company and Mr. Mladen, individually. Mr.
Mladen’s agreement, as it relates to his inability to serve as an Officer or
Director of the Company, which is to not serve as an Officer or a Director for a
period of five (5) years, was approved by the United States District Court,
District of Connecticut in SEC v. Excellency Investment Realty Trust, Inc. and
David D. Mladen, Case No. 3:08-cv-0158-JBA, by Final Judgment dated July 15,
2009, which becomes non-appealable on August 17, 2009.  There is no
disagreement between Mr. Mladen and the Company regarding his voluntary
resignation announced in this Form 8-K, as settlement of the SEC litigation by
consenting to the five year bar that was included in the Final Judgment was
believed to be in the Company’s and Mr. Mladen’s best interest.





Effective
prior to the date and time of Mr. Mladen’s voluntary resignation as an Officer
and Director of the Company, Gorica Adduci, who has worked in the real estate
industry for quite some time, was appointed by the Directors of the Company as a
replacement Director, President and the Interim Chief Executive Officer to
replace those roles historically filled by Mr. Mladen until the next regularly
scheduled meeting of shareholders where Directors stand for
re-election.





Although
the terms and conditions of Mr. Mladen’s consulting agreement entered into with
the Company have not yet been finalized, Mr. Mladen has preliminarily agreed to
remain available to the Company’s management as a consultant to provide
consulting services that may be requested of him by the Company’s management
from time-to-time.




Note
8 – PROPERTY, PLANT AND EQUIPMENT




Property,
Equipment, Land, Buildings and Improvements are recorded at
cost.  Buildings and Improvements are depreciated over 27.5 years
using the straight line method of depreciation.  Depreciation expense
was $155,226 and $110,081 for the nine months ended September 30, 2009 and 2008,
respectively.  Total accumulated depreciation was $1,664,523 and
$1,553,962 as of September 30, 2009 and December 31, 2008
respectively.  Expenditures for maintenance and repairs, which do not
generally extend the useful life of the related assets, are charged to
operations as incurred. Gains or losses on disposal of property and equipment
are reflected in the statement of income in the year of disposal.




These
assets serve as collateral for the mortgages notes that they are financed
by.




Note
9 – CONSOLIDATED VARIABLE INTEREST ENTITY





Until
June 30, 2006, our Properties were managed by White Knight Management, LLC
("White Knight"), a related party owned (i) 99% by Goran Mladen, the son of
David Mladen, our majority shareholder, officer and director, and (ii) 1% by
Gorica Mladen, David Mladen's daughter. The Properties were managed pursuant to
an oral agreement we had with White Knight, according to which White Knight
collected the rents for all eight of our Properties and paid our operating
expenses. In consideration for such services, White Knight was entitled to
retain a management fee of approximately 4% of our rent revenues.





Effective
July 1, 2006, we discontinued our arrangement with White Knight and assumed all
responsibilities for the management of our Properties.  Therefore,
there were no property management fees for the fiscal year ended December 31,
2007 or 2008.





As of
January 1, 2007, we have consolidated our financial statements with White
Knight. In accordance with the Financial Accounting Standards Board ("FASB")
Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN
46R"), an interpretation of Accounting Research Bulletin No. 51, a
variable-interest entity ("VIE") is to be consolidated by a company if that
company is subject to a majority of the risk of loss for the VIE or is entitled
to receive a majority of the VIE's residual returns.





Included
in the balances consolidated are a line of credit with a balance of $68,605 and
$70,991 as of September 30, 2009 and December 31, 2008, respectively.  Also
consolidated are cash balances of approximately $0 and $3,000 at September 30,
2009 and December 31, 2008, respectively.  Since Excellency Investment
Realty Trust does not own any interest in White Knight Management, the interest
expense recorded on the line of credit is excluded from net income on the
consolidated statement of operations.





Note
10 – SUBSEQUENT EVENTS





There are
no subsequent events to report as of the date of this filing.




13
 Table of Contents





Note
11 – RESTATEMENT





The
Company has restated its previously issued September 30, 2008 consolidated
financial statements for matters related to the following previously reported
items: asset impairment, improvements, accounts receivable, deferred financing
costs, other assets, line of credit, accrued expenses, accrued registration
rights penalty, minority interest, additional paid in capital, rental revenue,
operating expenses, general and administrative expenses, depreciation, and
interest expense. The accompanying financial statements for the three and nine
months ended September 30, 2008 have been restated to reflect the corrections in
accordance with Statement of Financial Accounting Standards No. 154,
“Accounting Change and Error Corrections”. This restatement is primarily due to
the lack of adequate records to support the previously reported 2008
items.  The loss per share increased to (0.05) per share as a result
of these changes.  The following is a summary of the restatements for
September 30, 2008:


EXCELLENCY
INVESTMENT REALTY TRUST, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 (RESTATED)


(unaudited)




Three
      Months
              
              
              Three
      Months
              
              
              Three
      Months
              
              
              Nine
      Months
              
              
              Nine
      Months
              
              
              Nine
      MonthsEnded
              
              
              Ended
              
              
              Ended
              
              
              Ended
              
              
              Ended
              
              
              EndedSeptember
      30,
              
              
              September
      30,
              
              
              September
      30,
              
              
              September
      30,
              
              
              September
      30,
              
              
              September
      30,2008
              
              
              2008
              
              
              2008
              
              
              2008
              
              
              2008
              
              
              2008Restatements
              
              
              (RESTATED)
              
              
              
              
              
              Restatements
              
              
              (RESTATED)Rental
      revenue
              
              $
              482,701
              
              
              $
              (26,377
              )
              
              $
              456,324
              
              
              $
              1,406,212
              
              
              $
              (79,130
              )
              
              $
              1,327,082Operating
      expenses:Property
      operating costs
              
              
              296,725
              
              
              
              29,562
              
              
              
              326,287
              
              
              
              792,223
              
              
              
              50,134
              
              
              
              842,357General
      and administrative
              
              
              78,383
              
              
              
              825
              
              
              
              79,208
              
              
              
              250,615
              
              
              
              2,475
              
              
              
              253,090Depreciation
      and amortization
              
              
              33,908
              
              
              
              14,418
              
              
              
              48,326
              
              
              
              110,554
              
              
              
              43,256
              
              
              
              153,810Total
      operating expenses
              
              
              409,016
              
              
              
              44,805
              
              
              
              453,821
              
              
              
              1,153,392
              
              
              
              95,865
              
              
              
              1,249,257Operating
      income
              
              
              73,685
              
              
              
              (71,182
              )
              
              
              2,503
              
              
              
              252,820
              
              
              
              (174,995
              )
              
              
              77,825Non-operating
      (expenses) and income:Interest
      expense
              
              
              (152,415
              )
              
              
              (11,904
              )
              
              
              (164,319
              )
              
              
              (455,267
              )
              
              
              (35,712
              )
              
              
              (490,979
              )Other
      income
              
              
              94
              
              
              
              
              
              
              
              94
              
              
              
              538
              
              
              
              -
              
              
              
              538Realized
      loss from sales of trading securities
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Asset
      Impairment
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Loss
      on registration rights penalty
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,833,473
              )
              
              
              (1,833,473
              )Total
      non-operating expenses
              
              
              (152,321
              )
              
              
              (11,904
              )
              
              
              (164,225
              )
              
              
              (454,729
              )
              
              
              (1,869,185
              )
              
              
              (2,323,914
              )Minority
      Interest
              
              
              -
              
              
              
              1,294
              
              
              
              1,294
              
              
              
              -
              
              
              
              3,882
              
              
              
              3,882Net
      Loss
              
              $
              (78,636
              )
              
              $
              (81,792
              )
              
              $
              (160,428
              )
              
              $
              (201,909
              )
              
              $
              (2,040,298
              )
              
              $
              (2,242,207
              )Loss
      per share — basic and diluted
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.05
              )
              
              
              (0.05
              )Weighted
      average common shares outstanding basic and diluted
              
              
              43,761,537
              
              
              
              43,761,537
              
              
              
              43,761,537
              
              
              
              43,761,537
              
              
              
              43,761,537
              
              
              
              43,761,537





14





Description
of Net Change:




Rental
revenue was reduced to properly report rental revenue versus security
deposits.




Property
operating costs were increased mainly to reflect a more conservative calculation
of bad debt expense, additional accrued property taxes, and additional accrued
CNG utilities expense.





General
and administrative expenses were increased due mainly to the accrual of
additional insurance.




Depreciation
and amortization was increased mainly due to the reduction of the number of
years for depreciation, from 40 to 27.5, which was treated as a change in
accounting estimate.





Interest
expense was increased to reflect the proper calculation of accrued
interest.





Loss on
registration rights penalty increased due to a re-valuation by professional
appraisers.




Minority
Interest is newly reported to property reflect Company’s investment in White
Knight Management, Inc.


15
 Table of Contents


Item 2.
            Management’s Discussion
      and Analysis of Financial Condition and Results of
    Operations.




Cautionary
Statement Concerning Forward-Looking Statements




This
report on Form 10-Q contains forward-looking statements, including, without
limitation, statements concerning our possible or assumed future results of
operations.  These statements are preceded by, followed by or include
the words “believes,” “could,” “expects,” “intends” “anticipates,” or similar
expressions.  Our actual results could differ materially from those
anticipated in the forward-looking statements for many reasons including: our
ability to continue as a going concern, adverse economic changes affecting
markets we serve; competition in our markets and industry segments; our timing
and the profitability of entering new markets; greater than expected costs,
customer acceptance of wireless networks or difficulties related to our
integration of the businesses we may acquire and other risks and uncertainties
as may be detailed from time to time in our public announcements and SEC
filings.  Although we believe the expectations reflected in the
forward-looking statements are reasonable, they relate only to events as of the
date on which the statements are made, and our future results, levels of
activity, performance or achievements may not meet these
expectations.  We do not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in our expectations, except as required by
law.




The
discussion and financial statements contained herein are for the three and nine
months ended September 30, 2009 and 2008.  The following discussion
should be read in conjunction with our financial statements and the notes
thereto included herewith.




Overview




On
September 4, 1963, we were incorporated in the State of Oklahoma as Dorsett
Educational Systems, Inc.  On December 20, 2002, we changed our name
to Gift Liquidators, Inc.




As of
September 28, 2005 (the "Closing Date"), we entered into a Preferred Stock
Purchase Agreement with David Mladen (the "Preferred Stock Purchase Agreement"),
pursuant to which Mr. Mladen purchased 11,000 shares of our Series A Convertible
Preferred Stock, $0.01 par value per share ("Series A Preferred Stock"), for an
aggregate purchase price of $10,000 (the "Preferred Stock Purchase
Transaction").  As of the Closing Date, each share of our Series A
Preferred Stock was convertible into 5 shares of our common stock, $0.01 par
value per share ("Common Stock"), subject to adjustment for stock dividends,
stock splits, reclassifications, and similar events.  Further, as of
the Closing Date, two of our former stockholders, one of whom was an officer and
director of ours, sold an aggregate of 33,761 shares of our Common Stock to Mr.
Mladen, which amount represented 28.6% of our issued and outstanding Common
Stock (the "Common Stock Purchase Transaction," and, together with the Preferred
Stock Purchase Transaction, the "Stock Purchase Transactions").




In
addition, as of the Closing Date, our existing officers and directors resigned,
and Mr. Mladen was appointed as our sole officer and director.




At the
time of the Preferred Stock Purchase Transaction and the Common Stock Purchase
Transaction, Mr. Mladen was also the majority stockholder and the sole officer
and director of Eternal Enterprise, Inc., a Connecticut Corporation ("Eternal"),
which owned the following residential real estate properties (collectively, the
"Properties") in Hartford, Connecticut:




·
            154-160A
      Collins Street, Hartford, CT;




·
            21
      Evergreen Avenue, Hartford, CT;




·
            243
      & 255 Laurel Street, Hartford,
CT;




·
            252
      Laurel Street, Hartford CT;




·
            270
      Laurel Street, Hartford, CT;




·
            360
      Laurel Street, Hartford, CT;




·
            117-145
      S. Marshall Street, Hartford, CT;
and




·
            56
      Webster Street, Hartford, CT.




16
 Table of Contents





Mr.
Mladen entered into the Stock Purchase Transactions with the specific intention
of taking control of our Company, and, subsequently, combining it with
Eternal.




Between
October 26, 2005 and October 31, 2005, we formed eight limited partnerships as
wholly-owned Delaware subsidiaries (the "Limited Partnerships").  At
the time of formation, we owned 100% of the partnership interests of each of the
Limited Partnerships.




As of November 4, 2005, the
pre-acquisition stockholders of Eternal, which consisted of David Mladen and
certain of his family members (the "Pre-Acquisition Eternal Stockholders"),
exchanged, in the aggregate, 100% of the issued and outstanding shares of common
stock of Eternal, for (i) limited partnership interests representing 20% of the
total partnership interests of each of the Limited Partnerships, and (b)
promissory notes in the aggregate principal amount of $2,610,006 (the "LP
Notes") (the "Eternal Acquisition").  The partnership interests of the
Limited Partnerships were exchanged for shares of common stock of Eternal based
upon the ratio which the value of each Property bears to the aggregate value of
all of the Properties.  As a result of the Eternal Acquisition, the
shares of common stock of Eternal are now 100% owned, in the aggregate, by the
Limited Partnerships.




In
consideration for our ownership of 80% of the total partnership interests of
each of the Limited Partnerships, we agreed to assume the LP
Notes.  The interest rate on the LP Notes is 7% per
annum.  The entire balance of principal and interest of the LP Notes
is due and payable on November 4, 2010.  The LP Notes may be prepaid
without penalty.  All payments shall be applied first toward the
payment of interest and the balance towards the reduction of
principal.




Pursuant
to the Partnership Agreements of the Limited Partnerships (the "Partnership
Agreements"), among other things, we (i) are the general partner of each of the
Limited Partnerships; and (ii) have the right to compel the limited partners
(i.e., the Pre-Acquisition Eternal Stockholders) to exchange 100% of their
limited partnership interests for shares of common stock of the
Company.




Since, at
the effective time of the Eternal Acquisition (and the Preferred Stock Purchase
Transaction and the Common Stock Purchase Transaction, consummated in
anticipation thereof): (i) the Pre-Acquisition Eternal Stockholders obtained a
majority of the shares of common stock of the combined entity after the
combination, (ii) Pre-Acquisition Eternal Stockholders obtained the ability to
elect and appoint a voting majority of the governing board of the combined
entity, and (iii) Eternal's officers and directors replaced ours as officers and
directors of the combined entity, the Eternal Acquisition was treated as a
reverse merger with Eternal as the accounting acquirer for financial reporting
purposes.




On
September 20, 2006, we reincorporated in the State of Maryland by virtue of our
merger with and into Excellency Investment Realty Trust, Inc., our Maryland
subsidiary (the "Maryland Subsidiary"), which had been organized for that
purpose (the "Reincorporation by Merger").  As a result of the
Reincorporation by Merger, among other things:




·
            The
      surviving company and successor filer is known as Excellency Investment
      Realty Trust, Inc.;




·
            Each
      share of our issued and outstanding common stock and preferred stock was
      converted into one share of the Maryland Subsidiary's common stock and
      preferred stock, respectively;




·
            The
      title to all of our property automatically vested in the Maryland
      Subsidiary;




·
            The
      Maryland Subsidiary assumed all of our
  liabilities;




·
            Corporate
      actions of the surviving entity are now governed by the Maryland
      Corporations and Associations Law and by the Maryland Subsidiary's
      Articles of Amendment and Restatement of Articles of Incorporation and
      Bylaws;




·
            David
      Mladen, who was our sole officer and director, continued to serve as the
      sole officer and director of the surviving
  entity;




·
            The
      trading symbol for the surviving entity's common stock, which is quoted on
      the over-the-counter bulletin board of the National Association of
      Securities Dealers, was changed to "EIVR";
and




·
            The
      total number of shares of stock which the surviving entity is authorized
      to issue has increased to 201,000,000 shares, of which 200,000,000 shares
      are common stock, $0.01 par value per share and 1,000,000 are preferred
      stock, par value $0.01.




While the
Reincorporation by Merger resulted in changes to our name and state of
incorporation, as well as the other changes listed above, it did not result in
any material changes to our business, management, assets, liabilities or net
worth.




We are
engaged in the business of acquiring, developing, holding for investment,
operating and selling apartment properties in metropolitan areas on the east
coast of the United States.  We intend to qualify as a real estate
investment trust, or REIT, under the Internal Revenue Code of 1986, as
amended.




17
 Table of Contents





Through
our subsidiaries, we own eight residential real estate Properties, consisting of
an aggregate of 273 apartment units, and comprising a total of approximately
221,839 square feet, all of which are leased to residential
tenants.  Each of the Properties is located in the metropolitan
Hartford area of Connecticut.




We
operate in the real estate industry segment.  We do not have any
foreign operations, and our business is not seasonal.  See the
Consolidated Financial Statements attached hereto and incorporated by reference
herein for financial information relating to our industry segment.




Trends
and Uncertainties




We are
not aware of any material trends or uncertainties, favorable or unfavorable,
other than national economic conditions affecting real estate generally, that
may be reasonably anticipated to have a material impact on either capital
resources or the revenues or income to be derived from the acquisition and
operation of the Properties, other than those identified below.




Increasing
Demand For Rental Apartments




Based on
certain demographic trends, in particular, the growth of the "Echo Boomer"
generation, we believe we are well-positioned to continue achieving our
objectives.  While there is no guarantee that individuals making up
this group will choose renting versus ownership, we believe the increase in this
age group will have a positive demand for the number of rental
households.  Echo Boomers are now entering into the age group having
the greatest propensity to rent.  The number of individuals between
the ages of 18-39 is expected to grow significantly over the next 20
years.




Strong
Demand Due To Restrictive Lending Environment




The
40-year historic lows reached on mortgage interest rates in recent years
provided some individuals with the opportunity to purchase homes at similar
costs to renting, particularly when utilizing short-term variable
mortgages.  However, with the more recent increases in credit criteria
and more restrictive lending practices, this attractive alternative may have
faded for some and the apartment sector is in a position to reap the
benefits.  If a restrictive lending environment continues, then the
number of individuals purchasing homes will typically decline.  As
rental apartments directly compete with the single-family home and condominium
sectors of the economy, the demand for new and existing rental apartment
communities may rise when demand for purchasing homes falls.  We
believe this will be beneficial for apartment owners as it should translate into
greater demand, higher occupancy rates, fewer concessions needed to attract
renters, and therefore increased profitability of our apartment
communities.




Consolidation
with White Knight Management, LLC




Until
June 30, 2006, our Properties were managed by White Knight Management, LLC
("White Knight"), a related party owned (i) 99% by Goran Mladen, the son of
David Mladen, our majority shareholder and sole officer and director, and (ii)
1% by Gorica Mladen, David Mladen's daughter.  The Properties were
managed pursuant to an oral agreement we had with White Knight, according to
which White Knight collected the rents for all eight of our Properties and paid
our operating expenses.  In consideration for such services, White
Knight was entitled to retain a management fee of approximately 4% of our rent
revenues.




Property
management Fees were $31,019 for the year ended December 31, 2006.  As
of December 31, 2006, White Knight had retained amounts of rent in excess of
expenses paid on our behalf totaling $171,767.  We wrote off such
amounts due from White Knight, as we determined the amounts were not
collectible.




Effective
July 1, 2006, we discontinued our arrangement with White Knight and assumed all
responsibilities for the management of our Properties.  Therefore,
there were no property management fees for the fiscal year ended December 31,
2007or 2008.




As of
September 30, 2009 and 2008, we have consolidated our financial statements with
White Knight.  In accordance with the Financial Accounting Standards
Board ("FASB") Interpretation No. 46R, "Consolidation of Variable Interest
Entities" ("FIN 46R"), an interpretation of Accounting Research Bulletin No. 51,
a variable-interest entity ("VIE") is to be consolidated by a company if that
company is subject to a majority of the risk of loss for the VIE or is entitled
to receive a majority of the VIE's residual returns.




Mortgage
Notes Payable to Astoria Federal Mortgage Corp.




As a
result of the Eternal Acquisition, we are the owner of eight Properties, all in
the metropolitan Hartford, Connecticut area.




As of
December 27, 2005, we borrowed an aggregate of $8,224,000 from Astoria Federal
Mortgage Corp., in connection with the refinancing of the Properties, evidenced
by eight notes payable (the "Mortgage Notes").  The Mortgage Notes
bear interest at a rate equal to the five (5) year "Fixed Rate Advance" as
determined by the Federal Home Bank of New York, plus 2.500%, rounded to the
nearest one-eighth of one percent (0.125%).  The initial interest rate
on the Mortgage Notes, of 5.625%, will remain in effect for 84
months.  Thereafter, the interest rate will be adjusted every sixty
(60) months.  The loans are repayable in monthly installments of
principal and interest, due on the first day of each month, commencing February
1, 2006.  The principal and interest payments will be based on a 360
month amortization.  The Mortgage Notes mature on January 1, 2018, at
which time the entire unpaid principal balance, plus accrued interest thereon,
shall be payable.  The Mortgage Notes are secured against each
respective Property.  David Mladen, our majority stockholder, and sole
officer and director, has guaranteed up to 5% of the outstanding balance of the
principal with interest for the life of the loan.




18
 Table of Contents





The
following sets forth certain material terms of each of the Notes as of September
30, 2009:




Monthly
                
                
                MortgagePrincipal
      &
                
                
                Prin.
      Bal.Property
                
                Interest
                
                
                9/30/200956
      Webster
                
                
                2,763
                
                
                
                454,989270
      Laurel
                
                
                11,513
                
                
                
                1,895,788252
      Laurel
                
                
                3,362
                
                
                
                553,570243
      - 255 Laurel
                
                
                6,493
                
                
                
                1,069,22521
      Evergreen
                
                
                4,053
                
                
                
                667,317117-145
      S. Marshall
                
                
                8,243
                
                
                
                1,357,384154-160A
      Collins
                
                
                7,507
                
                
                
                1,236,054360
      Laurel
                
                
                3,408
                
                
                
                561,15347,342
                
                
                
                7,795,480




We used
the amounts borrowed from Astoria Federal Mortgage Corp. to repay the aggregate
amount of $5,263,472 of principal and interest we owed under previous mortgages
with Credit Suisse First Boston Mortgage Capital, LLC.  In connection
with such refinancing, we incurred approximately $654,083 in pre-payment
penalties in fiscal 2005.  The remaining funds have been used to
purchase all of the limited partnership interests of our subsidiary Limited
Partnerships owned by Goran Mladen, the son of our majority stockholder and sole
officer and director, and for general working capital purposes.




Repayment
of Promissory Notes Payable - Related Party




As of
November 4, 2005 (the "Loan Date"), the Pre-Acquisition Eternal Stockholders of
Eternal Enterprise, Inc., which were comprised of David Mladen, our majority
shareholder and sole officer and director, and Mr. Mladen's son,
daughter-in-law, daughter, and son-in-law, exchanged, in the aggregate, 100% of
the issued and outstanding shares of common stock of Eternal, for (i) limited
partnership interests representing 20% of the total partnership interests in
each of the Limited Partnerships, and (ii) unsecured promissory notes payable to
the Pre-Acquisition Eternal Stockholders in the aggregate principal amount of
$2,610,006 (the "LP Notes').  In consideration for our ownership of
80% of the total partnership interests of each of the Limited Partnerships, we
agreed to assume the LP Notes.




The
interest rate on the LP Notes is 7% per annum.  The entire balance of
principal and interest of the LP Notes is due and payable on November 4,
2010.  The LP Notes may be prepaid without penalty.  All
payments shall be applied first toward the payment of interest and the balance
towards the reduction of principal.




As of
September 30, 2009, the total amount due under the LP Notes was
$1,970,407.




Liquidated
Damages




In
connection with David Mladen's purchase of 11,000 shares of our Series A
Preferred Stock (the "Preferred Stock") on September 29, 2005, we entered into a
Registration Rights Agreement with Mr. Mladen (the "Registration Rights
Agreement"), pursuant to which we agreed to prepare, and, on or prior to the
sixtieth (60th) day following the date of such purchase, file with the
Securities and Exchange Commission a resale Registration Statement on Form SB-2
(the "Resale Registration Statement"), to register all of the shares of our
Common Stock underlying the Preferred Stock.  Further, pursuant to the
Registration Rights Agreement, we are required to use best efforts to (a) have
the SEC declare the Resale Registration Statement effective within ninety (90)
days after filing the Resale Registration Statement with the SEC (or one hundred
and twenty (120) days if we receive any comments on the Registration Statement
from the SEC), and (b) maintain the effectiveness of the Resale Registration
Statement until all such common shares have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) of the Securities Act of 1933, as
amended.




If we (i)
fail to file the Resale Registration Statement, or (ii) fail to have the
Registration Statement declared effective within required period, or (iii) if
effectiveness is not maintained, the Registration Rights Agreement requires us
to make payments to Mr. Mladen in an aggregate amount equal to two percent (2%)
per month of $9,000,000 (assuming the sale of $9,000,000 of the aggregate fair
market value of the Conversion Shares), multiplied by the number of months
(prorated for partial months) until the failure is cured.




19
 Table of Contents





We were
not able to file the Resale Registration Statement on or prior to the required
filing date and, as a result, began incurring liquidated damages equal to
$180,000 per month (the "Liquidated Damages").




As of
June 30, 2006, we had still failed to file the Resale Registration
Statement.  At that time, Mr. Mladen agreed to waive approximately
$1,174,000 of Liquidated Damages due to him pursuant to the Registration Rights
Agreement.  Such amount was accounted for in our financial statements
as a contribution of capital.




On
October 18, 2006, we issued 43,500 shares of our Series C convertible preferred
stock to Mr. Mladen, in consideration for his agreement to waive an additional
$720,000 of Liquidated Damages due to him for the period between July 1, 2006
and October 31, 2006.




The
Resale Registration Statement was filed on November 29,
2006.  However, on February 2, 2007, the Company filed a request to
withdraw the Registration Statement with the Commission. Mr. Mladen had agreed
to waive the liquidated damages which were due to him through June 30, 2007, but
as a result of the withdrawal of the Registration Statement the contingent
liability increased to $8,169,394 as of December 31, 2008, and $9,789,394 as of
September 30, 2009.




We had
adopted View C of EITF 05-4 "Effect of Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF 00-19" ("EITF
05-4").  Accordingly, we classified as liability instruments the fair
value of registration rights agreements when such agreements (i) require it to
file, and cause to be declared effective under the Securities Act, a
registration statement with the SEC within contractually fixed time periods, and
(ii) provide for the payment of liquidating damages in the event of its failure
to comply with such agreements.




Previously,
under View C of EITF 05-4, (i) registration rights with these characteristics
are accounted for as derivative financial instruments at fair value and (ii)
contracts that are (a) indexed to and potentially settled in an issuer's own
stock and (b) permit gross physical or net share settlement with no net cash
settlement alternative are classified as equity instruments.




We have
adopted EITF 00-19-2 and as a result no longer classify these registration
rights as a derivative instrument.  With the help of a valuation
specialist, we determined the likely settlement to be $8,169,394 as of December
31, 2008.  The analysis assumed an effective registration would not be
achieved by September 30, 2009, and additional accruals of $540,000 per quarter
are incurred.




Investment
Agreement with Dutchess Private Equities




On August
29, 2006, we entered into an Investment Agreement with Dutchess Private Equities
Fund, L.P.  ("Dutchess"), pursuant to which Dutchess committed to
purchase up to $25,000,000 of our Common Stock over the course of thirty six
(36) months.  The amount that we will be entitled to request from each
purchase ("Puts") shall be equal to, at our election, either (i) $250,000, or
(ii) 200% of the average daily volume (U.S. market only) of the Common Stock for
the 10 trading days prior to the applicable put notice date, multiplied by the
average of the 3 daily closing bid prices immediately preceding the put
date.  The put date shall be the date that Dutchess receives a put
notice of a draw down by us.  The purchase price shall be set at 93%
of the lowest closing Best Bid price of the Common Stock during the pricing
period.  The pricing period shall be the 5 consecutive trading days
immediately after the put notice date.  There are put restrictions
applied on days between the put date and the closing date with respect to that
particular Put.  During this time, we shall not be entitled to deliver
another put notice.  Further, we shall reserve the right to withdraw
that portion of the Put that is below 90% of the lowest closing bid prices for
the 10-trading day period immediately preceding each put notice.  As
of the date hereof, we have not requested any Puts under the Investment
Agreement.




The
Investment Agreement with Dutchess terminates either (a) when Dutchess has
purchased an aggregate of Twenty-Five Million dollars ($25,000,000) in shares of
Common Stock of the Company pursuant to the Investment Agreement, or (b)
thirty-six months after the effective date of the Investment
Agreement.




Dutchess
is not obligated to purchase any shares of the Common Stock, unless each of the
following conditions are satisfied at the time of purchase:




·
            a
      registration statement shall have been declared effective and shall remain
      effective and available for the resale of all the shares of Common Stock
      to be purchased by Dutchess;




·
            the
      Common Stock shall be listed, and shall not have been suspended from
      trading for a period of two (2) consecutive trading days, and the Company
      shall not have been notified of any pending or threatened proceeding or
      other action to suspend the trading of its Common
  Stock;




·
            the
      Company must have complied with its obligations and must not otherwise be
      in breach of or in default under the Investment Agreement, or other
      related transaction documents;




·
            no
      injunction shall have been issued and remain in force, or action commenced
      by a governmental authority, which has not been stayed or abandoned,
      prohibiting the purchase or the issuance of the shares of the Company's
      Common Stock to be purchased; and




·
            the
      issuance of the shares of Common Stock of the Company will not violate any
      shareholder approval requirements of the principal market or exchange on
      which the Common Stock is traded.




To date,
the Company has not delivered any Puts to Dutchess pursuant to the Investment
Agreement, and has no intention to do so in the foreseeable future.




20
 Table of Contents





Results
of Operations




As of
September 30, 2009 and 2008 we owned interests in eight
Properties.  Details on the Properties are as follows:




June
      30, 2009
              
              
              June
      30, 2008Name
      of Property
              
              Units
              
              
              Occupancy
      %
              
              
              Occupancy
      %252
      Laurel St
              
              
              18
              
              
              
              94
              %
              
              
              95
              %Hartford,06105243
      Laurel St
              
              
              34
              
              
              
              94
              %
              
              
              95
              %Hartford,06105255
      Laurel StHartford,06105270
      Laurel St
              
              
              77
              
              
              
              92
              %
              
              
              90
              %Hartford,06105117-145
      S.Marshall
              
              
              43
              
              
              
              100
              %
              
              
              100
              %Hartford,06105154-160A
      Collins St
              
              
              41
              
              
              
              93
              %
              
              
              88
              %Hartford,0610556
      Webster St
              
              
              16
              
              
              
              94
              %
              
              
              92
              %Hartford,
      06114360
      Laurel St
              
              
              18
              
              
              
              0
              %
              
              
              0
              %Hartford,CT
              
              Under
      Renovation21
      Evergreen
              
              
              24
              
              
              
              80
              %
              
              
              85
              %Hartford,
      06105




21
 Table of Contents


Comparison
Of Operations For The Three Months Ended September 30,  2009 To The
Three Months Ended September 30, 2008




The
following summarizes changes in our operations for the three-month periods ended
September 30, 2009 and 2008.  We had a net loss of $528,386 for three
month period ended September 30, 2009, compared to a net loss of $160,428 for
the three-month period ended September 30, 2008.  One of the main
reasons for this reduction was an decrease in rental revenue of $31,511 (7%); a
decrease in our property operating costs of $110,840(34%); and in the
three-month period ended September 30, 2009,  we incurred a loss on
registration rights penalty of  $540,000, and $0 for the three month
period ended September 30, 2008.  The total penalty of $1,833,473 for
2008 was accounted for in the first quarter.




Rental
Revenue




Revenues
decreased $31,511, to $424,814 from $456,324, or approximately 7%, in the
three-month period ended September 30, 2009, compared to the same period in the
prior year.  This decrease was primarily related to the vacancy
factors.




Property
Operating Costs




Property
operating costs decreased $110,840, to $215,447 from $326,287, or approximately
34%, in the third quarter of 2009 as compared to same period in
2008.  The decrease was primarily related to a reduction in
subcontract labor, and a reduction in our utilities costs.




General
and Administrative




General
and administrative expense decreased $27,325, to $51,883 from $79,208, or
approximately 34%, in the third quarter of 2009 as compared to same period in
2008.  The decrease was primarily related to a reduction in
professional fees.




Depreciation
and Amortization




Depreciation
and amortization expense in the three-month period ended September 30, 2009 was
$55,181 as compared to $48,326, for the prior year.




Interest
Expense




Interest
expense decreased $12,907, to $151,412 from $164,319, or approximately 8%, in
the three-month period ended September 30, 2009, as compared to same period in
2008.  The reason for this decrease was primarily related to decreased
interest on outstanding promissory notes, due to principal
repayments.




Loss
on Registration Rights Penalty




In the
three-month period ended September 30, 2009, we had a loss on registration
rights penalty of $540,000, resulting from our failure to satisfy certain
registration requirements, as further described in the "Liquidated Damages"
section above.  For the same period in 2008, the loss was $0 due to a
revaluation of the penalty by professional appraisers, and the reporting of the
entire 2008 loss in the quarter ended March 31, 2008.




Liquidity
and Capital Resources




As of
September 30, 2009, our cash and cash equivalents were $42,933.  This
represents a decrease of $4,335 from the beginning of our fiscal
year.  All cash and cash equivalents are held in money market or
checking accounts.




As of
September 30, 2009, we had a net stockholders' deficit of
$16,296,362.




We expect
that the rental income we receive from tenants of our Properties will be our
primary source of funds going forward.  In order to acquire additional
apartment properties, and, if necessary, to fund our operations, we may
determine to take out additional loans from financial institutions or raise
funds from one or a combination of debt offerings and equity
offerings.  Management plans to manage cash flows
carefully.  However, we have no assurance that sufficient cash flow
will be generated in the future to meet our operating
requirements.  This raises substantial doubt about our ability to
continue as a going concern.




22
 Table of Contents


Comparison
Of Operations For The Nine months Ended September 30,  2009 To The
Nine months Ended September 30, 2008




The
following summarizes changes in our operations for the nine month periods ended
September 30, 2009 and 2008.  We had a net loss of $1,633,950 for nine
month period ended September 30, 2009, compared to a net loss of $2,242,207 for
the nine month period ended September 30, 2008.  The main reasons for
this reduction was an increase in rental revenue of $21,562 (2%); a decrease in
our property operating costs of $273,457 (32%); and in the nine month period
ended September 30, 2009,  we incurred a loss on registration rights
penalty of  $1,620,000, and $1,833,473 for the nine month period ended
September 30, 2008.  The total penalty of $1,833,473 for 2008 was
accounted for in the first quarter.




Rental
Revenue




Revenues
increased $21,562, to $1,348,644 from $1,327,082, or approximately 2%, in the
nine month period ended September 30, 2009, compared to the same period in the
prior year.  This increase was primarily related to the higher average
rental rates.




Property
Operating Costs




Property
operating costs decreased $273,457, to $568,900 from $842,357, or approximately
32%, in the nine month period ended September 30, 2009 as compared to same
period in 2008.  The decrease was primarily related to a reduction in
subcontract labor, and a reduction in our utilities costs.




General
and Administrative




General
and administrative expense remained relative constant for the nine month periods
ended September 30, 2009 and 2008.




Depreciation
and Amortization




Depreciation
and amortization expense in the nine month period ended September 30, 2009 was
$165,347 as compared to $153,810, for the prior year.




Interest
Expense




Interest
expense decreased $53,871, to $437,108 from $490,979, or approximately 11%, in
the nine month period ended September 30, 2009, as compared to same period in
2008.  The reason for this decrease was primarily related to decreased
interest on outstanding promissory notes, due to principal
repayments.




Loss
on Registration Rights Penalty




In the
nine month period ended September 30, 2009, we had a loss on registration rights
penalty of $1,620,000, resulting from our failure to satisfy certain
registration requirements, as further described in the "Liquidated Damages"
section above.  For the same period in 2008, the loss was $1,833,473
due to a revaluation of the penalty by professional appraisers.




Uses
of Capital




Net
Cash From Operations




During
the nine months ended September 30, 2009, $289,308 was provided by operations,
compared to $134,250 used in operations during the same period in fiscal
2008.  The main reasons for this change were a $612,139 reduction in
our net loss for the nine months ended September 30, 2009, as compared to the
same period in the previous year, a decrease in our reserve for loss on
registration rights penalty of $213,473, and a reduction of $75,900 in our
accounts receivable for the period.




Net
Cash From Financing Activities




During
the nine month period ended September 30, 2009, we used $293,643 in financing
activities, compared to $44,790 provided by financing activities during the same
period in 2008.




Critical
Accounting Policies




23
 Table of Contents


Principles of
Consolidation
  The
accompanying consolidated financial statements include the accounts of
Excellency Investment Realty Trust, Inc., its controlled subsidiaries comprised
of certain Limited Partnerships (see Note 1), and Eternal Enterprise, Inc.
(wholly owned in the aggregate by the Limited Partnerships) (hereinafter
collectively referred to as the "Company"). As noted above, the historical
financial statements as presented reflect the operations of Eternal as a result
of the Reverse Merger. The Company records minority interest for the non-owned
portions of consolidated subsidiaries, however, these subsidiaries have not
generated any income to warrant the recording of such minority interests through
September 30, 2009. All significant inter-company transactions and accounts have
been eliminated in the consolidated financial statements.


The
accompanying consolidated financial statements include accounts of White Knight
Management, LLC. in which the Company has a controlling financial
interest.   The usual condition for a controlling financial
interest is ownership of a majority of the voting interests of an entity.
However, a controlling financial interest may also exist in entities, such a
special purpose entity ("SPE"), through arrangements that do not involve voting
interest. The Company has determined that White Knight Management, LLC is a VIE
and that the Company is the primary beneficiary as of September 30, 2009 and
2008.




Loss Per Common
Share




Net loss
per common share is based on the weighted average number of shares of common
stock outstanding during the applicable period. Basic loss per share is computed
by dividing loss available to common stockholders by the weighted average number
of common shares outstanding during the period. The common stock equivalents for
the Company's preferred stock and treasury shares were not included in the
computation of diluted loss per share because that would have diluted earnings
per share that had a basic loss per share of $0.04 and $0.05, for the nine
months ended September 30, 2009 and 2008, respectively.




Recently Adopted and
Recently Issued Accounting Guidance








Adopted


On
September 30, 2009, Excellency Investment Realty Trust, Inc. adopted changes
issued by the Financial Accounting Standards Board (FASB) to the authoritative
hierarchy of GAAP.These changes
establish the FASB Accounting Standards CodificationTM
(Codification) as the source of authoritative accounting principles recognized
by theFASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of theSecurities
and Exchange Commission (SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The FASBwill no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead the FASB will issueAccounting
Standards Updates. Accounting Standards Updates will not be authoritative in
their own right as they will only serve to update the Codification.These changes
and the Codification itself do not change GAAP. Other than the manner in which
new accounting guidance is referenced, the adoption of thesechanges had
no impact on the Financial Statements.




Fair Value Accounting. On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to fair value disclosures of financial instruments. These changesrequire a
publicly traded company to include disclosures about the fair value of its
financial instruments whenever it issues summarized financial information
forinterim
reporting periods. Such disclosures include the fair value of all financial
instruments, for which it is practicable to estimate that value, whether
recognizedor not
recognized in the statement of financial position; the related carrying amount
of these financial instruments; and the method(s) and significant
assumptionsused to
estimate the fair value. The adoption of these changes had noimpact on the
Financial Statements.




On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to fair value accounting. These changes provide additional guidance for
estimating fairvalue when
the volume and level of activity for an asset or liability have significantly
decreased and includes guidance for identifying circumstances that indicatea transaction
is not orderly. This guidance is necessary to maintain the overall objective of
fair value measurements, which is that fair value is the price thatwould be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date under
currentmarket
conditions. The adoption of these changes had no impact on the Financial
Statements.




On June
30, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued by the
FASB to the recognition and presentation of other-than-temporary impairments.
These changesamend
existing other-than-temporary impairment guidance for debt securities to make
the guidance more operational and to improve the presentation anddisclosure of
other-than-temporary impairments on debt and equity securities. The adoption of
these changes had no impact on the Financial Statements.




On
January 1, 2009, Excellency Investment Realty Trust, Inc. adopted changes issued
by the FASB to fair value accounting and reporting as it relates to nonfinancial
assets and nonfinancialliabilities
that are not recognized or disclosed at fair value in the financial statements
on at least an annual basis. These changes define fair value, establish aframework for
measuring fair value in GAAP, and expand disclosures about fair value
measurements. This guidance applies to other GAAP that require orpermit fair
value measurements and is to be applied prospectively with limited exceptions.
The adoption of these changes, as it relates to nonfinancial assets andnonfinancial
liabilities, had no impact on the Financial Statements. These provisions will be
applied at such time a fair value measurement of a nonfinancial assetor
nonfinancial liability is required, which may result in a fair value that is
materially different than would have been calculated prior to the adoption of
thesechanges.




24
 Table of Contents





Financial Statement
Presentation




Because
the Company is engaged in the rental and sale of real estate, the operating
cycle may extend beyond one year. Accordingly, following the usual practice of
the real estate industry, the accompanying consolidated balance sheet is
unclassified.




Use of
Estimates




The
preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. Management
makes these estimates using the best information available at the time the
estimates are made; however actual results could differ materially from those
estimates.





Going
Concern





The
Company has suffered recurring losses from operations. During the nine months
ended September 30, 2009, the Company had a net loss of ($1,633,951), and has a
net accumulated deficit of $18,550,848 as of September 30, 2009, all of which
raise substantial doubt about the Company's ability to continue as a going
concern. Management does plan to raise capital through any combination of debt
and equity financing. However, the Company has no assurance that sufficient cash
flow will be generated in the future to meet its operating requirements. As a
result of the above, the accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




Contractual
Obligations and Commercial Commitments




Our
contractual obligations, as of September 30, 2009, were as follows:




Less
      Than
              
              
              
              
              
              
              
              
              OverTotal
              
              
              1
      year
              
              
              2-3
      years
              
              
              4-5
      years
              
              
              5
      yearsMortgage
      notes payable
              
              
              7,795,480
              
              
              
              60,945
              
              
              
              277,548
              
              
              
              309,748
              
              
              
              7,147,239Promissory
      notes payable - related party
              
              
              1,970,407
              
              
              
              -
              
              
              
              1,970,407
              
              
              
              -
              
              
              
              -Line
      of Credit
              
              
              68,605
              
              
              
              68,605
              
              
              
              -
              
              
              
              -
              
              
              
              -


Critical
Accounting Policies




The
preparation of Excellency’s consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect reported assets, liabilities, revenues,
and expenses, and the disclosure of contingent assets and
liabilities.  Excellency bases estimates and judgments on historical
experience and on various other assumptions management believes to be reasonable
under the circumstances.  Future events, however, may differ markedly
from current expectations and assumptions.  While there are a number
of significant accounting policies affecting Excellency’s consolidated financial
statements, management believes the following critical accounting policies
involve the most complex, difficult and subjective estimates and
judgments.




Off-Balance
Sheet Arrangements




We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.




25
 Table of Contents





Item 3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.




We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.




Item 4.
            Controls
      and Procedures.




See Item
4(T) below.




Item 4(T).
            Disclosure
      Controls and Procedures.




Our
management is responsible for establishing and maintaining disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of 1934 (the
“Exchange Act”) is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission (the “SEC”), and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of “disclosure controls and
procedures” in Rule 15d-15(e) under the Exchange Act. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.





At the
end of the period covered by this Quarterly Report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that, as of September 30, 2009, the disclosure
controls and procedures of our Company were not effective to ensure that the
information required to be disclosed in our Exchange Act reports was recorded,
processed, summarized and reported on a timely basis.





During
our review of controls for the audited period ended December 31, 2008, and in
the process of preparing our Annual Report, our management discovered that there
are material weaknesses in our internal controls over financial reporting. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. The material weaknesses
identified during the preparation of the Annual Report were (i) insufficient
evidence of a robust corporate governance function; (ii) lack of sufficient
resources with SEC, generally accepted accounting principals (GAAP); (iii)
inadequate security over information technology and (iv) lack of evidence to
document compliance with the operation of internal accounting controls in
accordance with our policies and procedures. These control deficiencies could
result in a material misstatement of significant accounts or disclosures that
would result in a material misstatement to our interim or annual financial
statements that would not be prevented or detected. Accordingly, management has
determined that these control deficiencies constitute material weaknesses, and
still exist as of September 30, 2009.





Changes
in Internal Control Over Financial Reporting





There
were no changes in internal controls over financial reporting that occurred
during the quarter ended September 30, 2009, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





This
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.


26
 Table of Contents


PART
II




Other
Information




Item 1.
            Legal
      Proceedings.




Securities and Exchange Commission
v. Excellency Investment Realty Trust, Inc. and David D. Mladen, Case No.
308CV01583 filed in the United Stated District Court District of Connecticut on
October 16, 2008.  The case was filed by the SEC alleging that a
market manipulation scheme in which Defendants Excellency Investment Realty
Trust, Inc. and David D. Mladen, our president, chief executive officer and
majority shareholder, allegedly engaged in a number of transactions designed to
artificially inflate the price of our common stock by making purchases and sales
in the stock.  After this case had been pending for a number of
months, on July 14, 2009, a final judgment was filed in the US District Court of
New Haven, CT.  It was ordered that David D. Mladen is prohibited for
five years following the date of the filing from acting as an officer or
director of any issuer that has a class of securities registered pursuant to
Section 12 of the Exchange Act.  Additionally, Mr. Mladen was ordered
to pay a disgorgement of $5,000, representing profits gained as a result of the
conduct alleged in the original complaint, together with prejudgment interest of
$254.  Finally, Mr. Mladen was ordered to pay a civil penalty in the
amount of $50,000.





David D.
Mladen (“Mr. Mladen”), resigned his positions as of August 13, 2009. Mr. Mladen
voluntarily resigned in his capacities in keeping with the agreement reached in
settlement of the civil litigation previously initiated by the U.S. Securities
and Exchange Commission against the Company and Mr. Mladen, individually. Mr.
Mladen’s agreement, as it relates to his inability to serve as an Officer or
Director of the Company, which is to not serve as an Officer or a Director for a
period of five (5) years, was approved by the United States District Court,
District of Connecticut in SEC v. Excellency Investment Realty Trust, Inc. and
David D. Mladen, Case No. 3:08-cv-0158-JBA, by Final Judgment dated July 15,
2009, which becomes non-appealable on August 17, 2009.  There is no
disagreement between Mr. Mladen and the Company regarding his voluntary
resignation announced in this Form 8-K, as settlement of the SEC litigation by
consenting to the five year bar that was included in the Final Judgment was
believed to be in the Company’s and Mr. Mladen’s best interest.





Effective
prior to the date and time of Mr. Mladen’s voluntary resignation as an Officer
and Director of the Company, Gorica Adduci, who has worked in the real estate
industry for quite some time, was appointed by the Directors of the Company as a
replacement Director, President and the Interim Chief Executive Officer to
replace those roles historically filled by Mr. Mladen until the next regularly
scheduled meeting of shareholders where Directors stand for
re-election.





Although
the terms and conditions of Mr. Mladen’s consulting agreement entered into with
the Company have not yet been finalized, Mr. Mladen has preliminarily agreed to
remain available to the Company’s management as a consultant to provide
consulting services that may be requested of him by the Company’s management
from time-to-time.








Item 1A.
            Risk
      Factors.




We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.




Item 2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds.




In the
nine month period ended September 30, 2009, and subsequent period through the
date hereof, we did not issue any unregistered securities.




Item 3.
            Defaults
      Upon Senior Securities.




During
the nine month period ended September 30, 2009, and subsequent period through
the date hereof, we did not default upon any senior securities.




Item 4.
            Submission
      of Matters to a Vote of Security
Holders.




No
matters were submitted to a vote of our security holders during the nine month
period ended September 30, 2009, or subsequent period through the date
hereof.




Item 5.
            Other
      Information.




There was
no information we were required to disclose in a report on Form 8-K during the
nine month period ended September 30, 2009, or subsequent period through the
date hereof, that we did not report.


27
 Table of Contents


Item 6.
            Exhibits.




Exhibit No.
            
            Identification of
Exhibit31.1*
            
            Certification of Gorica Adduci, Chief Executive Officer
      of Excellency Investment Realty Trust, Inc., pursuant to 18 U.S.C. §1350,
      as adopted pursuant to §302 of the Sarbanes-Oxley Act of
      2002.31.2*
            
            Certification of Richard Pelletier, Chief Financial
      Officer of Excellency Investment Realty Trust, Inc., pursuant to 18 U.S.C.
      §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of
      2002.32.1*
            
            Certification of Gorica Adduci, Chief Executive Officer
      of Excellency Investment Realty Trust, Inc., pursuant to 18 U.S.C. §1350,
      as adopted pursuant to §906 of the Sarbanes-Oxley Act of
      2002.32.2*
            
            Certification of Richard Pelletier, Chief Financial
      Officer of Excellency Investment Realty Trust, Inc., pursuant to 18 U.S.C.
      §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of
      2002.





*      Filed
Herewith




28
 Table of Contents







SIGNATURES




In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.




EXCELLENCY
INVESTMENT REALTY TRUST, INC.




Date:
November 23,2009.


By/s/ Gorica
Adduci


Gorica
Adduci, Chief Executive Officer








By/s/ Richard
Pelletier


Richard
Pelletier, Chief Financial Officer











Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/ Gorica
      Adduci
            
            President,
      Chief Executive Officer and Director
            
            November
      23, 2009/s/ Richard Pelletier
            
            Chief
      Financial Officer
            
            November
      23, 2009









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 Table of Contents