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EX-31.2 - UNR HOLDINGS INCex31_2.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________

Form 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010

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 number 000-23712

UNR HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Colorado
 
02-0755762
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
   


301 East Pine Street, Suite 150, Orlando, FL
 
32801
(Address of principal executive offices)
 
(Zip Code)

__________________(407) 210-6541_______________
(Registrant's Telephone Number, Including Area Code)

_____________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

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

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

The number of shares outstanding of the issuer's common stock, $0.001 par value per share, was 24,464,799 as of November 22, 2010.



 
 

 



UNR HOLDINGS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Page
PART I.
FINANCIAL INFORMATION
     
Item 1.
Consolidated Financial Statements
     
 
Consolidated Balance Sheets as of September 30, 2010
 
 
  and December 31, 2009 (Unaudited)
     
 
Consolidated Statements of Operations for the
 
 
  Nine and Three Months Ended September 30, 2010 and 2009 (Unaudited)
     
 
Consolidated Statements of Comprehensive Income for the
 
 
  Nine Months Ended September 30, 2010 and 2009 (Unaudited)
     
 
Consolidated Statement of Equity
 
 
  for the Period Ended September 30, 2010
 
 
  (Unaudited)
     
 
Consolidated Statements of Cash Flows for the Nine Months
 
 
  Ended September 30, 2010 and 2009 (Unaudited)
     
 
Notes to the Unaudited Consolidated Financial Statements
8
     
Item 2.
Management's Discussion and Analysis of Financial
 
 
  Condition and Results of Operations
19
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 25 
     
Item 4.
Controls and Procedures
 27 
     
PART II.
OTHER INFORMATION
 28 
     
Item 1.
Legal Proceedings
 28 
     
Item 1.A.
Risk Factors
 28 
     
Item 6.
Exhibits
 29 
     
Signatures
 30 
 
 
 

 
 
PART I — FINANCIAL INFORMATION

ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS.
 
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission” or the “SEC”).  The following unaudited consolidated financial statements should be read in conjunction with the year-end restated consolidated financial statements and notes thereto included in the Form 10-K/A for the year ended December 31, 2009 filed by UNR Holdings, Inc. with the Commission.

The results of operations for the nine and three months ended September 30, 2010 and 2009 are not necessarily indicative of the results for the entire fiscal year or for any other period.  See also Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Statement Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.
 
 
 
 
 
 
 
1

 

 
 
UNR HOLDINGS, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
             
   
September 30,
   
December 31,
 
   
2010
   
2009
 
ASSETS
           
RESIDENTIAL AND COMMERCIAL CONSTRUCTION ASSETS:
           
   Cash and cash equivalents
  $ 37,393,926     $ 20,090,671  
   Inventories
    108,662,755       67,704,687  
   Trade and other receivables, net
    48,350,835       61,520,973  
   Property, plant and equipment - net
    1,113,739       987,547  
   Other assets
    1,673,504       161,131  
                 
Total Residential and Commercial Construction Assets
    197,194,759       150,465,009  
                 
ROAD BASE MATERIALS ASSETS:
               
   Inventories
    144,973       2,562,093  
   Trade and other receivables, net
    71,425       2,008,335  
                 
Total Road Base Materials Assets
    216,398       4,570,428  
                 
                            TOTAL ASSETS
  $ 197,411,157     $ 155,035,437  
                 
LIABILITIES AND EQUITY
               
                 
RESIDENTIAL AND COMMERCIAL CONSTRUCTION LIABILITIES:
               
   Short-term debt
  $ 50,504     $ 3,356,923  
   Accounts payable and accrued expenses
    59,622,474       57,363,987  
   Advances from customers
    44,267,980       41,418,413  
   Deferred income tax liabilities
    19,806,755       10,333,416  
                 
Total Residential and Commercial Construction Liabilities
    123,787,713       112,472,739  
                 
ROAD BASE MATERIALS LIABILITIES:
               
   Accounts payable and accrued expenses
    1,740,745       797,919  
   Advances from customers
    -       68,063  
Total Road Base Materials Liabilities
    1,740,745       865,982  
                 
                          TOTAL LIABILITIES
    125,528,458       113,338,721  
                 
Commitments and Contingencies
    -       -  
                 
UNR Holdings, Inc. and Subsidiary Stockholders’ Equity:
               
Common stock, $0.001 par value; authorized 500,000,000 shares;
               
   outstanding 24,464,799 and 24,464,799 shares at September 30, 2010
               
  and December 31, 2009, respectively
    24,465       24,465  
Additional paid-in capital
    99,579       99,579  
Retained earnings
    49,170,276       29,031,864  
Accumulated other comprehensive loss
    (1,239,232 )     (1,188,279 )
        Total UNR Holdings, Inc. and Subsidiary Stockholders' Equity
    48,055,088       27,967,629  
                 
Noncontrolling interest
    23,827,611       13,729,087  
        Total Equity
    71,882,699       41,696,716  
                 
        TOTAL LIABILITIES AND EQUITY
  $ 197,411,157     $ 155,035,437  

See notes to unaudited consolidated financial statements.
 
 
2

 

UNR HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
   
   
For the Nine Months
Ended
   
For the Three Months
Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Revenues:
                       
Sales and other operating revenues
  $ 72,600,306     $ 39,350,369     $ 33,108,945     $ 23,215,220  
                                 
Costs and expenses:
                               
Cost of sales
    34,839,470       20,418,839       6,526,363       11,707,768  
Selling, general and administrative expenses
    2,969,140       2,825,881       1,370,695       1,377,306  
      37,808,610       23,244,720       7,897,058       13,085,074  
                                 
Income from operations
    34,791,696       16,105,649       25,211,887       10,130,146  
Other income (expense):
                               
Foreign currency transaction gain (loss)
    -       720       -       (20,631 )
Other income
    3,125,589       1,305,066       1,061,783       385,831  
      3,125,589       1,305,066       1,061,783       365,200  
                                 
Income before provision for income taxes
    37,917,285       17,411,435       26,273,670       10,495,346  
                                 
Provision for income taxes
    7,655,060       3,510,347       5,306,486       2,080,920  
                                 
Net income
    30,262,25       13,901,088       20,967,184       8,414,426  
                                 
Less: Net income attributable to the
                               
noncontrolling interest
    10,123,813       4,570,953       7,007,725       2,760,963  
                                 
Net income attributable to UNR Holdings, Inc.
                               
and Subsidiary
  $ 20,138,412     $ 9,330,135     $ 13,959,459     $ 5,653,463  
                                 
Earnings per share - basic and diluted:
                               
Earnings per share of common stock attributable to
                               
UNR Holdings, and Subsidiary
                               
common shareholders
  $ 0.82     $ 0.38     $ 0.57     $ 0.23  
                                 
Weighted average shares of common stock
                               
outstanding - basic and diluted
    24,464,799     $ 24,464,799       24,464,799       24,464,799  

See notes to unaudited consolidated financial statements.
 
 
3

 
 
 
UNR HOLDINGS, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
(Unaudited)
 
         
         
 
For the Nine Months Ended
 
 
September 30,
 
 
2010
 
2009
 
         
Net earnings
  $ 30,262,225     $ 13,901,088  
                 
Other comprehensive income (loss) - net of tax:
               
Currency translation adjustment
    (76,242 )     410,304  
                 
Comprehensive income
    30,185,983       14,311,392  
                 
    Comprehensive income attributable to noncontrolling
               
        interest
    10,098,524       4,843,149  
                 
    Comprehensive income attributable to UNR
               
        Holdings, Inc. and Subsidiary
  $ 20,087,459     $ 9,468,243  

See notes to unaudited consolidated financial statements.
 
 
4

 
 

UNR HOLDINGS, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENT OF EQUITY
 
(Unaudited)
 
                                                 
                                       
Accumulated
       
                                       
Other
       
         
Comprehensive
   
Common Stock
   
Paid-In
   
Retained
   
Comprehensive
   
Noncontrolling
 
   
TOTAL
   
Income
   
No of shares
   
Amount
   
Capital
   
Earnings
   
Income (Loss)
   
Interests
 
                                                 
Balance, January 1, 2009
 
$
22,073,811
           
24,464,799
   
$
24,465
   
$
99,579
   
$
17,195,878
   
$
(2,510,747)
   
$
7,264,636
 
                                                               
Net income
   
17,644,051
   
$
17,644,051
                     
-
     
11,835,986
     
-
     
5,808,065
 
                                                                 
Currency translation adjustment
   
1,978,854
     
1,978,854
                     
-
             
1,322,468
     
656,386
 
                                                                 
Comprehensive income
         
$
19,622,905
                                                 
                                                                 
Balance, December 31, 2009
   
41,696,716
             
24,464,799
     
24,465
     
99,579
     
29,031,864
     
(1,188,279)
     
13,729,087
 
                                                                 
Net income
   
30,262,225
   
$
30,262,225
                     
-
     
20,138,412
     
-
     
10,123,813
 
                                                                 
Currency translation adjustment
   
(76,242)
     
(76,242)
                     
-
             
(50,953)
     
(25,289)
 
                                                                 
Comprehensive income
         
$
30,185,983
                                                 
                                                                 
Balance, September 30, 2010
 
$
71,882,699
             
24,464,799
   
$
24,465
   
$
99,579
   
$
49,170,276
   
$
(1,239,232)
   
$
23,827,611
 

See notes to unaudited consolidated financial statements.
 
 
5

 
 
UNR HOLDINGS, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
(Unaudited)
 
   
For the Nine Months Ended
 
   
September 30,
 
   
2010
   
2009
 
             
Cash flows from operating activities:
           
   Net earnings
  $ 30,262,225     $ 13,901,088  
                 
Adjustments to reconcile net earnings to net cash
               
 used in operating activities:
               
   Depreciation
    40,487       34,667  
   Gain on sale of property, plant and equipment
    -       4,832  
   Deferred income taxes
    9,473,339       3,410,565  
   Change in operating assets and liabilities
    (17,334,841 )     (21,206,836 )
          Net cash provided by (used in) operating activities
    22,441,210       (3,855,684 )
                 
Cash flows from investing activities:
               
   Purchase of property, plant and equipment
    (290,671 )     (297,572 )
   Purchase of marketable securities
    (1,512,373 )     -  
         Net cash provided by (used in) investing activities
    (1,803,044 )     (297,572 )
                 
Cash flows from financing activities:
               
   Proceeds from borrowings
    -       11,630,921  
   Repayment of loans
    (3,306,419 )     (18,264,815 )
         Net cash provided by (used in) financing activities
    (3,306,419 )     (6,633,894 )
                 
Effect of exchange rate changes on cash
    (28,492 )     (132,823 )
                 
Net increase (decrease) in cash
    17,303,255       (10,919,973 )
                 
Cash - beginning of period
    20,090,671       16,430,669  
                 
Cash - end of period
  $ 37,393,926     $ 5,510,696  
                 
Changes in operating assets
               
and liabilities consist of:
               
(Increase) in accounts receivable
  $ 15,107,048     $ (1,587,808 )
(Increase) decrease in inventories
    (38,464,706 )     (1,730,085 )
Increase (decrease) in customer advances
    5,831,804       (17,991,151 )
Increase in accounts payable and
               
 other liabilities
    191,013       102,208  
    $ (17,334,841 )   $ (21,206,836 )

See notes to unaudited consolidated financial statements.
 
 
6

 
 
 
 
UNR HOLDINGS, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
 
(Unaudited)
 
     
 
For the Nine Months Ended
 
 
September 30,
 
   
2010
   
2009
 
Supplementary Information:
           
    Cash paid during the period for
           
           Interest
  $ 49,549     $ 700,024  
           Income taxes
  $ 22,017     $ 23,507  
 
See notes to unaudited consolidated financial statements.
 
 
7

 
 
UNR HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2010


The consolidated balance sheet as of September 30, 2010 and the consolidated statements of operations, stockholders' equity and cash flows for the periods presented have been prepared by UNR Holdings, Inc. (the “Company” or “UNR”) and are unaudited.  In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders’ equity and cash flows for all periods presented have been made.  The information for the consolidated balance sheet as of December 31, 2009 were derived from audited financial statements.

Note 1: Organization

UNR Holdings, Inc. and subsidiary operates its business through its majority-owned subsidiary, Open Joint Stock Company 494 UNR, a company organized and existing under the laws of the Russian Federation (“494 UNR” and together with UNR Holdings, Inc., “UNR Holdings” or the “Company”).  The Company’s principal business activity is the construction and development of multi-functional, multi-apartment residential complexes and commercial centers in high density and urban areas, principally in the city of Moscow and its suburbs, the Company also produces and supplies its patented road base material which it markets under the name “Prudon-494” to infrastructure projects in the Russian Federation.  Substantially all of the Company’s business operations are located, and all of its revenues are earned, in the Russian Federation.

Effective March 24, 2008, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with certain stockholders of 494 UNR providing for the acquisition (the “494 UNR Acquisition”) by the Company of an aggregate of 66.83% of the outstanding shares of common and preferred stock of 494 UNR.  At the closing of the 494 UNR Acquisition on August 5, 2008, the Company issued 20,500,000 of its common stock to Alexei Ivanovich Kim (the “Controlling Shareholder”), which as of that date represented approximately 84% of the Company’s issued and outstanding shares of common stock.  The financial statements for periods prior to August 5, 2008 reflect the assets and liabilities of 494 UNR at historical carrying amounts.

Under the Acquisition Agreement, the former management of the Company agreed to assume all debt of the Company in exchange for the assets of the Company’s former subsidiary, “Conjunto Habitacional Maria Paz”. The sale of this subsidiary’s assets to former management was accomplished by the transfer of the ownership interests in this subsidiary in exchange for the assumption of approximately $1.0 million of debt of the Company as of August 5, 2008, the closing date of the sale.  The net assets sold in this transaction were approximately $400,000, representing the net assets of the Company as shown on its June 30, 2008 unaudited balance sheet included in its Quarterly Report on Form 10-Q, filed with the SEC on August 11, 2008, reduced by approximately $400,000 for the costs of uncompleted contracts due to the economic conditions within the construction industry in Ecuador. Following the sale of the existing business to former management, the Company retained no assets or liabilities attributable to operations of the Company or its Ecuador subsidiary prior to the sale of the subsidiary’s assets and assumption by prior management of its liabilities.
 
 
8

 
 
The 494 UNR Acquisition was accounted for as a recapitalization. The financial statements show a retroactive restatement of the Company’s historical stockholders’ equity to reflect the equivalent number of shares of common stock issued in the 494 UNR Acquisition.
 
Effective August 5, 2008, the Company’s officers and directors resigned, a new Board of Directors of the Company was elected and new officers were appointed.  The Company also sold its existing business to former management.

Note 2: Basis of Presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

The subsidiary 494 UNR, which is registered in the Russian Federation, maintains its accounting records in accordance with the Regulations on Accounting and Reporting in the Russian Federation. The accompanying consolidated financial statements have been prepared from these accounting records and adjusted as necessary in order to comply with US GAAP.

In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from such estimates.
 
The Company experiences seasonal fluctuations in its operations.  The Company tends to construct more but sell fewer apartments during the summer months, while the Company tends to sell more but construct less apartments during the winter months of a given year.  Therefore, the effects of seasonality usually are not correlated with sales trends.  In addition, the Company engages in its core development design and construction activities between April and October of each calendar year.  The period of November through March of each year is a time of substantially reduced residential and construction projects and road construction activity where the Company engages primarily in selected interior activities (typically in the buildings under construction).
 
Effective for the year ended December 31, 2009, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The ASC was established as the sole source of US GAAP and superseded existing accounting and reporting guidance issued by the FASB, Emerging Issues Task Force and other sources. The ASC did not change US GAAP. All references to accounting standards in these consolidated financial statements correspond to ASC references.

Reporting and functional currency. The Company has determined that the United States dollar (“$”) is the reporting currency for the purposes of financial reporting under US GAAP.

The local currency and the functional currency of the Company’s operating subsidiary is the Russian Ruble (“RUR”).

For the nine months ended September 30, 2010 and 2009, exchange rates were 30.22 and 30.09 RUR to $1, respectively. Average exchange rates for the nine months ended September 30, 2010 and 2009 were 30.40 and 32.35 RUR to $1, respectively.

Any conversion of RUR amounts to US dollars should not be construed as a representation that such RUR amounts have been, could be, or will in the future be converted into US dollars at the exchange rate shown or at any other exchange rate.
 
 
9

 
 
Note 3: Significant Accounting Policies

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  There were no significant changes to these accounting policies during the nine months ended September 30, 2010 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

Note 4. Earnings Per Share

Basic earnings per common share are computed by dividing net earnings by weighted average number of common shares outstanding during the year.  Diluted earnings per common share are computed by dividing net earnings by the weighted average number of common shares and potential common shares outstanding during the year.  There were no potential common shares outstanding for the nine months ended September 30, 2010 and 2009.

Note 5: Fair Value of Financial Instruments

The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period.  The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability.  The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as follows:
 
 Level 1   Observable inputs such as quoted market prices in active markets
     
 Level 2 -   Inputs other than quoted prices in active markets that are either directly or indirectly observable
     
 Level 3 -   Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
 
As of September 30, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents and investments in non-marketable securities.  The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The investment in non-marketable securities is determined by the Company to develop its own assumptions and is categorized as Level 3.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the nine months ended September 30, 2010 and 2009.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of September 30, 2010 and December 31, 2009.
 
Assets at Fair Value as of September 30, 2010 and December 31, 2009
 
         
Quoted Prices in
             
         
Active Markets
             
         
for Identical Assets
             
September 30, 2010
 
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
  $ 37,393,926     $ 37,393,926     $ -     $ -  
Non-marketable securities
    160,280       -       -       160,280  
Marketable securities
    1,513,224       1,513,224       -       -  
Total
  $ 39,067,430     $ 38,907,150     $ -     $ 160,280  
                                 
December 31, 2009
                               
Cash and cash equivalents
  $ 20,090,671     $ 20,090,671     $ -     $ -  
Non-marketable securities
    161,131       -       -       161,131  
Total
  $ 20,251,802     $ 20,090,671     $ -     $ 161,131  
 
 
10

 
The Company has other financial instruments, such as receivables, accounts payable and other liabilities, notes payable and customer deposits, which have been excluded from the tables above.  Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities, notes payable and customer deposits approximate their fair values.  The Company did not have any other financial liabilities with the scope of the fair value disclosure requirements as of September 30, 2010.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and temporary investments.  The Company grants credit to customers that are based on an evaluation of the customer's financial condition, without requiring collateral.  Exposure to losses on receivables is principally dependent on each customer's financial condition.  The Company controls its exposure to credit risk through credit approvals and progressive payments as the work is preformed.

The Company places its temporary cash investments with quality financial institutions and commercial issuers at short-term payer and by policy term limits the amount of credit exposure in any one financial instrument.
 
The Company is also subject to the risk of currency fluctuations that may affect the prices paid for goods and the amounts received for revenue.

Note 6: Cash and cash equivalents

As of September 30, 2010 and December 31, 2009, cash balances comprise the following:
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Denominated in US dollars
  $ 140,655     $ 59,815  
Denominated in RUR
    37,253,271       20,030,856  
Total cash and cash equivalents
  $ 37,393,926     $ 20,090,671  

 
11

 
 
Note 7: Inventories
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Construction in progress (1)
  $ 67,364,856     $ 52,071,113  
Apartments for sale
    12,877,511       12,741,215  
Advances to subcontractors
    28,154,136       3,570,056  
  (net of allowance for doubtful accounts of
               
   $-0- and $76,980 as of September 30, 2010
               
   and December 31, 2009, respectively)
               
Construction materials (road base)
    144,973       1,731,976  
Construction materials (residential buildings)
    266,252       152,420  
Total inventories
  $ 108,807,728     $ 70,266,780  
 
 
(1)
Costs in excess of billings are included in construction in progress.  The table below summarizes total costs incurred or uncompleted contracts, estimated earnings for each period and amount of costs in excess of billings as of each balance sheet date.
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Total costs
  $ 86,292,898     $ 72,294,616  
Estimated earnings
    34,454,704       24,879,602  
      120,747,602       97,174,218  
Billings to date
    53,382,746       45,103,105  
                 
Costs in excess of billings
  $ 67,364,856     $ 52,071,113  

Note 8: Trade and Other Receivables, Net


   
September 30,
2010
   
December 31,
2009
 
Trade accounts and notes receivable (net of
allowance for doubtful accounts of $978,072 and $906,227
as of September 30, 2010 and December 31, 2009, respectively)
  $ 9,217,556     $ 2,865,621  
Accounts receivable from the Russian Ministry of Defense
  $ 34,255,522     $ 55,445,209  
Other receivables
    4,949,182       5,218,478  
Total trade and other receivables, net
  $ 48,422,260     $ 63,529,308  


The balances of accounts receivable from the Russian Ministry of Defense are attributable to the construction of a multi-functional residential and commercial complex on Marshal Rybalko Street (the “Project”) in Moscow.  The Company has been acting as the General Contractor of the Project for the Russian Ministry of Defense (the “Principal”).  Upon completion of the Project, the Principal will retain ownership of over half of the residential space in the Project, with the Company having the ownership of, and the right to sell, the remaining space in the Project.  The Company has not recognized any gross profit on the Project with the Principal through September 30, 2010.

In acting as the General Contractor of the Project, the Company organized the construction and subcontracted with other companies for the performance of certain parts of the Project.  As of September 30, 2010 and December 31, 2009, these subcontractors performed construction services for the Project totaling $35,445,209 and $55,445,209, respectively.  The amounts of subcontractor services are recorded as liabilities under “accounts payable and accrued expenses.”  The amount due from the Principal is recorded as an asset under “accounts receivable”, and this accounts receivable represents the Company’s only accounts receivable due more than one year as of September 30, 2010.
 
 
12

 
 
In the course of the third quarter of 2010, management reviewed and adjusted its estimates of the various costs of the Marshal Project.  As a result, management modified the estimates related to the Marshal Project and made $20 million of adjustments during the third quarter ended September 30, 2010.  The reduction of the accounts receivable from the Russian Ministry of Defense in the amount of $20 million and a corresponding reduction in accounts payable to subcontractors did not have an effect on the Company’s consolidated statement of operations for the nine months ended September 30, 2010.

The Company receives progress payments from non-government trade customers to be applied against construction of individual apartments.  When the apartments are completed and title passes to the trade customers, a final billing is issued to the trade customers and all progress payments are applied against the outstanding receivables.  The balance of any unpaid trade receivables are due within ninety days.  The Company receives no progress payments from the Russian Ministry of Defense and all payments for work by subcontractors are due upon the completion of the Project.  Payments for sales of road based materials are due upon the completion of the work and accepted by both the Company and the customer.

The amounts payable to the subcontractors for their services were presented to the Principal for acceptance and payment.  The Principal refused to accept and pay for these subcontractor services due to disagreements with the Company with the initial construction contract.  The Company initiated legal proceedings in order to recover from the Principal a total of $35,341,012.  As of October 8, 2010, the Company has collected $4,135,790 of this amount, and therefore the current amount of the Company’s claims is $31,205,222.

The Company records revenue and costs associated with the Russian Ministry of Defense under the completed contract method.  Revenue and costs from apartments sold to non-government trade customers is recognized under the percentage of completion method.  Revenue and costs from road based materials is recognized under the completed contract method due to the short-term nature of the construction.

The Company continues to work on the remaining residential space in the Project in light of the ongoing litigation with the Russian Ministry of Defense.  There have been no temporary or permanent work stopovers due to the present litigation.

The Company expects no additional costs to be incurred on the Project in connection with the litigation with the Russian Ministry of Defense.
 
At present, the Company’s management and lawyers cannot determine the ultimate outcome of the litigation.  However, management believes that the Company will ultimately prevail and collect substantially all of the amounts due from the Principal.  Accordingly, no provision for the unrecoverability of these accounts receivable has been recorded.

The Company has recorded revenue and cost of sales related to the Marshal Rybalko Street as follows:
 
   
Nine Months Ended
 
   
September 30,
 
   
2010
   
2009
 
Revenue
  $ 36,142,524     $ 2,452,949  
                 
Cost of sales
    15,436,718       2,522,673  
 
The Marshal Rybalko Street Project represents one of three government construction projects of the Company during the periods presented above.  The other projects are Na Yauze and Nemchinovka.

Note 9: Property, Plant and Equipment

Property, plant and equipment consists of buildings, building improvements, furniture and equipment used in the ordinary course of business and is recorded at cost less accumulated depreciation.
 
 
13

 

   
September 30,
   
December 31,
 
   
2010
   
2009
 
Land
  $ 372,285     $ 374,239  
Buildings and building improvements
    642,983       631,789  
Vehicles
    165,200       66,224  
Machinery and equipment
    70,800       71,027  
Other
    39,353       5,345  
      1,290,621       1,148,624  
                 
Less: accumulated depreciation
    176,882       161,077  
Total property, plant and equipment, net
  $ 1,113,739     $ 987,547  
 
Depreciation expense for the nine months ended September 30, 2010 and 2009 amounted to $40,487 and $34,467, respectively.


Note 10: Short-term debt

Short-term debt balances as of September 30, 2010 and December 31, 2009 were as follows:
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Loan from Sberbank of Russian Federation,
  $ -     $ 3,306,419  
  interest at 18.5% pa, due in November 2010
               
                 
Loans from officer, interest free, due on demand
    50,504       50,504  
                 
Total short-term debt
  $ 50,504     $ 3,356,923  
 
The loans are collateralized by the Company’s accounts receivable and current projects under construction. The loan agreements contain no debt covenants or required ratios that need to be maintained.  There are penalties or increases in the interest rates for a delay in payments, which can be as high as 21%.

Interest expense for the nine months ended September 30, 2010 and 2009, in the amount of $49,549 and $700,024, respectively, has been capitalized and included in the cost of sold and unsold projects under development in the Company’s balance sheets as of September 30, 2010 and December 31, 2009.

In November and December 2008, the Company made partial payments to RosDorBank. The loan was payable in US dollars and, due to the strength of the US dollar compared to the Ruble, a realized exchange loss in the amount of approximately $450,000 was recorded in the Consolidated Statement of Operations during the year ended December 31, 2008 upon partial liquidation of the loan, which gain reflects the difference in exchange rates between the date on which the note proceeds were received and the date of maturity.  In February 2009, the Company paid in full the balance of the loan.
 
 
 
14

 
 
Note 11: Accounts payable and accrued expenses


   
September 30,
2010
   
December 31,
2009
 
Trade accounts payable
  $ 27,073,626     $ 1,595,186  
Salaries payable
    46,154       35,630  
Accrued liabilities to subcontractors
    34,255,522       55,445,209  
Other payables
    27,917       1,085,881  
Total accounts payable and accrued expenses, net
  $ 61,403,219     $ 58,161,906  


Note 12: Advances from customers

As of September 30, 2010 and December 31, 2009, advances from customers totaling to $44,267,980 and $41,486,476, respectively, were attributable to prepayments received under agreements with customers requiring that the Company complete the construction of the apartments and transmit the title to the customers. Generally the customers make progress payments for the apartment price prior to the construction being completed. The sales price for the customer is fixed.  Generally, advances received from non-government customers are refundable at the customer’s request only if the Company or the customer replaces the contract and the advance with another customer.  Accounts receivable are recorded when the apartments are delivered and the advances from customers are offset against the accounts receivable at that time.


Note 13: Equity

As of September 30, 2010 and December 31, 2009, the share capital of the Company comprises 500,000,000 authorized share of common stock of $0.001 par value per share, 24,464,799 of which shares were issued and outstanding as of each such date. No dividends were declared in the period ended September 30, 2010 and December 31, 2009.

Note 14: Noncontrolling Interest

Effective January 1, 2009, the Company completed its implementation of ASC 810.

The noncontrolling interest represents the third parties of 494 UNR who did not exchange their shares with the Company in connection with the Acquisition Agreement signed in connection with the 494 UNR Acquisition.

The following table sets forth the noncontrolling interest balances and the changes in these balances attributable to the noncontrolling investors’ interests:

   
September 30,
   
December 31,
 
   
2010
   
2009
 
Balance at the beginning of period
  $ 13,729,087     $ 7,264,636  
Currency translation adjustment
    (25,289 )     656,386  
Noncontrolling interest share of income
    10,123,813       5,808,065  
                 
Balance at end of period
  $ 23,827,611     $ 13,729,087  
 
 
15

 
 
Note 15: Income Taxes

The Company adopted the provisions of ASC 740 on January 1, 2007.  As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.  The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed.  Should the Company recognize a liability for uncertain tax positions; the Company will separately recognize the liability for uncertain tax positions on its balance sheet.  Included in any liability for uncertain tax positions, the Company will also set up a liability for interest and penalties.  The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
  
The Company and its subsidiary file income tax returns in the U.S. federal jurisdiction, the state of Florida and the Russian Federation.  The Company is no longer subject to U.S. federal and state examinations for years before 2006.  Regarding the Russian Federation, the Company is no longer subject to examination by tax authorities for years before 2006.  The Company is currently being audited by the Russian Federation tax authorities with respect to 2007 and 2008.

The President of the United States has presented a budget to the United States Congress which contains various modifications to international tax rules.  Some of the proposed changes might subject the Company to, among other things, additional income taxes, restrictions on how foreign tax credits would be calculated and affect taxation regarding the transfer of intangible property.  The Company cannot ascertain at this time what the final outcome of this proposed legislation will be or the effect, if any, on the Company's results of operations or financial condition.  Additionally, the Internal Revenue Service ("IRS") released a draft tax schedule and instructions that provide additional details on its proposal to required companies with assets of $10.0 million or more to report their uncertain tax positions annually, beginning with the 2010 tax year of their business tax returns.

Note 16: Revenues

Revenues for September 30, 2010 and 2009 comprise the following:
 
   
For the Nine Months Ended
   
For the Three Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
General contractor's fees
  $ -     $ -     $ -     $ -  
Sales of residential and commercial properties
    61,666,084       36,612,495       29,374,038       21,898,326  
Sales of road base materials
    10,934,222       2,737,874       3,734,907       1,316,894  
Total revenues
  $ 72,600,306     $ 39,350,369     $ 33,108,945     $ 23,215,220  


Note 17: Business Segment Information

FASB ASC 280-10-10, "Segment Reporting" ("ASC 280-10-10"), established standards for reporting information about operating segments.  Operating segments are defined as components of an enterprise about which separate financial information is available and that are evaluated regularly by management.  The Company is organized by geographical area and industry segment.

 
16

 
 
   
Nine Months
   
Three Months
 
   
Ended
   
Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue
                       
Residential and commercial construction
  $ 61,666,084     $ 36,612,495     $ 29,374,038     $ 21,898,326  
Road base materials
    10,934,222       2,737,874       3,734,907       1,316,894  
    $ 72,600,306     $ 39,350,369     $ 33,108,945     $ 23,215,220  
Income (loss) from operations
                               
Residential and commercial construction
  $ 34,211,741     $ 15,937,266     $ 24,606,474     $ 10,288,732  
Road base materials
    579,955       168,383       605,413       (158,586 )
    $ 34,791,696     $ 16,105,649     $ 25,211,887     $ 10,130,146  
                                 
Total assets (as of)
 
September 30, 2010
   
December 31, 2009
                 
Residential and commercial construction
    197,194,759     $ 150,465,009                  
Road base materials
    216,398       4,570,428                  
      197,411,157     $ 155,035,437                  

Note 18: Accumulated Other Comprehensive Loss

The accumulated other comprehensive loss as of September 30, 2010 and December 31, 2009 totaling $1,239,232 and $1,188,279, respectively, is entirely attributable to the currency translation adjustments.

Note 19: Commitments and Contingencies

Economic and operating environment in the Russian Federation. The Russian Federation continues to display certain characteristics of emerging markets. These characteristics include, but are not limited to, the existence of a currency that is in practice not convertible in most countries and a relatively high inflation. Furthermore, the tax, currency, and customs legislation within these countries is subject to varying interpretations and changes which can occur frequently.

Taxation. The Russian tax legislation is subject to varying interpretations and changes which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activities of the Company may be challenged by the relevant regional and federal authorities. Recent developments suggest that the authorities are becoming more active in seeking to enforce, through the Russian court system, interpretations of tax legislation which may be selective for particular taxpayers and different to the authorities’ previous interpretations or practices. Different and selective interpretations of tax regulations by various government authorities and inconsistent enforcement create further uncertainties in the taxation environment in the Russian Federation.
 
Tax declarations, together with related documentation, are subject to review and investigation by a number of authorities, each of which may impose fines, penalties and interest charges. Fiscal periods remain open to review by the authorities for the three calendar years preceding the year of review (one year in the case of customs). Under certain circumstances reviews may cover longer periods. In addition, in some instances new tax regulations have taken retroactive effect. Additional taxes, penalties and interest which may be material to the financial position of the taxpayers may be assessed in the Russian Federation as a result of such reviews.

Legal contingencies. The Company is a named defendant in a number of lawsuits as well as a named party in numerous other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a materially adverse effect on the financial position or the operating results of the Company.

As discussed in Note 8, at present the Company is a plaintiff in a lawsuit against its debtor, the Russian Ministry of Defense, to recover accounts receivable totaling $35,341,012 as of September 30, 2010.  The Company’s management and lawyers cannot determine the ultimate outcome of the litigation.  However, management believes that the Company will ultimately prevail and collect substantially all of the amounts due from the Ministry of Defense.  Accordingly, no provision for the unrecoverability of these accounts receivable has been recorded.

Capital Commitments.  In the normal course of business the Company has entered into a number of construction contracts with its subcontractors.  The contracts have various completion dates through 2012.  However, management may seek to extend the completion agreements with the subcontractors.  As of September 30, 2010, the amount of such commitments was approximately $21.2 million.
 
 
17

 

Note 20: Related Party Transactions

During the nine months ended September 30, 2010 and 2009, the Company had activities with purchases, subcontracting construction and leases.  The Company's reported results of operations, financial position and cash flows would be different had such transactions been carried out amongst unrelated parties.  Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be affected on the same terms, conditions and amounts as transactions between related parties.

The nature of the relationships with such related companies is that some of the officers of the Company's subsidiary, 494 UNR, also serve as the General Directors of such related companies.  The details of the relationships for those related parties with whom the Company entered into significant transactions or had significant balances outstanding are presented below:

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Purchases and rental income
  $ 1,575,940     $ 3,287,367  
                 
                 
   
September 30,
2010
   
December 31,
2009
 
Accounts receivable
  $ 1,666,545     $ 2,082,247  
Accounts payable
  $ 246,160     $ 63,436  

 
 
 
18

 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and the other financial information included elsewhere in this report. Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors described below under “—Cautionary Statement Regarding Forward-Looking Statements.”

Overview
 
494 UNR is a construction and development company with its principal offices located in Bronnitsy (a near suburb of Moscow), Russian Federation. 494 UNR operates primarily in the city of Moscow and suburbs in its vicinity, the Russian Federation, and it specializes in design/build apartment and office buildings and parks, warehouses, shopping centers and retail facilities, hotels, commercial housing projects and light industrial projects for governments, developers, businesses and end users.  Through 494 UNR, we also supply our proprietary road base and slopes stabilization material Prudon to infrastructure projects in various parts of the Russian Federation.

The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included in this report. This section should be read in conjunction with our unaudited consolidated financial statements, including the notes thereto, as well as our other financial information included elsewhere in this report.

Significant Factors Affecting Results of Operations

We believe that the following factors significantly affected our results of operations in the quarter ended September 30, 2010 and/or will have a significant impact on our results of operations in the future.

Russian Macroeconomic Conditions and Trends
 
Since we carry out all of our projects in the Russian Federation, and we currently have no plans to expand outside of the Russian Federation, our operations are substantially affected by the various Russian macroeconomic conditions and trends.  There has been mo material changes as to how such factors affect our financial condition and results of operations since December 31, 2009.  For more information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Russian Macroeconomic Conditions and Trends” included in Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.
 
Seasonality
 
We experience seasonal fluctuations in our operations.  We tend to construct more but sell fewer apartments during the summer months, while we tend to sell more but construct fewer apartments during the winter months of a given year.  Therefore, the effects of seasonality usually are not correlated with our sales trends.  In addition, we engage in our core development, design and construction activities between April and October of each calendar year. The period of November through March of each year is a time of substantially reduced residential and other construction projects and road construction activity, when we engage primarily in selected interior activities (typically, in the buildings we construct).
 
Critical Accounting Estimates
 
The SEC recently issued “Financial Reporting Release No. 60 Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, or FRR 60, suggesting that companies provide additional disclosures, discussion and commentary on those accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy. For a summary of our significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements included elsewhere in this annual report.
 
We assess potential impairment of our long-lived assets, which include our property and equipment and our identifiable intangibles, such as deferred charges, under the guidance of ASC 360, formerly Statement of Financial Accounting Standards (“SFAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets. We must continually determine if a permanent impairment of our long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment. 
 
 
19

 
 
Inventories. Inventories consist of land, land development, construction costs, capitalized interest and construction overhead and are stated at cost, net of impairment losses, if any. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each construction project, then charged to cost of sales equally based upon the number of projects to be constructed in each product type.
 
The recoverability of inventories and other long-lived assets are assessed in accordance with the provisions of ASC 360, which requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual level, the lowest level of discrete cash flows that we measure.
 
We evaluate inventories under development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of construction projects for indication of impairment is performed quarterly, primarily by completing detailed budgets for all of our projects and identifying those construction projects with a projected operating loss for any projected fiscal year or for the entire projected life. For those construction projects with projected losses, we estimate remaining undiscounted future cash flows and compare those to the carrying value of the project, to determine if the carrying value of the asset is recoverable. The projected operating profits, losses or cash flows of each construction project can be significantly impacted by our estimates of the following:
 
 
future base selling prices;
 
future projects sales incentives;
 
future construction projects and land development costs; and
 
future sales absorption pace and cancellation rates.
 
These estimates are dependent upon specific market conditions for each construction project. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a project include:
 
 
the intensity of competition within a market, including publicly available sales prices and sales incentives offered by our competitors;
 
the current sales absorption pace for both our construction project and competitor construction project;
 
construction project specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our construction project, and the size and style of project currently being offered;
 
potential for alternative product offerings to respond to local market conditions;
 
changes by management in the sales strategy of the project; and
 
current local market economic and demographic conditions and related trends and forecasts.
 
These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each construction project. The sales objectives can differ between our projects, even within a given market. For example, facts and circumstances in a given project may lead us to price our projects with the objective of yielding a higher sales absorption pace, while facts and circumstances in another project may lead us to price our projects to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in project sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of projects to be sold and closed in future reporting periods for one project that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby project. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.
 
 
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If the undiscounted cash flows are more than the carrying value of the project, then the carrying amount is recoverable, and no impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the project is deemed impaired and is written-down to its fair value. We determine the estimated fair value of each project by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective project. Our discount rates used for the impairments recorded to date range from 13.5% to 17.0%. The estimated future cash flow assumptions are the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future projects. The impairment of a project is allocated to each project on a specific identification basis and written down to each project’s fair value. Any impairment is allocated to specific lots on a square foot basis. Should the fair value of any lot need to be written down further based on the future selling value of that lot, an additional impairment charge will be specifically allocated to such lot.  As of September 30, 2009 and 2010, we have evaluated the inventory for possible impairment and determined no adjustments for impairment existed.  There were no contract cancellations and although the economic climate may cause a delay in completing construction projects, management believes that there are no current impairment issues that will affect current operations.
 
Inventories held for sale, which are land parcels where we have decided not to build a project, are a very small portion of our total inventories, and are reported at the lower of carrying amount or fair value less costs to sell. In determining whether land held for sale is impaired, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.
 
From time to time, we write-off deposits and approval, engineering and capitalized interest costs when we decide not to exercise options to buy land in various locations or when we redesign projects and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed probable that the optioned property will not be acquired. In certain instances, we have been able to recover deposits and other preacquisition costs which were previously written off. These recoveries are generally not significant in comparison to the total costs written off.
 
Taxation
 
We are subject to income tax and other taxes. Significant judgment is required in determining the provision for income tax and other taxes due to the complexity of the Russian Federation tax legislation, to which our subsidiary 494 UNR is subject. There are many transactions and calculations for which the ultimate tax determination is uncertain. We recognize liabilities for anticipated tax audit issues based on estimates of whether it is probable additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the amount of tax and tax provisions in the period in which such determination is made.
 
Consolidated Results of Operations
 
General
 
Recent constraints on the availability of credit in the worldwide banking system and in the Russian Republic impacted adversely the construction and development projects of our customers and are projected to have a consequent adverse effect on our revenues and results of operations. In addition, the number of customers for residential units in our projects has decreased because of decrease in general purchasing power. We do not see any risks in our disposing of inventory, but the time period for turn over of inventory has increased.
 
Generally, we expect a slowdown in the housing market in the Russian Federation to extend from late 2008 through 2009, and do not see a recovery back toward previous levels in 2007 to 2008 at least until the last quarter of 2010. As to our infrastructure business, we had a stable level of sales of our road base product in 2009, as compared with 2008 revenue levels derived from such sales, and we expect a stable level of such sales during 2010, although there is no assurance that this will be the case. To date, the economic downturn has materially affected both our construction and infrastructure businesses, and the difficult economic conditions may continue to present a significant challenge to us.
 
 
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Consolidated Results of Operations
 
General
 
Recent constraints on the availability of credit in the worldwide banking system and in the Russian Republic impacted adversely the construction and development projects of our customers and are projected to continue to have an adverse effect on our revenues and results of operations.  In addition, the number of customers for residential units in our projects has decreased because of decrease in general purchasing power, which we believe occurred largely as a result of the impact on the Russian economy of the global economic crisis.  As a result of this economic downturn, our sales of residential and commercial real estate declined in the second half of 2008, that trend continued during 2009, and we experienced only a modest pickup in demand during the recent months of 2010.  In our infrastructure business, some of our customers for our road base and slopes stabilization material did not maintain existing projects or initiate new projects.  In our infrastructure segment, we experienced a slight pickup in demand in the course of  2010.  At the present time, management cannot ascertain whether the gradual pickup in demand we observed in both our business segments can be sustained over time.  We do not see any significant risks in our disposing of inventory, but the time period for turn over of inventory has increased, as compared to the time period prior to the economic downturn.
 
Generally, we expect a slowdown in the housing market in the Russian Federation to extend from late 2008 through the last quarter of 2010, and do not see a recovery back toward previous levels in 2007 to 2008 at least until late 2010. As to our infrastructure business, we had a stable level of sales of our road base product in 2009, as compared with 2008 revenue levels derived from such sales, and we expect a stable level of such sales during 2010, although there is no assurance that this will be the case. To date, the economic downturn has materially affected both our construction and infrastructure businesses, and the difficult economic conditions and the continuing uncertain economic outlook will likely remain a significant challenge for us in the future.
 
Consolidated Results of Operations for the Nine months ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
 
Revenues.  Total revenues for the nine months ended September 30, 2010 increased to approximately $72.6 million, or 84%, as compared to approximately $39.4 million for the nine months ended September 30, 2009.  This was as a result of a gradual pickup in demand for the apartments we construct, which we experienced mainly in our construction and development business in 2010.  We also observed a marginal improvement in demand for our proprietary road base and slopes stabilization material Prudon, which we supply to infrastructure projects in various parts of Russia.
 
Cost of Sales.  Cost of sales increased by approximately $14.4 million, or over 70%, to approximately $34.8 million for the nine months ended September 30, 2010, from approximately $20.4 million for the nine months ended September 30, 2009.  We attribute this increase primarily to the overall increase in revenues we experienced this year, during the period ended September 30, 2010.  Cost of sales as a percentage of sales decreased from 51.9% for the nine months ended September 30, 2009, compared to 48.0% for the nine months ended September 30, 2010.  This was primarily due to the fact that in 2009 we responded to the economic downturn with several anti-crisis measures, including scaling back certain marketing and similar expenses, while in 2010 we began slowly to grow our business consistent with the ongoing gradual economic improvement, which required additional investment by our company in construction materials, equipment, and further assistance from marketing and sales consultants.

Selling, general and administrative expenses.  Selling, general and administrative costs increased slightly by approximately $143,259 to approximately $3.0 million for the nine months ended September 30, 2010, as compared to approximately $2.8 million for the nine months ended September 30, 2009.  We were able to manage and control these costs this year, during the period ended September 30, 2010, despite a meaningful increase in our revenues, primarily as a result of the anti-crisis measures our company implemented during the fiscal year 2009, such as a reduction in force and more efficient utilization of the remaining personnel.  During 2010, we continued to benefit from some of the resulting savings, as we have not expanded existing personnel and continued to make efforts to control our costs of transportation, communications, security and office space.
 
Income from Operations.  Income from operations increased by approximately $18.7 million, from approximately $16.1 million for the nine months ended September 30, 2009 compared to approximately $34.8 million for the nine months ended September 30, 2010.  We attribute this increase primarily to the slow and gradual improvement in the economic environment in which we operate, and the corresponding improvement in our residential real estate customers’ ability to pay for, and/or partly finance, the apartments we construct.  Revenue from construction sales has increased 68.4% from 2009 to 2010, contributing an increase of approximately $18.4 million of additional gross profit in 2010.

Other Income(Expense).  Other income increased from approximately $1.3 million for the nine months ended September 30, 2009 to approximately $3.1 million for the nine months ended September 30, 2010.  We attribute this increase primarily to the interest earned on excess funds on US Dollar deposits in 2010.
 
 
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Provision For Income Taxes.  Provision for income taxes increased from approximately $3.5 million for the nine months ended September 30, 2009 to approximately $7.7 million for the nine months ended September 30, 2010, primarily due to an increase in net earnings in 2010.
 
Net Earnings.  Net earnings increased from approximately $9.3 million for the nine months ended September 30, 2009 to approximately $20.1 million for the nine months ended September 30, 2010 due to all of the reasons enumerated above.
 
Consolidated Results of Operations for the Three months ended September 30, 2010 Compared to the Three Months Ended September 30, 2009
 
Revenues.  Total revenues for the three months ended September 30, 2010 increased to approximately $33.1 million, or approximately 43%, as compared to $23.2 million for the three months ended September 30, 2009.  This was as a result of a gradual pickup in demand for the apartments we construct, which we experienced mainly in our construction and development business in 2010.  We also observed a marginal improvement in demand for our proprietary road base and slopes stabilization material Prudon.

Cost of Sales.  Cost of sales decreased by approximately $5.2 million, or 44.2%, to approximately $6.5 million for the three months ended September 30, 2010, from approximately $11.7 million for the three months ended September 30, 2009.  We attribute this decrease primarily to realized efficiencies as a result of engaging a new subcontractor, “DSK-1” and our utilization of a different construction technology using panels in certain buildings under construction during this period in our Nemchinovka project.  Cost of sales as a percentage of sales decreased from 50.4% for the three months ended September 30, 2009, to 19.7% for the three months ended September 30, 2010.  This was primarily due to the fact that in 2009 we responded to the economic downturn with several anti-crisis measures, including scaling back certain marketing and similar expenses, while in 2010 we began slowly to grow our business consistent with the ongoing gradual economic improvement, which required additional investment by our company in construction materials, equipment, and further assistance from marketing and sales consultants.

Selling, general and administrative expenses.  Selling, general and administrative costs decreased very slightly by $6,611 and were approximately $1.4 million for the three months ended September 30, 2010 and September 30, 2009.  In 2010, we continued to manage and control these costs following our implementation in 2009 of a series of anti-crisis measures.  During the three months ended September 30, 2010, we continued to benefit from some of these savings, as we have not expanded existing personnel and continued to make efforts to control costs of transportation, communications, security and office space.

Income from Operations.  Income from operations increased by approximately $15.1 million, from $10.1 million for the three months ended September 30, 2009 compared to $25.2 million for the three months ended September 30, 2010.  We attribute this increase primarily to the slow and gradual improvement in the economic environment in which we operate, and the corresponding improvement in our residential real estate customers’ ability to pay for, and/or partly finance, the apartments we construct.  Revenue from construction sales has increased 34% from 2009 to 2010, contributing an increase of approximately $14.3 million of additional gross profit in 2010.

Other Income(Expense).  Other income increased from $365,200 for the three months ended September 30, 2009 to approximately $1.1 million for the three months ended September 30, 2010.  We attribute this increase primarily to the interest earned on excess funds on US Dollar deposits in 2010.  This increase in income in 2010 was offset by a slight decrease in rental income, as a number of our commercial renters could not continue to carry rental costs and thus had to terminate their rental agreements with our company during the first three quarters of 2010.

Provision For Income Taxes.  Provision for income taxes increased from approximately $2.1 million for the three months ended September 30, 2009 to approximately $5.3 million for the three months ended September 30, 2010, primarily due to an increase in net earnings in 2010.
 
Net Earnings.  Net earnings increased from approximately $2.8 million for the three months ended September 30, 2009 to approximately $7.0 million for the three months ended September 30, 2010 due to all of the reasons enumerated above.

Liquidity and Capital Requirements
 
We had a working capital surplus of approximately $69.0 million and stockholders’ equity of approximately $48.1 million as of September 30, 2010.  Cash and cash equivalents increased by approximately $17.3 million for the quarter ended September 30, 2010.  The increase is primarily attributable to cash from operations of $22.4 million, offset in part by repayment of loans in the amount of approximately $3.3 million and the purchase of marketable securities of approximately $1.5 million.

Trade and other receivables, net of allowances, were approximately $45.4 million at September 30, 2010, compared to approximately $63.5 million at December 31, 2009. This decrease is primarily due to the reduction of the receivable from the Russian Ministry of Defense.  Inventories were approximately $108.8 million at September 30, 2010, as compared to approximately $70.3 million at December 31, 2009.  The increase was primarily due to the increase in construction during the second quarter of 2010.
 
 
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Accounts payable and accrued expenses were approximately $58.4 million at September 30, 2010, as compared to approximately $58.2 million at December 31, 2009.  We attribute this slight increase primarily to the increase in construction during the recent months of 2010, offset by the reduction in amounts due to subcontractors in connection with the Russian Ministry of Defense.  Advances from customers were approximately $44.3 million at September 30, 2010, as compared to approximately $41.5 million at December 31, 2009.  We attribute the increase to advances from progress payments on new construction during 2010.

We believe the sources of cash available to us should be sufficient to meet our operational needs in 2010 consistent with our budget and current focus on completing existing projects.  We estimate that we will require up to $400 million of capital to be able to complete our existing projects over the next three years.  Our construction and development business requires significant amounts of capital in part because we fund up to 100% of the construction and related costs (that are not financed by the governmental agencies that commission the particular project, to the extent of any apartments allocated to such agencies).  We currently expect to obtain the funds we need to complete our existing projects primarily from the sales of our apartments, the construction of which (to the extent not financed by the commissioning governmental agency) typically is financed as follows: (i) the full price of the apartment is pre-paid in cash by a prospective residential customer; or (ii) 50% of the price of the apartment is pre-paid in cash by a prospective residential customer, with the remaining amount financed by such customer through a bank; or (iii) 50% of the price of the apartment is pre-paid in cash by a prospective residential customer, with the remaining amount paid by such customer pursuant to the terms and conditions of an installment arrangement between our company and such customer.  In addition, we may draw on our operating credit lines with banks, or secure additional lines of credit, to help us finance the completion of our existing projects.  Furthermore, we intend to raise capital in equity offerings, and we are dependent on the success of such offerings, on our revenues from apartment sales and on the availability of bank credit to us, in order to have sufficient funds to complete our existing projects.  In the event that we are forced to delay our construction and development activities or are unable to complete any project due to lack of sufficient capital, we could be in breach of the agreements we entered into for each construction project, be liable to counterparties for our failure to perform and, in some cases, potentially lose the project, which could materially and adversely affect our business.  See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Requirements” included in Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.

As discussed in Note 7 to our restated consolidated annual financial statements included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009, and in Note 8 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, we are a plaintiff in a lawsuit and we claim against our debtor, the Russian Ministry of Defense, to recover  $35,341,012 of accounts receivable.  In the event that we do not prevail in this litigation, this could have a material adverse effect on our profit, financial condition and prospects. 

Other than as described above, there have been no material changes to our liquidity position or capital resource requirements since December 31, 2009.  For more information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Requirements” included in Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.
 
Recent Accounting Pronouncements

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.  There were no significant changes to those accounting policies during the nine months ended September 30, 2010, and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
 
Cautionary Statement Regarding Forward-Looking Statements
 
Some of the statements in this Quarterly Report on Form 10-Q, including statements using the words such as “may,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict”, “project”, “seek” and comparable phrases, as they relate to us and our management, are forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.  Forward-looking statements are not statements of historical fact and reflect the current views, beliefs and assumptions made by our management based on the information available, as of the date of this report, regarding future events, operating performance, financial condition, business strategy and our plans and objectives for future operations.  These forward-looking statements relate to us and the industry in which we operate.
 
 
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All forward-looking statements included in this report address matters that involve risks and uncertainties.  Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements.  We believe that these factors include, but are not limited to, the following:
 
·    
changes in political, social, legal or economic conditions in Russia;
 
·    
our ability to obtain necessary regulatory approvals and licenses for our business;
 
·    
our ability to fund future operations and capital needs through borrowings or otherwise;
 
·    
our ability to successfully implement any of our business strategies;
 
·    
our expectations about growth in demand for products and services we sell;
 
·    
competition in the marketplace;
 
·    
changes in general economic conditions, including inflation, interest rates, foreign currency exchange rates and other factors;
 
·    
our ability to respond to legal and regulatory developments and restrictions in relation to the construction industry;

the ultimate outcome of our litigation with the Ministry of Defense of the Russian Federation described in Note 7 to our restated consolidated financial statements included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009, and in Note 8 to our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q; and
 
·    
our success in identifying other risks to our business and managing the risks of the aforementioned factors.
 
The factors listed above should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and Risk Factors that are included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009 as well as in the other materials filed and to be filed with the U.S. Securities and Exchange Commission, or the Commission .  If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results and outcomes may vary materially from those described herein.  Any forward-looking statements you read in this report reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to, among other things, our operations, results of operations, growth strategy and liquidity.  Readers should specifically consider the factors identified in this report that could cause actual results to differ before making any investment decision.
 
Any forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.  Subject to any obligations under applicable law, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.  All subsequent written and oral forward-looking statements attributable to us, and those acting on behalf of us, are expressly qualified in their entirety by this section.
 

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
We are primarily exposed to economic risk from foreign currency exchange rates, credit risk and liquidity risk.
 
Interest Rate Risk
 
Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. We believe that there is not a material risk exposure to our short term investments.
 
Foreign Currency Risk
 
Because our revenues are currently denominated in U.S. dollars, a strengthening of the dollar could reduce our reported revenues. We do not enter into any derivative financial instruments to manage this exposure. We do not engage in financial transactions for trading or speculative purposes.
 
 
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Credit Risk
 
Our accounts receivables are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against effects of collection risks. As a result, we do not anticipate any material losses in this area.
 
We are potentially exposed to credit risk with respect to those suppliers to whom we make advances in the ordinary course of business, and, accordingly, we bear credit risk associated with the potential inability of such suppliers either to deliver goods for which we have already made payments or return the money advanced to them. We also bear credit risk on our cash and cash equivalents and short-term investments. Our exposure and the credit ratings of our counterparties are regularly monitored, and the aggregate value of transactions concluded is spread among approved counterparties. We seek to control our credit exposure through counterparty limits that are reviewed and approved by management. We do not hedge our credit risk.
 
Liquidity Risk
 
Liquidity risk is the risk that we cannot fulfill our payment commitments on any given due date without significantly raising the cost to fund payments. Liquidity risk arises when the maturities of our assets and liabilities do not coincide. Ultimate responsibility for liquidity risk management rests with the board of directors. We manage our liquidity risk by seeking to maintain adequate reserves, banking facilities and reserve borrowing facilities, by regularly monitoring forecasted and actual cash flows and by seeking to match the maturity profiles of our assets and liabilities. In particular, we manage our liquidity position by drawing down on and repaying our revolving credit facilities as the ongoing needs of our business necessitate.
 
 
 
 
 
 
 
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ITEM 4.
CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
As supervised by our Board of Directors and our Chief Executive Officer and Chief Financial Officer, management has established a system of disclosure controls and procedures and has evaluated the effectiveness of that system as required by paragraph (b) of Rule 13a-15, as of September 30, 2010.  Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in the 1934 Securities Exchange Act Rule 13a-15(e)) as of September 30, 2010, were not effective due to material weaknesses in the controls, as evidenced by the restatement of our financial statements due to the errors in such financial statements discussed above.

Our Chief Executive Officer and Chief Financial Officer concluded that material weaknesses existed in the presentation and/or recording of the transactions and amounts described below in respect of the restatement of our historical consolidated financial statements and, in discussion with the Audit Committee of our Board of Directors, authorized the above restatement of the previously issued financial statements.  We have restated our financial statements for the years ended December 31, 2009, 2008 and 2007 to correct the errors.  Based on the restatement of the previously issued financial statements, our Chief Executive Officer and chief financial officer believe the financial statements have been properly reflected as of December 31, 2009, 2008 and 2007.

We restated our prior financial statements, including the audited financial statements for the years ended December 31, 2009, 2008 and 2007, as well as the unaudited financial statements for the three month period ended March 31, 2009, the six month period ended June 30, 2009 and the nine month period ended September 30, 2009, as our Chief Executive Officer and Chief Financial Officer concluded that weaknesses existed with regard to recording of a financial transaction, the financial reporting of transaction gains and losses as of the balance sheet dates; the presentation of customer deposits as of the balance sheet dates that should have been reported as a liability and not to be netted against inventory; the presentation of transaction gains and losses as a separate line item in the statement of operations and not as a component of selling, general and administrative costs; the presentation of our revenues and cost of sales that required a correction in the percentage of completion method of accounting used by us; the provision for income taxes, which should have been reduced to reflect the adjustment of net income; and the additional description of certain related party transactions, which should have been included in the notes to our consolidated financial statements.  Our Chief Executive Officer and Chief Financial Officer, in discussions with our Audit Committee and in consultation with our auditors, authorized such restatements of the previously issued financial statements and concluded, as a result of these restatements, that material weaknesses in internal control over financial reporting existed as of December 31, 2009, 2008 and 2007.  We have restated our audited financial statements for the years ended December 31, 2009, 2008 and 2007, as well as the unaudited financial statements for the three month period ended March 31, 2009, the six month period ended June 30, 2009 and the nine month period ended September 30, 2009, to correct these errors.

Changes in Internal Control Over Financial Reporting

Our management has performed an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2010.  We have taken significant actions and implemented new policies to mitigate certain weaknesses in our disclosure controls and procedures that resulted in the above errors and required restatement of our financial statements, as described above.  In the year 2010, we upgraded and implemented our accounting software, coupled with our ongoing efforts to offer improved training and supervision of our appropriate personnel.  Additionally, we are monitoring and improving our existing procedures so that they will fully correspond to the complexity and volume of our operations, reflect the underlying transactions within the system, and ensure communication of any weaknesses in the internal control process to our Audit Committee.  We also plan to implement formal procedures over conversion of the amounts as recorded under the Russian accounting principles, under which our operating subsidiary reports its operations, to amounts under U.S. GAAP.  All disclosures and new financial accounting pronouncements are reviewed internally and discussed with the Audit Committee and our independent registered accounting firm.  Disclosure conferences before the release of the financial statements between the Audit Committee and our independent registered accounting firm are done on a quarterly basis.  We are dedicated to maintaining the high standards of financial accounting and reporting that we are now establishing and are committed to providing financial information that is transparent, timely, complete and accurate.
 
 
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PART II—OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

From time to time our company is involved in litigation in the ordinary course of our business activities.

We are currently a plaintiff in litigation with the Ministry of Defense of the Russian Federation (the “Principal”), which relates to our construction of a multi-functional residential and commercial complex on Marshal Rybalko Street in the city of Moscow.  Upon completion of the Marshal project, the Principal will retain ownership of over half of the residential space in the Marshal project, with our company having the ownership of, and the right to sell, the remaining space in this project.  In connection with the construction and development of the Marshal project, we organized the construction and subcontracted with third parties for the performance of certain parts of this project.  As of September 30, 2010 and December 31, 2009, the amount of claims recorded on our balance sheet with respect to the construction services performed by these third party subcontractors for the Marshall project totaled $35,341,012 and $55,445,209, respectively.  

We report the amount of the claims as liabilities under “accounts payable and accrued expenses”. For more information, see Note 8 to our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q.

We presented the amounts payable to the subcontractors for their services to the Principal for acceptance and payment.  The Principal refused to accept and pay for these subcontractor services.  In December 2008, we initiated the first of our lawsuits at the Arbitration Court of Moscow, in order to recover these amounts from the Principal, where our claims currently are pending, following some procedural developments.  No decision has yet been rendered by any court on the merits of our claim.  The initial amount of the claims was $35,341,012.  As of October 8, 2010, we have collected $4,135,790 of this amount, and therefore the current amount of  our claims is $31,205,222.

At present, our management and lawyers cannot determine the ultimate outcome of the litigation.  Our management and legal counsel continuously analyze and monitor the status of this legal proceeding.  As a result of our analysis of the arbitration courts’ practices in deliberation and adjudication of similar lawsuits, and having consulted with our lawyers, we determined that the optimal and most effective means of advancing our interests at the present stage of this proceeding would be to obtain the construction quote expertized report from the independent judicial state appraisal office.  This report is in the process of being prepared by an authoritative expert state institution, “Russian Federal Center of Judicial Expertise” under the auspices of the Ministry of Justice of the Russian Federation.  We expect that this expert report would confirm the proper performance of construction work at the Marshal project.

During the third quarter of 2010, our management modified its estimates of the amounts owed by the Principal to us in respect of the Marshal project, which was previously disclosed by the Company to include approximately $20 million in addition to the $35,341,012 amount, which remains subject to ongoing litigation proceedings between us and the Principal.  At the present time, our management does not expect to collect the remaining balance of approximately $20 million from the Principal.  See also Note 8 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

In August 2009, one of the subcontractors whom we engaged to perform certain services for the Marshal project, commenced a legal action against our company at the Arbitration Court in the Moscow area where our operating subsidiary 494 UNR is headquartered.  This subcontractor claimed approximately $21 million in compensation for the services the subcontractor rendered in respect of the Marshal project in the years 2008 and 2009.  In February 2010 the Arbitration Court rendered a decision in favor of the subcontractor. The decision came into effect in March 2010, and we currently are required to pay the above amount to the subcontractor.  See also Note 8 to our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q. 


ITEM 1.A.   RISK FACTORS.

Our results of operations and financial condition are subject to numerous risks and uncertainties described in “Risk Factors” included in Item 1.A. of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009 and in Item 1A. of our Quarterly Report on Form 10-Q for the period ended June 30, 2010, as filed with the Commission.  The risk factors identified therein have not materially changed.

 
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ITEM 6.
EXHIBITS.
 
Exhibit No.
Description
 
31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.
   
31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.
   
32.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.
   
32.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

* Filed herewith
* Furnished herewith
 
 
 

 
 
 
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 
UNR HOLDINGS, INC.
 
     
     
Dated: November 22, 2010
By:
/s/ Alexey A. Kim
 
   
Alexey A. Kim
Chief Executive Officer
 
       
Dated: November 22, 2010
By:
/s/ Iuriy Vladimirovich Shecvhenko
 
   
Iuriy Vladimirovich Shevchenko
Chief Financial Officer
 
 
 
 
 
 
 
 
 

 
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EXHIBIT INDEX

   
Exhibit Number
Description
31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.


* Filed herewith
* Furnished herewith
 
 
 
 
 
 
 
31