Form 10QSB Home System Group

Quarterly report pursuant to section 13 and 15(d) for small business issuers

What is Form 10QSB?
  • Accession No.: 0001170181-05-000015 Act: 34 File No.: 000-49770 Film No.: 05840059
  • CIK: 0001172319
  • Submitted: 2005-05-18
  • Period of Report: 2005-03-31

10QSB HTML

supremerealty_10qsb-051605.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended

March 31, 2005

 

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

For the transition period from

 

to

 

Commission file number

000-49770

 

SUPREME REALTY INVESTMENTS, INC.
(Exact name of small business issuer as specified in its charter)

 

Nevada
(State or other jurisdiction of incorporation or organization)

43-195-4776
(IRS Employer Identification No.)

 

7380 Sand Lake Road - Suite 500, Orlando, FL 32819
(Address of principal executive offices)

 

(407) 352-3960
(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No []

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

Not Applicable

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

46,000,000 common shares issued and outstanding as of March 31, 2005

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

SUPREME REALTY INVESTMENTS, INC.
INDEX

 

 

 

Page No.

PART 1 - FINANCIAL INFORMATION

4

 

ITEM 1. FINANCIAL STATEMENTS

5

 

Supreme Financial Statements March 31, 2005 and 2004

5

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

17

 

General

17

 

Three months ended March 31, 2005 versus three months ended March 31, 2004

17

 

Results of Operations

17

 

Revenue

17

 

General and Administrative Expenses

17

 

Liquidity and Capital Resources

17

 

ITEM 3: CONTROLS & PROCEDURES

18

 

PART II - OTHER INFORMATION

19

 

ITEM 1. LEGAL PROCEEDINGS

19

 

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

19

 

Changes in Securities

19

 

Recent Sales of Unregistered Securities

19

 

Recent Sales of Registered Securities

19

 

Use of Proceeds

19

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

19

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

19

 

ITEM 5. OTHER INFORMATION

19

 

ITEM 6. EXHIBITS

19

 

a. Exhibits

20

SIGNATURES

20

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The information in this report is for the three month period ended March 31, 2005, is unaudited but includes all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) which Supreme Realty Investments, Inc. ("Supreme " or the "Company") considers necessary for a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for those periods.

The condensed consolidated financial statements should be read in conjunction with Supreme's financial statements and the notes thereto contained in Supreme's Audited Financial Statements for the year ended December 31, 2004, in the From 10-KSB as filed with the SEC on April 15, 2005.

Interim results are not necessarily indicative of results for the full fiscal year.

SUPREME REALTY INVESTMENTS, INC.

UNAUDITED CONSOLIDATED BALANCE SHEET

As of March 31

2005

 

2004

ASSETS:

 

 

Current Assets:

 

 

Cash & Cash Equivalents

$

(977)

 

3,486

Stock Subscriptions Receivable

1,600,000

-0-

Accounts Receivable

7,379

 

36,000

Less: Allowance for Doubtful Accounts

-0-

-0-

Total Current Assets

1,606,401

 

39,486

Real Estate Investments: 

 

 

Existing Properties

1,466,000

 

1,966,000

New Property Acquisitions

-0-

 

-0-

Gross Properties

1,466,000

 

1,966,000

Less: Accumulated Deprec.

(203,877)

 

(140,493)

Total Real Estate Investments

1,262,123

 

1,825,507

Total Investments

1,262,123

 

1,825,507

Other Assets:

 

 

Furniture/Fixtures/Equipment

11,662

 

11,662

Less: Accumulated Deprec.

(7,062)

 

(5,439)

Total Other Assets

4,600

 

6,223

 

 

 

TOTAL ASSETS

2,873,124

 

1,871,216

LIABILITIES:

 

 

Current Liabilities

858,932

 

1,282,417

Notes Payable

-0-

 

12,000

Mortgages Payable

-0-

-0-

Total Liabilities

858,932

 

1,294,417

STOCKHOLDER'S EQUITY:

 

 

Common Stock, $0.01 par, 200,000,000 authorized, 46,000,000 outstanding

46,000

 

64,356

Additional Paid In Capital

2,207,146

 

608246

Retained Earnings (Deficit)

(238,954)

 

(78,303)

Less: Treasury Stock

-0-

(17,500)

Total Stockholder Equity

2,014,192

576,799

 

 

TOTAL LIABILITIES & EQUITY

2,873,124

1,871,216

SUPREME REALTY INVESTMENTS, INC.

UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS

For the Three Months Ended March 31

2005

2004

REVENUES:

Revenues from Rental Properties

$

1,273

47,860

Revenues from Mortgage Banking

30,000

Revenues from Realty & Management

TOTAL REVENUES

1,273

77,860

PROPERTY OPERATING EXPENSES:

Real Estate Taxes

-0-

3,000

Mortgage Interest

-0-

4,259

Operations and Maintenance

-0-

8,677

Depreciation and Amortization

13,327

18,413

Total Property Expenses

13,327

34,339

GENERAL EXPENSES:

Salaries, Commissions, & Employee Benefits

10,463

16,738

General & Administrative Expenses

3,827

18,363

Interest Expense

-0-

-0-

Depreciation & Amortization

547

548

Total General Expenses

14,838

35,649

TOTAL EXPENSES

28,165

69,988

NET INCOME(LOSS) Before Taxes & Extraordinary Items

(26,892)

7,872

Provision for Income Taxes

-0-

NET INCOME(LOSS)

(26,892)

7,872

Weighted Average Common Shares Outstanding

46,000,000

19,338,827

NET INCOME per Common Share

0.00

0.00

 

SUPREME REALTY INVESTMENTS, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW

For the Three Months Ended March 31

2005

2004

CASH FLOW FROM OPERATING ACTIVITIES:

Net Income

(26,892)

7,872

Adjustments to reconcile net income to cash providedby Operating Activities

Depreciation and Amortization

13,875

18,961

Provision for Income Taxes

-0-

1,181

(Increase) Decrease in Receivables

-0-

(26,400)

(Increase) Decrease in Prepaid Expenses

-

-

Increase (Decrease) in Current Liabilities

7,915

(871)

Net Cash from Operating Activities

(5,102)

(438)

CASH FLOW FROM INVESTING ACTIVITIES:

Purchases of Furniture, Fixtures, & Equipment

-0-

-0-

Proceeds from the Sale of:

Furniture, Fixtures, & Equipment

-0-

541

Real Estate Improvements

-0-

-0-

Net Cash from Investing Activities

-0-

541

CASH FLOW FROM FINANCING ACTIVITIES:

Proceeds from:

Borrowings-Mortgages

-0-

-0-

Issuance of Common Stock

-0-

-0-

Payments for:

Debt Repayment

-0-

-0-

Net Cash from Financing Activities

-0-

-0-

Net Change In Cash

(5,102)

103

Cash Balance, January 1

4,125

3,383

Cash Balance, March 31

(977)

3,486

 

SUPREME REALTY INVESTMENTS, INC

Statement of Changes in Stockholders' Equity

As of March 31, 2005

Additional

Treasury

Total

Common Stock

paid in

Retained

Stock

Stockholders'

Shares

Amount

Capital

Earnings

(common)

Equity

Beginning Balance, January 1, 2001

1,000,000

10,000

15,000

-

-

25,000

Common Stock Issued

4,000,000

40,000

127,769

-

-

167,769

Net Income

-

-

-

8,915

-

8,915

 

 

 

 

 

 

 

Balance, December 31, 2001

5,000,000

50,000

142,769

8,915

-

 

201,684

Common Stock Issued

14,356,327

14,356

445,377

-

-

459,733

Net Income

-

-

-

(15,691)

-

(15,691)

 

 

 

 

 

 

 

Balance, December 31, 2002

19,356,327

64,356

588,146

(6,776)

-

 

645,726

Common Stock Issued

-

-

-

-

-

Net Income

-

-

-

(74,288)

-

(74,288)

Treasury Stock Acquired from Subsidiary

(100,000)

35,000

35,000

Treasury Stock Reissued

82,500

(17,500)

(17,500)

 

 

 

 

 

 

 

Balance, December 31, 2004

19,338,827

64,356

623,146

(81,064)

(17,500)

 

588,938

Common Stock Issued In Merger

10,661,173

(16,856)

(16,856)

Treasury Stock Reissued

(17,500)

17,500

-

Net Income

(130,998)

(130,998)

-

 

 

 

 

 

 

-

Balance, December 31, 2004

30,000,000

30,000

623,146

(212,062)

-

-

441,084

-

Common Stock Options Exercised

16,000,000

16,000

1,584,000

1,600,000

Net Income

(26,892)

(26,892)

-

-

-

Balance, March 31, 2005

46,000,000

46,000

2,207,146

(238,954)

-

-

2,014,192

NOTES TO FINANCIAL STATEMENTS

  1. Summary of Significant Accounting Policies
  2. Basis of Presentation

    A summary of the significant accounting policies of Supreme Realty Investments, Inc. ("the Company") is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management which is responsible for their integrity and objectivity. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements. The financial statements herein are presented using the accrual basis of accounting.

    Nature of Operations

    Supreme Realty Investments, Inc. is a real estate operating company primarily engaged in the acquisition, operation, and disposition of real properties and loans secured by real properties. Through its and its wholly-owned subsidiary, Supreme Capital Funding, Inc., it also engages in mortgage banking activities such as loan origination, servicing, and brokering real estate loans to and from lending institutions and institutional investors.

    The Company acquires hotel properties either directly in fee simple, or indirectly through ownership of beneficial interests in land trusts or partnerships that hold title to the real property. The Company believes that, in some cases acquiring indirect interests in real property is advantageous because it gives us flexibility in addressing the financial and risk management considerations presented by the particular property when debt financing may not be appropriate or when the Company is trying to avoid exposing its entire portfolio to litigation as the result of personal injuries resulting from environmental hazards or other unforeseen conditions on the property.

    The Company's policy is to acquire properties primarily for current income. However, income from, and appreciation of its properties may be adversely affected by general and local economic conditions, neighborhood values, competitive overbuilding, weather, casualty losses, and other factors beyond its control. The value of real properties may also be affected by the cost of compliance with regulations and liability under applicable environmental laws, changes in interest rates, and the availability of financing. Income properties are also adversely affected if a significant number of tenants are unable to pay rent or if available space cannot be rented on favorable terms.

    Investments in Real Estate Securities or other Passive Interests

    From time to time, Supreme will also invest in the interests of others primarily engaged in real estate activities. The Company will invest in the common stock of other public and private real estate operating companies, real estate investment trusts, partnerships, or joint ventures. The primary opportunities the Company will consider are residential housing developments. The Company's acquisition committee will apply the same underwriting criteria as applied in its direct investments.

    Mortgage Banking Operations

    The Company, through its subsidiary Supreme Capital Funding, Inc., acquires 1st or 2nd mortgages, on single-family dwellings and apartment buildings. Not more than 20% of our total assets may be invested in any type of mortgage and not more than 1% of our total assets may be invested in any one mortgage.

    The Company will acquire these mortgages and package them for resale. The Company applies the same rigorous underwriting analysis to the acquisition of these loans that it does to the direct acquisition of property. The Company looks to enhance its total returns through increased yields or, upon sale, the realization of some or the entire discount at which they were acquired.

    Direct Lending and Joint Participation

    In some cases, particularly land development (or redevelopment), the Company's Acquisition Committee will apply the same underwriting criteria as applied in its direct investments to make direct loans to developers for the construction and sale of multi-family housing or commercial properties.

    Loan Origination and Brokerage

    To generate fees associated with the origination of mortgage loans, the Company relies on the relationships of the senior management of Supreme Capital Funding, Inc. with lenders and institutional investors. They have extensive experience in the mortgage lending and real estate finance industries and have cultivated extensive contacts with banks, wholesale lenders, other mortgage brokers, and direct borrowers.

    The Company uses a variety of web-based lead generation tools along with direct marketing and solicitation of loan business from homebuyers and real estate brokers.

    Since the Company's focus will be on residential borrowers with substandard credit, banks and other institutional lenders make referrals to the Company for loan opportunities that they do not wish to underwrite.

    The Company's management has formal brokerage agreements with several national mortgage lenders who underwrite the loan packages. Origination fees, administration fees, and document processing fees are paid to the Company at loan closing, by the lender, out of the loan proceeds.
     

  3. Principles of Consolidation and Estimates
  4. The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

    Generally accepted accounting principles ("GAAP") requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition, and the recoverability of trade accounts receivable. The application of these estimates requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

  5. Real Estate Investments

Supreme currently holds interests in the following properties:

12-unit apartment building in Chicago, Illinois, acquired by Installment Agreement for Warranty Deed at a cost of $600,000, which carries a non-recourse mortgage note in the amount of $480,000, which bears interest at a rate of 7%, and is due on December 15, 2005. Property is currently 92% occupied and stable. The company leases the residential apartments pursuant to a Section 8-Housing Assistance Payments contract with the U.S. Dept. of Housing and Urban Development(HUD).

4-unit apartment building in Chicago, Illinois acquired by Installment Agreement for Warranty Deed at a cost of $280,000, which carries a non-recourse mortgage note in the amount of $224,000, which bears interest at a rate of 7% and is due on December 15, 2005. Property is currently 100% occupied and stable.

6-unit apartment building in Chicago, Illinois, acquired by Installment Agreement for Warranty Deed at a cost of $586,000, which carries a non-recourse first mortgage note in the amount of $131,000, which bears interest at a rate of 7% and is due on February 1, 2031. The property is currently unoccupied and scheduled for demolition.



Description



Encumbrances



Initial Cost



Cost Capitalized

Gross amount
carried at
close of period


Accumulated Depreciation


Date of
Construction

 

 

 

 

 

 

 

12-Unit Apartment Bldg(1)

$ 480,000

$ 600,000

-0-

$ 600,000

$67,272

N/A

6-Unit Apartment Bldg(3)

$ 131,000

$ 586,000

-0-

$ 586,000

$47,945

N/A

4-Unit Apartment Bldg(4)

$ 224,000

$ 280,000

-0-

$ 280,000

$31,394

N/A

 

 

TOTALS

835,000

1,466,000

0

1,466,000

146,611

 

 

 

 

 

 

 

 

Real Estate Investments are recorded at cost, less accumulated depreciation. If there is an event or change of circumstances that indicates that the basis of a property may not be recoverable, then management will assess any impairment in value by making a comparison of (i) the current and projected operating cash flows (undiscounted and without interest charges) of the property over its remaining useful life and (ii) the net carrying amount of the property. If the current and projected operating cash flows are less than the carrying value of the property, the carrying value would be written down to an amount to reflect the fair value of the property.

Depreciation has been computed using the straight-line method over the estimated useful lives of 27.5 years.

Expenses for maintenance and repairs are charged to operations as incurred. Significant renovations are capitalized.

During the fourth quarter of the past fiscal year, the company sold all of its interests in one of its residential properties. A tabular summary of that transaction follows.

Description

Gross amount
carried at
time of sale

Encumbrances

Accumulated Depreciation

 

Sale Price

 

Gain(Loss) on Sale

 

 

 

     

6-Unit Apartment Bldg(2)

500,000

400,000

43,939

450,000

 

 

       

 

  1. Proposed Real Estate Acquisitions

The Company has entered into a formal Letter of Intent to acquire the following portfolio of hotel properties from CITY HOTELS, NV, of Brussels, Belgium:

- 263-room, full service hotel in Detroit, Michigan (DoubleTree Hotel)

- 197-room, full service hotel in St. Louis, Missouri (DoubleTree Hotel)

- 185-room, full service hotel in Dayton, Ohio (DoubleTree Hotel); and

- 283-room, full service hotel in Tulsa, Oklahoma (Hilton Hotel)

SFAS 5 requires the disclosure of contingencies involving uncertainty that may result in a gain or loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur. For purposes of this statement, the likelihood that a future event will occur can range from remote, to reasonably possible, to probable. SFAS 5 further states that, in the event of a gain contingency, care must be exercised to avoid misleading implications as to the likelihood of realization. At this time, management considers it reasonably probable that these proposed acquisitions are likely to occur.

  1. Revenue Recognition

Rental revenues are recognized in the month they are earned. Revenues from fees include brokerage commissions, management fees, development fees, origination fees, administration fees, and document processing fees and referral fees. All fee-base revenues are recognized when the service has been performed and the fee is due and payable.
 

  1. Income Taxes

The Company and its subsidiary file a consolidated federal income tax return.

  1. Deferred Tax Assets, Liabilities, and Valuation Allowances

Management has provided for tax loss carry-forwards of $15,691 for 2002, and $74,299 for 2004, and $114,793 for 2004. The tax loss carry-forwards expire in 2022, 2023, and 2024 respectively.

  1. Investment in Affiliates
  2. The Company has one wholly-owned subsidiary, Supreme Capital Funding, Inc., of which it owns 100% of the outstanding common stock. SFAS 94 requires investments in companies in which the parent company has the ability to influence operations and finances to be accounted for by the consolidation method.

    In 2002, the Company issued 100,000 shares of its common stock to the subsidiary, in exchange for 100% (1,000,000 shares) of the subsidiary's stock. The Company's shares had a stated value of 1.00.

    The subsidiary then filed an application for a mortgage banking license in the state of Illinois. Since it had not been granted the license, the subsidiary had not commenced operations, and there were no earnings or losses during the period to adjust to reflect the Company's share of such earnings or losses.

    On December 5, 2004, the subsidiary was granted a mortgage banking license by the State of Illinois Office of Banks and Real Estate and commenced operations in Illinois. The company subsequently sold its assets in its Illinois operation and has applied for licensing in the states of Nevada and Florida. To date, neither state has granted a mortgage banking license.

    The consolidation method was used to account for the parent's investment from its inception through the 2004 fiscal year. As a result of applying the consolidation method, all significant intercompany balances and transactions have been eliminated in consolidation. The Company's stock issued to its subsidiary was reacquired and recorded as Treasury Stock.

  3. Recent Accounting Pronouncements
  4. In August 2001, the FASB issued Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 establishes a model for measurement and reporting the impairment of assets to be disposed of by sale and addresses accounting for a segment of a business accounted for as a discontinued operation. SFAS 144 is effective for fiscal years beginning after December 15, 2001. SFAS 144 supersedes SFAS 121 and thereby removes Goodwill from its scope and eliminates the requirement to allocate Goodwill to long-lived assets to be tested for impairment in business segments that are discontinued. Supreme has accounted for the write down of the Goodwill associated with its discontinued property management segment in accordance with SFAS 144.

    In December 2002, the FASB issued Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure" ("FAS 148"), an Amendment of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 148 amends FAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation.

    In December 1999, the SEC issued SAB 101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain aspects of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. On March 24, 2000 and September 26, 2000, the SEC issued Staff Accounting Bulletin No. 101A and No. 101B, respectively, which extend the transition provisions of SAB 101 until no later than the fourth quarter of fiscal years beginning after December 15, 1999, which would be December 31, 2004 for us.

    In March 2000, the FASB issued FIN 44, Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB No. 25, Accounting for Stock Issued to Employees". This Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000.

    Management believes that any other newly required pronouncements are not applicable.

  5. Current Liabilities and Notes Payable
  6. Current Liabilities include $23,932 in trade payables and $835,000 for the current portion of mortgages payable.

  7. Mortgages Payable
  8. Three(3) parcels of property are being purchased by Installment Agreement for Warranty Deed, over a term of thirty(30) years. The notes bear interest at the rate of 7% per annum. Interest only payments are payable in quarterly installments, with balloon payments of the outstanding principal on maturity dates in December, of 2005.

     

    Principal Payments Each Year

     

     

    2005

    2006

    2007

    2008

     

                 

    12-Unit Apartment Bldg(1)

     

    480,000

    -0-

    -0-

    -0-

     

    6-Unit Apartment Bldg(3)

     

    131,000

    -0-

    -0-

    -0-

     

    4-Unit Apartment Bldg(4)

     

    224,000

    -0-

    -0-

    -0-

     

     

     

     

    TOTALS

     

    835,000

    -0-

    -0-

    -0-

     

     

  9. Common Stock Transactions
  10. In December, 2004, as a result of changing to the consolidation method of accounting for an investment in its subsidiary, the Company reacquired 100,000 shares of its own stock from its subsidiary and recorded them as Treasury Stock. 82,500 of those Treasury shares were reissued to non-related parties at an average price of 0.21 per share. The proceeds from this sale, $17,500 were used for operating capital.

    During the 2004 fiscal year the remaining 17,500 Treasury shares were reissued to non-related parties at an average price of $1.69 per share. The proceeds from this sale, $29,500, were used for operating capital and the payment of the $12,000 balance due to John Davis on Supreme Property, Inc.'s note for the purchase of substantially all of the assets from its predecessor company, Supreme Property Management & Sales, Inc.

    On March 31, 2004, the Company entered into an Agreement and Plan of Exchange and Reorganization ("the Merger") with Coronation Acquisition Corp. ("Coronation"). Coronation is a reporting "blank check" company formed in 2000, in the state of Nevada, solely for the purposes of effecting a merger or acquisition of an operating company.

    The respective boards of directors and majority stockholders of each company spent considerable time reviewing the terms of the merger, the background of their respective business operations, management, and the future business potential and plans of the combined entities.

    Based on these and other considerations, the Board of Directors of each company, together with their respective majority stockholders, believes that the transactions contemplated by the merger agreement, are fair and in the best interest of each company.

    On August 27, 2004, Coronation and Supreme completed the merger when the following specific conditions were satisfied: (a) receipt of all stockholder approvals; (b) Form S-4 Registration Statement having become effective under the Securities Act of 1933 and all state securities permits or authorizations necessary to issue the shares of Coronation have been obtained; (c) no legal restraints or prohibitions which would prevent the consummation of the merger; (d) the representations and warranties of Coronation and Supreme under the merger agreement must be materially true and correct; (e) that there have been no material adverse change to the parties since signing the agreement; and (f) the parties have performed all material obligations required to be performed by them under the merger agreement.

    The merger became effective on August 27, 2004 when the certificate of merger was filed with the Secretary of State of the States of Nevada and Illinois.

    No regulatory approval is required in order to consummate the merger other than the successful registration of the shares to be issued in connection with the merger by the Securities and Exchange Commission and all applicable State securities regulators.

    As a result of the merger, Supreme's stockholders received 1.3953 shares of common stock of Coronation for each share of Supreme that they previously owned. Coronation will issue approximately 27,000,000 shares of common stock to Supreme stockholders in connection with the merger. Supreme's stockholders will own approximately 89.98% of the outstanding common stock of Coronation after the merger. As of December 31, 2004, there were 19,338,327 shares of Supreme common stock outstanding, 17,500 shares of Treasury Stock outstanding, and no warrants or options. The Board of Directors of Supreme and Coronation have agreed to issue 1,650,000 or approximately 5.52% of the outstanding common stock to Nick Segounis and John Coleridge, who provided services in connection with the merger agreement. These shares will be registered under a separate registration statement. These parties were integral in introducing Supreme and Coronation to one another.The remaining 1,350,000 shares, which will represent 4.5% of the issued and outstanding share capital of Coronation on closing of the merger, will be retained by Mr. Harry Miller, President of Coronation.

    Supreme's transfer agent has placed appropriate legends on the certificates of any common stock of the Company to be received by affiliates of Supreme which are subject to the resale rules of Rule 144. In addition, affiliates of Supreme have also acknowledged the resale restrictions imposed by Rule 145 under the Securities Act of 1933 on shares of common stock of Coronation to be received by them in the merger.

    All shares of common stock of Coronation received by the stockholders of Supreme in connection with the merger are freely transferable unless the shareholder is considered an affiliate of either Coronation or Supreme under the federal securities laws.

    The majority stockholders of Supreme and others have agreed to enter into a voluntary escrow agreement regarding the resale of their shares. Under the escrow agreement the stockholders have agreed to not resell 75% the shares of Coronation they will receive under the merger until Coronation has obtained a minimum of 3,000,000 in new debt or equity financing to advance its business. At that time an additional 25% of the shares will be released for resale with an additional 25% being released every three months until 100% of the shares escrowed have been released.

    To date, no dividends have been declared or paid.

  11. Market for Common Equity and Related Stockholder Matters

The Company's common stock is currently traded on the Over-the-Counter Bulletin Board(OTCBB) under the symbol "SUPR".

  1. Equity Compensation Plan
  2. On August 28, 2004, the Board of Directors adopted and the shareholders approved a Stock Option and Restricted Stock Plan. The purpose of the plan is to advance the interests of the Corporation by enhancing the ability of the Corporation and its subsidiaries to attract and retain officers, employees and non-employee directors to the Corporation, to reward such individuals for their contributions and to encourage them to take into account the long-term interests of the Corporation through interests in the Corporation's Common Stock. The Plan provides for the grant of options to acquire Stock ("Options"), which may be non-qualified stock options ("NQSOs") within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and awards of Stock subject to certain restrictions ("Restricted Stock"). Under the Plan, Restricted Stock consists exclusively of (i) Stock subject to performance-based restrictions intended to comply with the provisions of Section 162(m) of the Code ("Performance-Based Restricted Stock) and (ii) Stock awarded to non-employee directors in lieu of some or all of the cash compensation such directors would otherwise receive for their service as directors ("Non-employee Director Restricted Stock").

    EQUITY COMPENSATION PLAN INFORMATION

    Plan Category

    Number of securities to be issued upon exercise of outstanding options, warrants and rights

    Weighted average exercise price of outstanding options, warrants and rights

    Number of securities remaining available for future issuance

     

    (a)

    (b)

    (c)

    Equity compensation plans approved by security holders

    16,000,000

    0.10

    34,000,000

    Equity compensation plans not approved by security holders

    -0-

    -0-

    -0-

    Total

    16,000,000

    0.10

    34,000,000

    On August 28, 2004, ("Grant Date" and "Measurement Date") the Company granted options to purchase 16,000,000 shares of common stock to officers and non-employee consultants in recognition of past services rendered, at an exercise price of $0.10 per share. Under the provisions of APB 25, the Company estimated the "fair market value" of the shares to be equal to the book value of $0.02 per share. Since the exercise price was greater than the fair market value as of the measurement date, no compensation cost was incurred by the Company.

  3. Commitments
  4. Employment Obligations

    The Company has entered into automatically renewing, one-year employment agreements with its President and Chief Financial Officer. In the event of termination other than for cause, the contracted employee will receive a lump sum benefit.

    Lease Obligations

    The company leases office space at 7380 Sand Lake Road - Suite 500, Orlando, Florida on a month-to-month basis.

  5. Contingencies
  6. The company leases 12 of its residential apartments pursuant to a Section 8-Housing Assistance Payments contract with the U.S. Dept. of Housing and Urban Development(HUD). Payments have been suspended under the terms of that contract pending the completion of mandated repairs. There is no assurance that the contract will be renewed or past due payments will ever be recovered.

     

  7. Material Subsequent Events

The Company has entered into a formal Letter of Intent to acquire a portfolio of hotel properties. (See Proposed Acquisitions). The Letter of Intent calls for the execution of a formal Real Estate Purchase Agreement for each property subsequent to the date of these financial statements. The proposed acquisition of the properties will necessitate the issuance of new equity and debt securities and cause the Company to enter into property management and franchise agreements with third parties that will have a material impact on the financial condition of the Company. Pursuant to Rule 11-02 of Regulation S-X, the Company has included the following Pro Forma Financial Statements to disclose the estimated financial impacts of the proposed hotel acquisitions. Adjustments to reflect the acquisition of these properties for the pro forma income statements include a depreciation charge based on the new accounting basis for the assets, interest financing on any additional or refinanced debt, and other appropriate adjustments that can be factually supported.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

Results of Operations

Revenues from Continuing Operations

Rental revenue decreased to $1,273 for the 3-month period ended March 31, 2005 compared to $47,860 for the 3-month period ended March 31, 2004. The decrease in rental revenue in 2004 can be attributed to the fact that rental payments have been suspended under the terms of the HUD Rental Assistance contract pending mandated repairs.

Mortgage Banking operations have been suspended pending issuance of the proper licenses in the State of Florida.

Expenses from Continuing Operations.

Total expenses from continuing operations decreased from $69,988  for the 3-month period ended March 31, 2004 to $28,165 for the 3-month period ended March 31, 2005 , a net decrease of $41,823.

  1. Property operating expenses decreased by $21,012 for the 3-month period ended March 31, 2005 compared to the 3-month period ended March 31, 2004. This expense decrease is primarily attributable to the fact that we have restructured the terms of purchase agreements so that we are no longer obligated to pay the property operating expenses.
  2. Property Depreciation and Amortization decreased by $5,086 for the for 3-month period ending March 31, 2005 compared to the same period ending March 31, 2004. This reflects the fact we now have three apartment buildings in service.
  3. Salaries, commissions and employees benefits remained stable.
  4. General and administrative expenses decreased by $14,536 for the for 3-month period ending March 31, 2005 compared to the same period ending March 31, 2004. This reflects the fact that fewer expenses were paid to outside parties for legal, accounting, consulting, and other fees and expenses for services rendered in association with, and related to, the merger.
  5. Interest Expense reflects that fact that the only notes we have outstanding are non-interest bearing notes.
  6. Other Depreciation and Amortization reflects the depreciation on Office Furniture, Fixtures, and Equipment.

Net Income/Loss from Operations.

Net loss from operations for the 3-month period ended March 31, 2005 was $ 26,892 versus net income of $7,872 for the 3-month period ended March 31, 2004. The net loss in 2004 is attributed primarily to expenses associated with the corporate move to Orlando, Florida and increased depreciation expenses.

Liquidity and Capital Resources

For the 3-month periods ended March 31, 2005 and March 31, 2004, Supreme's net cash provided by operating activities totaled ($5,102) and ($438), respectively. This change relates directly to an increase in Supreme's current liabilities.

As of the 3-month period ended March 31, 2005, Supreme's unrestricted cash resources were ($977) as compared to $3,486 as of the 3-month period ended March 31, 2004. The cash flow from our existing properties will not fund our future liquidity requirements. The principal source of Supreme's capital has been from funds received from operations, the issuance of common stock, and the use of non-recourse debt in association with the acquisition of its real properties.

Supreme intends to use its future capital to pay for non-recurring expenses related to the preparation of an equity or debt offering and to acquire more properties. Supreme also intends to increase its liquidity by issuing different classes of convertible preferred stock or convertible debentures to institutional investors in future offerings and by using cash provided from operations of its mortgage banking subsidiary and rents from its properties. At present, Supreme has no plans to increase its borrowings or add any new bank debt liabilities. Supreme intends to use the proceeds of any debt or equity offerings to acquire more properties and to pay off the existing long-term liabilities, namely the balloon mortgage payments coming due in December, 2005. Further, from time to time the Board of Directors may elect to distribute some of its taxable income in the form of dividends to our stockholders. That could limit the amount of cash Supreme will have available for other business purposes or to grow through the use of retained earnings. Much of Supreme's ability to raise capital is dependent upon the relative attractiveness of its shares, and the supply of shares of competitive real estate entities currently trading in the marketplace.

Management of believes that it has identified a unique niche in its market by acquiring "distressed" properties and under-performing real estate loans from banks and other lending institutions. "Distressed" properties are properties that are not being operated at optimal efficiency and "under-performing" loans are loans that are currently past due or in default.

Cash provided by operations, equity transactions, and borrowings from lending institutions have generally provided the primary sources of liquidity to Supreme. Historically, Supreme has used these sources to fund operating expenses and to satisfy its debt service obligations.

With respect to the interim financial statements, management believes that there are no material trends, events, or uncertainties that have, occurred since the end of the last fiscal period that have, or are reasonably likely to have, a material impact on the company's short-term or long-term liquidity or significant items of income or loss arising from continued operations. Likewise, there are no material changes in any line items on the financial statements or seasonal aspects that have had a material effect on the company's financial condition or the results of operations.

Off-balance sheet arrangements

Supreme does not have any significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to its stockholders.

ITEM 3. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as of a date within ninety days of the filing date of this quarterly report on Form 10-QSB. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Changes in internal controls.

There were no significant changes in Supreme's internal controls or in any factors that could significantly affect internal controls subsequent to the date of the Chief Executive Officer and the Chief Financial Officer's evaluation.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

To Supreme's knowledge, no lawsuits were commenced against Supreme during the 3-months ended March 31, 2005, nor did Supreme Commence any lawsuits during the same period. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Changes in Securities

The Company has increased the number of authorized shares of common stock to 200,000,000. Such authorization is set forth in the Articles of Merger filed with the Secretary of State of Nevada on October 21, 2004 and included as Exhibit 3.0.

Company has adopted a Stock Option and Restricted Stock Compensation Plan. A description of the plan is set forth in the Company's financial statements under Note 13.

Recent Sales of Unregistered Securities

None.

Recent Sales of Registered Securities

None.

Use of Proceeds

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION ITEM

Not Applicable

ITEM 6. EXHIBITS

a. Exhibits

Exhibit
Number

Exhibit Title

3.0

Articles of Merger, filed with the Nevada Secretary of State on October 21, 2004

3.1

Articles of Incorporation, (incorporated by reference from our Form S-4 A/12, filed August 18, 2004)

3.2

Articles of Amendment (incorporated by reference from our Form S-4 A/12, filed August 18, 2004)

3.2

Bylaws (incorporated by reference from our Form S-4 A/12 Registration Statement, filed August 18, 2004)

31.1

Certificate of CEO/CFO as Required by Rule 13a-14(a)/15d-14

31.2

Certificate of CEO/CFO as Required by Rule Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code

32.1

Certificate of CEO as Required by Rule Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code

b. Reports of Form 8-K.

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

SUPREME REALTY INVESTMENTS, INC.

Date: May 13, 2004

By:

/s/ Thomas Elliott

 

Thomas Elliott, Chief Executive Officer

   
 

/s/ Jean LeRoy

 

Jean LeRoy, President, Chief Financial Officer

Exhibit 31.2

CERTIFICATION

I, Thomas Elliott, certify that:

  1. I have reviewed this quarterly report on Form 10-QSB of Supreme Realty Investments, Inc.;
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the registrant and have:
     
    1. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    2. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and
    3. Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
       

  5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
     
    1. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
    2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
       

  6. The registrant's other certifying officers and I have indicated in this report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2005

/s/ Thomas Elliott

 

Thomas Elliott, Chief Executive Officer

 

 

Exhibit 31.1

CERTIFICATION

I, Jean LeRoy, certify that:

  1. I have reviewed this quarterly report on Form 10-QSB of Supreme Realty Investments, Inc.;
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the registrant and have:
     
    1. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    2. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and
    3. Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
       

  5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
     
    1. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
    2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
       

  6. The registrant's other certifying officers and I have indicated in this report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2005

/s/ Jean LeRoy

 

Jean LeRoy, Chief Financial Officer

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Supreme Realty Investments, Inc. (the "Company") on Form 10-QSB for the quarter ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Elliott, in my capacity as Chief Executive Officer, and I, Jean LeRoy, in my capacity as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2005

/s/ Thomas Elliott

 

Thomas Elliot
Chief Executive Officer

 

 

 

/s/ Jean LeRoy

 

Jean LeRoy
Chief Financial Officer

 

 

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