UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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


SECURITIES
EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2009





OR





 ̈ 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: 333-105903





China
Housing & Land Development, Inc.


(Exact
name of registrant as specified in our charter)





NEVADA
              20-1334845(State
      or other jurisdiction of incorporation or
                organization)
              (I.R.S.
      Employer Identification No.)





6
Youyi Dong Lu, Han Yuan 4 Lou


Xi'an,
Shaanxi Province


China
710054


(Address
of principal executive offices) (Zip Code)





(Registrant's
telephone number, including area code)


86-29-82582632





(Former
name, former address and former fiscal year,


if
changed since last report)





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
                  Name
      of each exchange on
                    which
      registeredCommon
      Stock, $ .001 par value per share
                  NASDAQ
      Capital Market





Securities
registered pursuant to Section 12(g) of the Act: none.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities


Act.
 Yes ̈    Nox





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange


Act.
  Yes   ̈    No 
x





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, 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  ̈  No
 ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ̈





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


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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes ̈   Nox





The
number of shares outstanding of our common stock as of June 30, 2009, was
30,948,340 shares. The aggregate market value of the common stock held by
non-affiliates (12,910,977 shares), based on the closing market price ($5.76 per
share) of the common stock as of June 30, 2009 was $74,367,228.





As of
March 12, 2010 the number of shares of the registrant’s classes of common stock
outstanding was 33,065,386.





DOCUMENTS
INCORPORATED BY REFERENCE





Document
            Parts
      Into Which IncorporatedNone
            Not
      applicable





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
annual report includes forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended. All statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements, including, but not
limited to, statements regarding our future financial position, business
strategy and plans and objectives of management for future operations. When used
in this filing, the words believe, may, will, estimate, continue, anticipate,
intend, expect, and similar expressions are intended to identify forward-looking
statements.





We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy, short-term
and long-term business operations and objectives, and financial needs.
These forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from
those reflected in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to the risks
discussed under the heading “Risk Factors”. Except as required by law, we assume
no obligation to update these forward-looking statements publicly or to update
the reasons actual results could differ materially from those anticipated in
these forward-looking statements.





In light
of these risks, uncertainties, and assumptions, the forward-looking events and
circumstances discussed in this annual report may not occur and actual results
could differ materially and adversely from those anticipated or implied in the
forward-looking statements. Accordingly, readers are cautioned not to place
undue reliance on such forward-looking statements.


2


TABLE
OF CONTENT





PART
      IITEM
      1
                BUSINESS
                3ITEM
      1A
                RISK
      FACTORS
                18ITEM
      2
                PROPERTIES
                24ITEM
      3
                LEGAL
      PROCEEDINGS
                24ITEM
      4
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                24PART
      IIITEM
      5
                MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                24ITEM
      6
                SELECTED
      FINANCIAL DATA
                26ITEM
      7
                MANAGEMENT
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                27ITEM
      7A
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                42ITEM
      8
                FINANCIAL
      STATEMENT AND SUPPLEMENTARY DATA
                43ITEM
      9
                CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES
                67ITEM
      9A(T)
                CONTROLS
      AND PROCEDURES
                67ITEM
      9B
                OTHER
      INFORMATION
                68PART
      IIIITEM
      10
                DIRECTORS
      AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                68ITEM
      11
                EXECUTIVE
      COMPENSATION
                71ITEM
      12
                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                72ITEM
      13
                CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
                72ITEM
      14
                PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                74PART
      IVITEM
      15
                EXHIBITS
      AND REPORTS ON FORM 10-K
                75SIGNATURES
                76


3


ITEM
1 BUSINESS


OUR
COMPANY





We are a
leading residential developer with focus on fast growing Tier II and Tier III
cities in Western China. We are dedicated to provide quality and affordable
housing to middle class families. The majority of our customers are first time
home buyers which, we believe, have increasing purchasing power and will benefit
from China’s rapid GDP growth.





We
commenced our operation since 1999 in Xi’an and are considered as the industry
leader and largest private residential developer in the region. We have
experienced significant growth in the past 11 years and have completed over 1.2
million square meters of residential projects. With the introduction of modern
design and technology, as well as the strict cost control system, we are able to
offer our customers high cost-effective products. Most of our projects are
designed by world-class architectures from United States and Europe that have
brought green technologies into our projects.





As we are
focusing on the demand from first time home buyers and first time up-graders in
Western China, the majority of our apartments are between  70 square
meters to 120 square meters in size, which is considered as a stable market
section in Western China. Our typical residential project have the size of
100,000 square meters and consists of multiple high-rise, middle-rise and
low-rise buildings as well as a community center, commercial units, kindergarten
and other auxiliary facilities. In addition, we provide property management
services to our developments and have an exclusive membership system for our
customers. We generated a large portion of our sales through the recommendations
of our existing customers.





We
acquired our land reserve and development site through primary land development
with local government, open-market auctions acquisition of old factories from
the government and distress assets from commercial banks. Not depending on a
single land acquisition method enables us to achieve reasonable land cost and
higher return from our developments. We intend to continue our expansion into
other strategically selected cities in Western China by leveraging our
well-recognized brand name and scalable business model.





Our
Strategies





We are
primarily focused on the development, management and sale of residential real
estate properties to capitalize on the rising demand from China’s emerging
middle class.  We strive to become the market leader in Western China
and plan to implement the following specific strategies to achieve our
goal:





Consolidate through
Acquisition and Partnership. Currently, the residential real estate
market in Western China is fragmented with many small players. We believe that
this will provide us with opportunities for acquisitions or partnering. We
believe acquisitions will provide us better leverage in negotiations and better
economies of scale.





Expand into Other Tier II
and Tier III Cities. We believe our proven business model and expertise
can be replicated in other Tier II and Tier III cities, especially in Western
China. We have identified certain cities with attractive dynamics.





Continue to Focus on the
Middle Market. We believe the emerging middle class will offer an
attractive opportunity for growth, since its purchasing power is growing and it
has a strong desire for ownership driven by the influence of Chinese culture and
values. We plan to leverage our brand name, experience and design capabilities
to meet the demand from the middle class.





Our
Competitive Strengths





We
believe we have the following competitive strengths and they will enable us to
compete effectively and to capitalize on the growth opportunities in our
market:





Leading
position in our market and industry


We are
one of the largest private residential real estate developers in Western China.
We believe that we have strong design and sales capabilities and a well
recognized brand name in the region. With strong local project experience and
long term working relationships with central and local governments, we have been
able to acquire significant land assets at reasonable costs, providing a strong
pipeline of future business and revenues over the next three to five
years.





Attractive
market opportunity


The real
estate market in Western China has grown slower than in Eastern China. We
believe the region is well positioned to grow at faster rates for the next few
years due to social, economic, regulatory and government stimulus-related
factors. Our revenue has recovered from the 2008 economic downturn with
US$73,579,325 in 2007 to US$24,306,062 in 2008 to US$78,511,269 in 2009. Our
business model has proven to be efficient and we plan to expand into other Tier
II and Tier III cities in Western China. Our growth strategy is focused on
Western China, and we believe we will significantly benefit from the Chinese
government’s “Go West” policy, which encourages economic development and
population movement to Western China.


4


Unique
and proven business model


With
strong local project experience and long term working relationships with the
central and local governments, we have been able to acquire land assets at more
attractive costs compared to our competitors. We are primarily focused on
capitalizing on rising demand for properties from China’s emerging middle class,
which has significant purchasing power and a strong demand for residential
housing. In order to leverage our brand to appeal to the middle class, we use
various advertising media to market our property developments and to reach our
target demographic, including newspapers, magazines, television, radio,
e-marketing and outdoor billboards. We believe that our brand is widely
recognized in our market, known for high quality at cost-effective
prices.





Experienced
management team


We have
an experienced management team with a proven track record of developing and
expanding our operations. Our top five managers have a total of more than 85
years of experience from developing residential properties. As a result, we have
developed extensive core competencies, supplemented by in-house training and
development programs. We believe that our management’s core competencies,
extensive industry experience and long-term vision and strategy will enable us
to benefit from growth opportunities.





Greater
access to financing through multiple channels.


We enjoy
multiple long term relationships with a number of high quality Chinese banks
which ensures timely access to capital.  These facilities are mainly
used for developments and the day to day running of the business. Besides
traditional banks, we are also working with other financial institutions, such
as trust companies and real estate funds to diversify our funding channels and
risks.





Corporate
History





We are a Nevada company and
substantially conduct all of our business through our operating subsidiaries in
China. We were incorporated in the state of Nevada on July 6, 2004, as Pacific
Northwest Productions Inc. On May 4, 2006, we changed our name to China Housing
& Land Development, Inc. Currently we own 6 operating subsidiaries in
China.





On April
21, 2006, we acquired 100% shares of Xi’an Tsining Housing Development Co., Ltd
(“Tsining”) through a share purchase agreement.




On March 9, 2007, we acquired 100%
shares of Xi’an New Land Development Co., Ltd. (“New Land”).





On November 5, 2008, the Company and
Prax Capital entered into a Joint Venture agreement to set up Puhua (Xi’an) Real
Estate Development Co., Ltd.(“Puhua”). We have a 75% interest in
Puhua.





On
January 20, 2009, we signed an equity purchase agreement with the
shareholders of Xi’an Xinxing Property management Co., Ltd. (“Xinxing Property”)
and acquired 100% ownership of Xinxing Property and its 100% subsidiary Xi’an
Xinxing Hotel management Co., Ltd. (“Xinxing Hotel”).




In March,
2009, we incorporated Wayfast Holdings Limited (“Wayfast”) with its 100%
subsidiary - Clever Advance Limited (“Clever Advance”) and Gracemind Holdings
Limited (“Gracemind”) with its 100% subsidiary - Treasure Asia Holdings Limited
(“Treasure Asia”). They were holding companies and inactive during the year
ended December 31, 2009.


5


CORPORATE
STRUCTURE











BUSINESS





Overview





We are a leading real estate
development company headquartered in Xi’an and doing business primarily in the
western part of China. We are a leading residential developer and dedicated to provide quality and
affordable housing to the middle class family..




Through our subsidiaries, Tsining, New
Land, PuHua, and Xinxing Property, we are engaged in the development,
construction, and sale of residential and commercial real estate units, as well
as land development in Western China. Tsining has completed a number of
significant real estate development and construction projects in Xi’an. Through
Tsining, we expand our business into other developing urban markets in Western
China.





Our
business model has proven to be efficient and profitable since its inception.
Typically, we divide each project into 5 deployment phases, spanning from land
acquisition to after sale services.











Our
average project development lasts over 2 years, and provides us with initial
cash flow after 3 quarters.





Land
Acquisition


To date,
we have been successful in acquiring land from many sources including open
market actions, co-development with local government and acquisitions of
distressed assets, such as bankrupt factories. We have achieved this through
long term working relations with the central and local
governments.


6


Planning
& Design


We work
with world class architectures for most of projects and maintain an an in-house
design team to combine our significant local knowledge. We also deploy advance
cost control system and enterprise resource planning system, which enable us to
monitor and analyze our construction cost and progress on a daily
basis.





Construction


We do not
undertake any construction– we outsource this function to qualified third
parties through competitive processes. We have a strong track record of working
with top construction companies and providing quality on-time
delivery.





Marketing
& Pre-Sales


We
initiate pre-sales once we finish the foundation construction and get the
pre-sales permit from the government– Our sales efforts are partly outsourced to
external professionals. Currently, we work with well known sales agents for our
developments, such as E-House and World Union Properties, which ranked number 1
and 2 in China, respectively. Pre-sales provide us with early income, with many
projects becoming cash flow positive within 9 months.





After
Sales Service


We always
follow up with our customers after a sale to ensure good relationships and
future recommendations. We also have a wholly-owned property management company
which performs integrated after-sales services.





Corporate
Information





Our
principal executive office is located at 6 Youyi Lu, Han Yuan 4th Floor, Xi’an,
710054,People’s Republic of China. Our telephone number at this address
is (86-29) 8258-2632 and our fax number is (86-29) 8258-2640.





Investor
inquiries should be directed to us at the address and telephone number of our
principal executive offices set forth above. Our website is http://www.chldinc.com.





Our
Industry





We
primarily focus on the development, management and sale of residential real
estate properties in order to provide affordable housing to middle class
consumers in Western China, especially first time purchasers and first time
up-graders.  Our current development projects are mainly located in
Xi’an, Shaanxi Province, the PRC. We are in the process of expanding into other
Tier II and Tier III cities in Western China.





Overall Industry
Overview





In early
2000, the Chinese real estate industry started to transition towards a
market-oriented system. Although the Chinese government still owns all urban
land in China, land use rights with terms of up to 70 years, can be granted to,
and owned or leased by, private individuals and companies. A large and active
market in the private sector has developed for sales and transfers of land use
rights which were initially granted by the Chinese government. All property
units built on such land belong to private developers for the term of period
indicated. The recent transition in the real estate industry’s structure in
China has fostered the development of real estate-related businesses, such as
property development, property management and real estate agencies.





The
significant growth of the Chinese economy during the past decade has led to a
significant expansion of the real estate industry. This expansion has been
supported by other factors, including increasing urbanization, growing personal
affluence, as well as the emergence of the mortgage lending market. The
following table sets forth selected statistics for the overall real estate
industry in mainland China for the periods indicated.





For
      the years ended December 31,2001-20082001
                                    
                                    2002
                                    
                                    2003
                                    
                                    2004
                                    
                                    2005
                                    
                                    2006
                                    
                                    2007
                                    
                                    2008
                                    
                                    CAGRInvest
      in real estate development($in billion)
                                    
                                    
                                    76.6
                                    
                                    
                                    94.2
                                    
                                    
                                    122.5
                                    
                                    
                                    158.9
                                    
                                    
                                    192.2
                                    
                                    
                                    290.4
                                    
                                    
                                    345.4
                                    
                                    
                                    417.7
                                    
                                    
                                    25.20
                                    %Total
      housing area (square feet in billion)
                                    
                                    
                                    24.5
                                    
                                    
                                    29.6
                                    
                                    
                                    96.4
                                    
                                    
                                    41.2
                                    
                                    
                                    59.7
                                    
                                    
                                    64.5
                                    
                                    
                                    72.2
                                    
                                    
                                    93.1
                                    
                                    
                                    21.90
                                    %Average
      price of properties sold($/square feet)
                                    
                                    
                                    24.9
                                    
                                    
                                    25.2
                                    
                                    
                                    25.2
                                    
                                    
                                    26.4
                                    
                                    
                                    91.2
                                    
                                    
                                    95.6
                                    
                                    
                                    95.6
                                    
                                    
                                    109.3
                                    
                                    
                                    11.60
                                    %





Source: China Statistic Year Book (all
government data is based on calendar year)


7


Growth
Drivers





West
China


We
believe the industry is well positioned to grow at comparable rates for the next
few years due to social, economic, regulatory and government stimulus-related
factors. Key growth drivers include the following:





·
            “Go West” policy. The
      "Go West" policy encourages economic development and population movement
      to the West covering: 6 provinces, 5 autonomous regions and 1
      municipality; this area covered 56% of mainland China with only
      approximately 23% of its population. The plan was issued in 1999,
      and  is divided into 3 phases. Phase I form the bulk of the
      strategy include infrastructure development (transport, hydropower plants,
      energy, and telecommunications), introduction of foreign investment,
      increased efforts on ecological protection (such as reforestation),
      promotion of education, and retention of talent flowing to richer
      provinces. As of 2009, over 1 trillion yuan has been spent building
      infrastructure in Western China. The Western China’s GDP growth rate keeps
      about 12% in the past 10 years, which is higher than the national average
      (9.6%).  Significant foreign and domestic investments in Xi’an
      and throughout Western China are set to support the growth of the middle
      income categories. The strong demand in residential properties is also
      driven by increasing urbanization.




·
            Increasing
      Urbanization in West China. The urban
      population in China has grown significantly over the past 10 years,
      creating higher demand for housing in many
  cities.




·
              Urbanization
      rates in the Tier II cities is higher than in the rest of
      China





Over 300
million urban people are expected to need housing in urban areas over the next
two decades. According to data from Xi’an Statistical Bureau, in 2008 the
population of Xi’an was 8.4 million with an urbanization rate of 47%. The
government plan to increase the Xi’an population to 10.7 million with an
urbanization rate of 80% by 2020. The following table sets forth China’s urban
population, total population and urbanization rates for periods
indicated:








Source:
National Bureau of Statistics.





·
            China’s
      Rapidly Growing Middle-Class Population.  China’s
      current population stands at over 1.3 billion, and is expected to reach
      1.4 billion in 2026. Among the population, the middle-class is growing
      fastest with 130 million people in 2006 expected to grow to 500 million by
      2026. The middle class is defined as house-holds with an annual income of
      between $6,000 and $25,000, with housing being the number one spending
      category. The rapid urbanization, growth in consumer spending coupled with
      significant growth of urban disposable income per capita (more than
      doubled from 2003 to 2009) and the low home ownership levels compared to
      western countries make this population a massive driver of the future
      growth of the Chinese real estate
market.







Source:
PRC State Council Development Research Center, and Monitor
Group.


8


·
            Government Stimulus. In
      response to the global financial crisis, the PRC announced a 4 trillion
      RMB stimulation program on November 27, 2008. Subsequently, on March 6,
      2009, the National Development and Reform Commission Director, Mr. Zhang
      Ping, announced a reshaping of the economic stimulus package that retained
      the investment total of 4 trillion RMB but adjusted its focus. Within the
      4 trillion RMB package, about 400 billion RMB will go toward civil works,
      including low-income housing and renovation. Two additional categories
      (370 billion RMB technology advances and 1.5 trillion RMB industry
      restructuring and infrastructure) are also expected to benefit Xi’an’s
      industries, and therefore further fuel demand in the city’s real estate
      market.







Source:
Zhang Ping, National Development and Reform Commission, press conference, March
6, 2009.





Type of Cities in
China





China has
167 cities with a population of over 1 million. These cities are divided into 3
categories/tiers.





There are
significant differences distinguishing Tier I cities from Tier II cities in
China:





Tier
I


A group
of four cities, located near the East Coast, compose the group of Tier I cities:
Beijing, Shanghai, Shenzhen, and Guangzhou. These regions are more urbanized and
have higher GDP per capita. The residential real estate prices in those cities
have been skyrocketing and are the catalyst of many government policy
changes.





Tier
II and III


There are
over 35 Tier II and III cities with an accumulative population of 215 million
and demand for real estate properties in Tier II/III cities is strong.
Industrial expansion and improved infrastructure will support continued
urbanization and fuel the growth of the real estate sector in these
cities.





Typically,
housing is affordable for consumers in Tier II/III cities compared to Tier I
cities. Disposable income in Tier II/III have increased faster than real estate
prices and overall saving rates in Tier II/III cities are higher than in Tier I
cities.








Source:
Bureau of Statistics of the above cities




Economic
Developments


Rapid
economic growth in eastern China has made Tier I cities more mature, making
second- and third-tier cities a viable alternative for companies looking to
reduce its cost bases. This has subsequently caused a movement towards these
cities. Multinational corporations have been expanding out of mega cities along
the East Coast of China, such as Beijing, Shanghai, and Shenzhen, into
neighboring and inland cities. Intel, for example, recently opened a development
center in Chengdu, while the Liberty Mutual Group,  has chosen
Chongqing for its Chinese headquarters. Unilever relocated its Chinese
headquarters from Shanghai to the neighboring province of Hefei due to the lower
labor and land costs and its strategic location.




9


The
Chinese government has also been instrumental in stimulating regional growth by
designating certain second-tier regions as priority zones. These actions are
benefitting Xi’an, our primary market, coupled with local growth which saw
Xi’an’s urban disposable income grow 24.7 percent in 2009.





As the
ripple effect of economic growth continues to permeate second-tier cities and
create a healthy environment for real estate development, leading indicators are
signaling continuing moderate growth in local property markets.










Source:
CEIC and E-House Company Reports.





City of
Xi’an





Background


Xi’an
served as the capital of China during 13 dynasties (from West Zhou in 1066 BC to
Tang in 907 AD) and is well known for its Terracotta Army and other famous
historic landmarks. Today, the city’s economic leadership is derived from its
high-technology, pharmaceutical, military, aerospace, tourism, and advanced
education industries.  The central government’s “Go West” policy has
designated Xi’an as the regional economic hub of Western China. To further
encourage Western China’s development, the central government plans to establish
the Central Shanxi Plain Economic Region that will help enable the free flow of
people, skill, capital, and trade among the western provinces. Xi’an, as the
economic center of Western China, will play a unique leadership role among the
western tier-two cities.





Xi’an is
slowly becoming an international city which boasts a large and educated work
force. The city has China’s third largest university-educated workforce, making
it a hotbed for research & development, high-technology manufacturing and
information technology solutions.  Xi’an has begun to attract
high-tech companies, including IBM, Applied Materials, Micron Technology, and
Infineon. Applied Materials, for example, selected Xi’an for its $255 million
phase one R&D center that will design and develop equipment for
semiconductor chip manufacturing. In addition, Micron Technology has invested
$250 million in Xi’an for packaging and testing of semiconductor
chips.





China has
announced its intention to become a world-class center for information
technology research and development, production, outsourcing and services to
rival and potentially surpass the success of India’s IT industry. Xi’an is
expected to play an important role in that effort, having been designated by the
government as one of five China Outsourcing Bases. Similar to Bangalore and
Hyderabad, the Xi’an local government is carving out a niche in IT outsourcing
by creating the 400,000 square-meter Xi’an Software Park. The park has already
attracted top software and technology companies, including IBM, which is the
government’s joint venture partner in creating the software park. Sybase, SPSS,
Nortel, Fujouru, and NEC are already operating in the park. The Xi’an local
government anticipates that the city’s IT outsourcing workforce will grow
to 200,000 by 2010.





The Xi’an
local government has laid out a master plan through the year 2020 to foster
economic transformation and urbanization. For example, Xi’an is now limiting
development in the city’s famous historical Gated Wall City (or Inner Ring),
which will be revamped primarily for tourism. The city plans to relocate about
450,000 residents from the Inner Ring to the second, third, and fourth rings of
the city and beyond.  One of the most ambitious plans is the
development of a new satellite city in the Baqiao district, about eight
kilometers from Xi’an’s center. The local government is developing the Baqiao
district into the “First Water City of the West”, complete with high-end
residential properties and hotels, international convention centers and a
high-technology industry center. The new urban area will be home for 900,000
middle-to-upper income residents and for firms in industries that include
R&D, services and high-technology, plus the potential headquarters for the
Chinese operations of multinational corporations.





Emerging
as an international city


Xi’an’s
local government has been proactive in enhancing the city’s international image
by hosting world class events like the Euro-Asia Economic Forum every second
year and the Formula One Powerboat World Championship. To attract international
tourists, Xi’an is leveraging its famous historical and cultural significance.
Xi’an has revamped its tourism infrastructure in numerous ways, including the
redevelopment of the famous Terracotta theme park. It has also selected China’s
largest construction company to build a RMB 20 billion ($2.5 billion) theme park
and a residential and commercial redevelopment project on the grounds of the
famous Da Ming Gong Palace that was built 1,300 years ago during the Tang
Dynasty. The city has also built out infrastructure to attract international
travelers and is drawing large foreign retailers. Several large retailers have
entered Xi’an, including Wal-mart, Carrefour, and Metro of Germany. Xi’an’s
historic mystique and economic potential has also lured top luxury brands,
including Louis Vuitton, Gucci, Prada and Versace to open
outlets.


10


Xi’an real estate
market





Strong
fundamentals


We
believe that demographic and economic factors, including emerging high-tech
industries and increasing foreign capital inflow will stimulate Xi’an’s future
growth. In 2008, the Xi’an population was 8.4 million, the average urban living
area per person was 26.3 square meters, lower than China’s urban average of 28
square meters per person in the same year. Xi’an has announced plans to increase
the population to 10.7 million and the average living area per person to 33
square meters by 2020, which will require an additional 132 million square
meters of new developments by 2020. Despite the solid economic growth and rising
housing demand, real estate prices in Xi’an are still less than half of those in
the mega cities such as Shanghai, Beijing and Shenzhen.











Sources: National Bureau of
Statistics and E-House China Real Estate Research Institute, Xi’an
Branch.




Xi’an:
Growing, leading, and still affordable


Despite
its role as the economic hub of Western China, Xi’an’s disposable income per
capita is increasing significantly over the past years, as shown below. Compared
to other cities, Xi’an is more affordable.





Source: Xi’an bureau of
      statistics
                  Source: Bureau of statistics
      of above
cities.




11


Source: NBS, Xi’an Bureau of
      Statistics, CEIC
                Source: NBS, Xi’an Bureau of
      Statistics, CEIC






2009 and Early 2010 Xi’an market
update





The first
half of 2008 saw a market slowdown in China’s real estate industry. In 2009,
Xi’an real estate market started to recover from 2008’s downturn. The market
boosted from the first quarter for the whole year. Both sales volume and prices
were up. The Xi’an real estate market continued to appreciate in January and
February 2010. Residential pre-sales volume, measured by per square meter sold
in the January-February 2010 period, increased 37.6 percent from the same
two-month period of 2009.  Residential pre-sales average price per
square meter increased by 20.8 percent in January and by 14.3 percent in
February 2010 compared with January and February of 2009,
respectively.





Xi’an’s
Transaction and Supply in 2009








Source:
E House (China) report.





Supply/demand
in Xi’an





According
to a CRIC’s research report, the demand and supply relationship in the Xi’an
area is considered to be in a healthy condition, with a supply/demand ratio of
0.3 at the end of 2009. During 2009, the total new supply of salable GFA to the
Xi’an market was 10.3 million square meters, and sold area has reached 14.1
million square meters. The imbalance has caused the market inventory to decrease
significantly. By December 2009, the total salable inventory in Xi’an is about
9.2 million square meters, which is estimated to be able to meet the market
demand for only 8 months, by using the average consumption rate during
2009.





Competitive
Landscape





The real
estate development business in China is organized into 4 levels under the
structure of the “Qualification Certificate for Real Estate Development
Enterprise.” The starting level is Level 4 (see table below). A company may
climb the scale to participate in larger projects. However, only one level may
be ascended per year. We had gained Level 1 status under the China Ministry of
Construction licensing policy in December 20, 2006.


12





Registered
                      Capital
                      (million)
                    
                    
                    Experience
                      (years)
                    
                    
                    Developed
                      Are
                      (square
                      feet)Level
      1
                    
                    $
                    6.25
                    
                    
                    
                    5
                    
                    
                    
                    3,229,278Level
      2
                    
                    $
                    2.5
                    
                    
                    
                    3
                    
                    
                    
                    1,614,639Level
      3
                    
                    $
                    1
                    
                    
                    
                    2
                    
                    
                    
                    538,213Level
      4
                    
                    $
                    0.125
                    
                    
                    
                    1
                    
                    
                    
                    N/A




On the
national level, there are numerous Level 1 companies involved in real estate
projects across China (to develop in multiple regions a Level 1 status is
required). There are 79 housing and land development companies listed on the
Shanghai, Shenzhen and Hong Kong Stock Exchanges. However, such companies
usually undertake large scale projects focusing on high-end families. We do not
consider these as direct competitors as we target small to medium size projects,
and focus on middle-class family.





We are
aware of two companies in Xi’an which may be considered to be direct competitors
in the small to medium sized project sector:




Xian
TANDE CO.,LTD.. (Level 1), is one of the largest real estate developers in Xian.
This company is a state-owned enterprise established in May 1991, and listed on
Shanghai Exchange in 2006( 600665, Shanghai Exchange) . The Company generally
undertakes larger scale projects and expanded their business into Shengzhen,
Suzhou and Tianjing in 2007. By the end of December, 2009, the Company had
completed five projects, with a total GFA of 1.4 million square meter. The
Company is now operating one project in Xian with a total GFA of 140,000 square
meter, one project in Shenzhen with 50,000 square meters, one project in
Tianjing with 100,000 square meter and two projects in Suzhou with 280,000
square meter. As the state-owned entity, they need to conduct some government
function including building public space and certain infrastructure work, which
hurt their profitability. In the last 3 years, their net profit rate ranged from
5% to 8%.




Xi’an
Ziwei Development Company (Level 1), is a state-owned enterprise established in
1999. This company has five projects completed with a total construction area of
around 4 million square meters. It has eight projects currently under
development with a total construction area of 1.5 million square meters. Since
the Company is controlled by the Xi’an High-Tech Zone Government most of the
Company’s developments are located in Northwest of Xi’an city. In 2009, the
Company already expanded their business to the Northern part of the Shaanxi
province.





Projects
under construction





Project
                                                                  Name
                                                                Type of
                                                                  Projects
                                                                Actual or
                                                                  Estimated
                                                                  Construction
                                                                  Period
                                                                
                                                                Actual or
                                                                  Estimated Pre-sale
                                                                  Commencement
                                                                  Date
                                                                
                                                                
                                                                Total Site
                                                                  Area
                                                                  (m2)
                                                                
                                                                
                                                                Total
                                                                  Gross
                                                                  Floor Area
                                                                  (m2)
                                                                
                                                                
                                                                Sold GFA
                                                                  by December
                                                                  31, 2009
                                                                  (m2)JunJing
      II
                                                                  phase
      one
                                                                Multi-Family
                                                                  residential
      &
                                                                  Commercial
                                                                Q3/
      2007
                                                                  - Q3/2009
                                                                
                                                                Q2/2008
                                                                
                                                                
                                                                
                                                                39,524
                                                                
                                                                
                                                                
                                                                136,012
                                                                
                                                                
                                                                
                                                                118,961JunJing
      II
                                                                  phase
      two
                                                                Multi-Family
                                                                  residential
      &
                                                                  Commercial
                                                                Q2/2009
                                                                  - Q2/2011
                                                                
                                                                Q3/2009
                                                                
                                                                
                                                                
                                                                29,800
                                                                
                                                                
                                                                
                                                                112,556
                                                                
                                                                
                                                                
                                                                55,561Puhua
                                                                  Project
                                                                Multi-Family
                                                                  residential
      &
                                                                  Commercial
                                                                Q2/2009
                                                                  - Q3/2014
                                                                
                                                                Q4/2009
                                                                
                                                                
                                                                
                                                                195,582
                                                                
                                                                
                                                                
                                                                610,000
                                                                
                                                                
                                                                
                                                                24,129





Project
                      name
                    
                    Total
                      Number of
                      Units
                    
                    
                    Number of
                      Units sold by
                      December 31,
                      2009
                    
                    
                    Estimated
                      Revenue
                      (million)
                    
                    
                    Contracted
                      Revenue by
                      December 31, 2009
                      (million)
                    
                    
                    Recognized
                      Revenue by
                      December 31, 2009
                      (million)JunJing
      II
                      phase
      one
                    
                    
                    1,182
                    
                    
                    
                    1,126
                    
                    
                    
                    95.6
                    
                    
                    
                    72.5
                    
                    
                    
                    72.5JunJing
      II
                      phase
      two
                    
                    
                    1,015
                    
                    
                    
                    516
                    
                    
                    
                    94.1
                    
                    
                    
                    40.5
                    
                    
                    
                    25.8Puhua
      Project
                    
                    
                    5,000
                    
                    
                    
                    195
                    
                    
                    
                    700.0
                    
                    
                    
                    15.0
                    
                    
                    
                    -


13


JunJing II: JunJing II is
located at 38 East Hujiamiao, Xi’an, with total GFA about 248,568 square meters.
It is the first Canadian style residential community with “green and
energy-saving” characteristics.” The project is divided into 2 phases, namely
JunJing II phase one and JunJing II phase two. We started the construction of
JunJing II phase one in the third quarter of 2007 and started the presale
campaign in the second quarter of 2007. Up to
December 31, 2009, our customers have signed pre-sale purchase agreements for
apartments in JunJing II phase one with purchase prices totaling $72.5 million,
of which we have recognized $72.5 million in revenues.





The
construction of Phase Two commenced in the second quarter of 2009 and pre-sales
started within the same quarter. As of December 31, 2009, the contract revenue
for Phase Two is $40.5 million, of which we have recognized $25.8 million in
revenues.





For
JunJing II and Puhua projects approximately $8.4 million of pre-sale payments
were booked as advances from costumers and will be recognized as revenues as
construction advances.





Puhua: The Puhua project, the
Company’s 79 acre joint venture located in the Baqiao New Development Zone, has
a total land area of 192,582 square meters and an expected GFA of approximately
640,000 square meters. In November 2008, the Company entered into an agreement
with Prax Capital China Real Estate Fund I, Ltd., to form a joint venture.
The joint venture was formed in late 2008 when Prax Capital Real Estate Holdings
Limited invested US$29.3 million. The joint venture acquired the land use rights
early in the first quarter of 2009.





The
construction of the Puhua project began in June 2009. The whole project, which
consists of four phases, is expected to be completed in the third quarter of
2014, with estimated revenues of $700 million. The Company began accepting
pre-sale contracts for units in the Puhua Phase One project on October 24th,
2009. As of December 31, 2009, the contract sales for Puhua project are $15
million.





Projects
under planning and in process




Project
                    Name
                  Type
      of Projects
                  Estimated
                    Construction
                    Period
                  
                  Estimated
                    Pre-sale
                    Commencement
                  
                  
                  Total
      Site
                    Area
                    (m2)
                  
                  
                  Total GFA
                    (m2)
                  
                  
                  Total
                    Number of
                    UnitsBaqiao
      New
                    Development
                    Zone
                  Land
                    Development
                  2009-
                    2020
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/AJunJing
      III
                  Multi-Family
                    residential
      &
                    Commercial
                  Q1/2010
                    - Q1/2012
                  
                  
                  Q2/2010
                  
                  
                  
                  8,094
                  
                  
                  
                  47,586
                  
                  
                  
                  570Park
      Plaza
                  Multi-Family
                    residential
      &
                    Commercial
                  Q3/2010
                    - Q4/2014
                  
                  
                  Q4/2010
                  
                  
                  
                  44,250
                  
                  
                  
                  180,000
                  
                  
                  
                  2,000Golden
      Bay
                  Multi-Family
                    residential
      &
                    Commercial
                  Q4/2010
                    - Q4/2014
                  
                  
                  Q1/2011
                  
                  
                  
                  146,099
                  
                  
                  
                  378,887
                  
                  
                  
                  N/A





Baqiao New Development Zone:
On March 9, 2007, we entered into a Shares Transfer Agreement with the
shareholders of Xi’an New Land Development Co., Ltd. (New Land), under which the
Company acquired 32,000,000 shares of New Land, constituting 100 percent equity
ownership of New Land. This acquisition gave the Company the exclusive right to
develop and sell 487 acres of land in a newly designated satellite city of
Xi’an.





Xi’an has
designated the Baqiao District as a major resettlement zone where the city
expects 900,000 middle to upper income inhabitants to settle. The Xi’an local
government intends to generate a success similar to that created in Pudong,
Shanghai, which has resulted in new economic opportunities and provided housing
for Shanghai’s growing population.





The Xi’an
municipal government plans investments of 50 billion RMB (over $6 billion) in
infrastructure in the Baqiao New Development Zone. The construction of a
large-scale public wetland park is well underway; it will embellish the natural
environment adjacent to China Housing’s Baqiao project.




Through
      its New Land subsidiary, China Housing sold 18.4 acres to another
      developer in 2007 and generated about $24.41 million in
      revenue.
                
                In
      2008, we established a joint venture with Prax Capital Real Estate
      Holdings Limited (Prax Capital) to develop 79 acres within the Baqiao
      project, which will be the first phase of the Baqiao project’s
      development. Prax Capital invested $29.3 million cash in the joint
      venture. The project is further described in the Puhua section
      below.




14





After
      selling 18.4 acres and placing 79 acres in the joint venture, about 390
      acres remained available for the Company to develop in the Baqiao
      project.JunJing III: JunJing
      III is located near our JunJing II project and the city expressway. It
      will have an expected total GFAof about 47,586 square meters. The
      project will consist of 3 high rise buildings, each 28 to 30 stories high.
      The project is targeting middle to high income customers who require a
      high quality living environment and convenient transportation to the city
      center. We plan to start construction during the first quarter 2010 and
      expect pre-sales to begin during the second quarter of 2010.The total
      estimated revenue from this project is about $46 million.




Park Plaza: In July 2009, the
Company entered into a Letter of Intent to acquire 44,250 square meters of land
in the center of Xi'an for the Park Plaza project. The Company intends to
develop a large mid-upper income residential and commercial development project
on this site, with a gross floor area of 162,000 square meters. The four-year
construction of Park Plaza is expected to begin in the fourth quarter 2010. We
anticipate accepting pre-sale purchase agreements in the second quarter of 2010,
and revenues from pre-sale agreements will begin to be recognized when all
revenue recognition criteria have been met. The total revenue from Park Plaza is
estimated to be $154 million.





Golden Bay: The Golden Bay
project is located within the Baqiao project, with a total GFA of 378,887 square
meters. The Golden Bay project will consist of residential buildings as well as
a commercial area. Construction is anticipated to begin in the fourth quarter of
2010, and we expect to begin accepting pre-sale purchase agreements in the first
quarter of 2011.




Completed
Projects with units available for sale




Project name
                      Type of
                        Projects
                      Completion
                        Date
                      
                      Total Site
                        Area
                        (m2)
                      
                      
                      Total GFA
                        (m2)
                      
                      
                      Total
                        Number of
                        Units
                      
                      
                      Number of
                        Units sold by
                        December31,
                        2009Tsining
      Home IN
                      Multi-Family
      residential &
                        Commercial
                      Q4/2003
                      
                      
                      8,483
                      
                      
                      
                      30,072
                      
                      
                      
                      215
                      
                      
                      
                      213Tsining-24G
                      Hotel,
                        Commercial
                      Q2/2006
                      
                      
                      8,227
                      
                      
                      
                      43,563
                      
                      
                      
                      773
                      
                      
                      
                      748JunJing
      I
                      Multi-Family
      residential &
                        Commercial
                      Q3/2006
                      
                      
                      55,588
                      
                      
                      
                      167,931
                      
                      
                      
                      1,671
                      
                      
                      
                      1,640Tsining
      Gangwan
                      Multi-Family
      residential &
                        Commercial
                      Q4/2004
                      
                      
                      12,184
                      
                      
                      
                      41,803
                      
                      
                      
                      466
                      
                      
                      
                      466





Tsining Home IN: Located near
the city center, the Home IN project consists of 215 two and three bedroom
western-style apartments. Total construction area is 30,072 square meters. The
project, completed in December 2003, generated total sales of $13.32
million.




Tsining-24G: 133 Changle
Road, Xi’an. 24G is a redevelopment of an existing 26 floor building, located in
the center of the most mature and developed commercial belt of the city. This
upscale development includes secured parking, cable TV, hot water, air
conditioning, natural gas access, internet connection, and exercise facilities.
This project was awarded “The Most Investment Potential Award in Xi’an
city” in 2006, Its target customers were white-collar workers, small
business owners, traders, and entrepreneurs. Total area available for
residential use was 43,563 square meters, covering 773 one to three bedroom
serviced apartments. The project started construction in June 2005 and was
completed in June 2006. Sales totaled $42.10 million.




Tsining JunJing Garden I: 369
North Jinhua Road, Xi’an. It is the first German style residential &
commercial community in Xi’an, designed by the world-famous WSP architectural
design house. Its target Customers were local middle income families. The
project has 15 residential apartment buildings consisting of 1,671 one to five
bedroom apartments. The Garden features secured parking, cable TV, hot water,
heating systems, and access to natural gas. Total GFA available was 167,931
square meters. JunJing Garden I was also a commercial venture that houses small
businesses serving the needs of JunJing Garden I residents and surrounding
residential communities. The project was completed in September 2006 and
generated total revenue $48.27 million.





Tsining Gang Wan:123 Laodong
Road, Xi’an. Less than one mile from the western hi-tech industrial zone,
GangWan spans three acres and
is comprised of eight buildings with a total construction area of 41,803 square
meters. The project began in April 2003 and was
completed in December 2004. GangWan has 466 apartments ranging from one to three
bedrooms. Total sales were $18.51 million as of
December 31, 2009.


15


Sales
and Marketing





Pre-Sales
and Sales


In China,
developers typically start to market and offer properties before construction is
completed. Under PRC pre-sales regulations, property developers must satisfy
specific conditions before they can pre-sell properties that are under
construction. These mandatory conditions include:






            the
      land premium must have been paid in
full;





the
      land use rights certificate, the construction site planning permit, the
      construction work planning permit and the construction permit must have
      been obtained;






            at
      least 25% of the total project development cost must have been
      incurred;






            the
      progress and the expected completion and delivery date of the construction
      must be fixed;






            the
      pre-sale permit must have been obtained;
and






            the
      completion of certain milestones in the construction processes must be
      specified by the local government
authorities.





These
mandatory conditions require a certain level of capital expenditure and
substantial progress in project construction before commencement of
pre-sales.  Developers are required to file all pre-sale contracts
with local land bureaus and real estate administrations after entering into such
contracts.





We
benefit from a strong sales and marketing platform which is complemented by
professional third party sales agents for maximum impact.  As we are
able to manage our customer relationship, the majority of our sales are
generated by recommendations by existing customers; the new sales initiatives of
our sales department generate approximately 44% of our total
sales.  More than 70% of our customers are first time buyers (who are
looking to getting on the property ladder).





After-sale
Services and Delivery


We assist
customers in arranging financing as well as various title registration
procedures related to their properties. We have also set up an ownership
certificate team to assist purchasers to obtain property ownership
certificates.





We
closely monitor the progress of construction of our property projects and
conduct pre-delivery property inspections to ensure timely delivery. The time
frame for delivery is set out in the sale and purchase agreements entered into
with our customers, and we are subject to penalty payments to the purchasers for
any delay in delivery caused by us. Once a property development has been
completed and passed the requisite government inspections, we will notify our
customers and hand over keys and possession of the properties.





We
operate a wholly owned property management company that manages properties and
ancillary facilities. We frequently follow up with our customers after the sale
to ensure a good relationship and further recommendations.





Marketing





As of
February 28, 2010, we maintain a marketing and sales force for our development
projects with 20 personnel specializing in marketing and sales. We also train
and use outside real estate agents to market and increase the public awareness
of our products, and spread the acceptance and influence of our brand. However,
we primarily let our own sales force represent our brand and project rather than
rely on third party brokers or agents for the reason that we believe our own
dedicated sales representatives are better motivated to serve our customers and
to control our property pricing and selling expenses.





Quality
Control





We
utilize quality control to ensure that our buildings and residential units meet
high standards. Through our contractors, we provide customers with warranties
covering the building structure and certain fittings and facilities of our
property developments in accordance with the relevant regulations. To ensure
construction quality, our construction contracts contain quality warranties and
penalty provisions for poor work quality. We do not allow contractors to
subcontract or transfer their contractual arrangements to third parties. We
typically withhold 5% of the agreed construction fees for two to five years
after completion of the construction as a deposit.




Governmental
and environmental Regulations




To date,
we have been compliant with all registrations and requirements for the issuance
and maintenance of all licenses required by the applicable governing authorities
in China. These licenses include:





•
            “Qualification
      Certificate for Real Estate Development” authorized by the Shaanxi
      Construction Bureau, effective from December 20, 2006 to December 20,
      2009. License No: JianKaiQi (2006) 603. The housing and land development
      process is regulated by the Ministry of Construction and
      authorized by the local offices of the Ministry. Each development
      project must obtain the following
licenses:


16





•
            “License
      for Construction Area Planning” and “License for Construction Project
      Planning”, authorized by Xian Bureau of Municipal
  Design;





•
            “Building
      Permit” authorized by the Committee of Municipal and Rural
      Construction;




After
construction is complete, the project meets certain standards in order to obtain
a validation certificate. These standards are regulated by the Local Ministry of
Construction Bureau.





Housing
and land development sales companies are regulated by the Ministry of Land &
Natural Resources and authorized by the local office of the Ministry. Each
project has to be authorized and must obtain a “Commercial License for Housing
Sale” from the Real Estate Bureau.





Employees





As
of February 28, 2010, we had 714 employees, including 52 in China
Housing and Land Development, inc, 32 in Tsining, 32 in Puhua and 598 in
Xinxing Property Management.





We
believe we have a good working relationship with our employees. We are not a
party to any collective bargaining agreements. At present, no significant change
in our staffing is expected over the next 12 months, except for our acquisition
of the property management company we acquired in January 2009. All employees
are eligible for performance-based compensation.


17


ITEM
1A. RISK FACTORS





The
investment in our company has a high degree of risk. Before you invest you
should carefully consider the risks and uncertainties described below and
the other information in this filing. If any of the following risks
actually occur, our business, operating results, and financial condition could
be harmed and the value of our stock could go down. This means you
could lose all or a part of your investment.





Risks
Related to Our Business





Our
home sales and operating revenues could decline due to macro-economic and other
factors outside of our control, such as changes in consumer confidence and
declines in employment levels.





Changes
in national and regional economic conditions, as well as local economic
conditions where the Company conducts its operations and where
prospective purchasers of our homes live, may result in more caution on the
part of home buyers and consequently may make fewer home purchases. These
economic uncertainties involve, among other things, conditions of supply
and demand in local markets and changes in consumer confidence and income,
employment levels, and government regulations. These risks and
uncertainties could periodically have an adverse effect on consumer demand for
and the pricing of our homes, which could cause our operating revenues
to decline. In addition, builders are subject to various risks, many of them
outside the control of the homebuilder including competitive overbuilding,
availability and cost of building lots, materials and labor, adverse weather
conditions which can cause delays in construction schedules, cost overruns,
changes in government regulations, and increases in real estate taxes and other
local government fees. A reduction in our revenues could, in
turn, negatively affect the market price of our securities.





An increase in mortgage interest
rates or unavailability of mortgage financing may reduce consumer demand for the
Company’s homes.





Virtually
all purchasers of our homes finance their acquisitions through lenders providing
mortgage financing. A substantial increase in mortgage interest rates
or unavailability of mortgage financing would adversely affect the ability
of prospective home buyers to obtain the financing they would need in order
to purchase our homes, as well as adversely affect the ability of
prospective move-up home buyers to sell their current homes. For
example, if mortgage financing became less available, demand for our
homes could decline. A reduction in demand could also have an adverse effect on
the pricing of our homes because we and our competitors may reduce prices
in an effort to better compete for home buyers. A reduction in pricing could
result in a decline in revenues and in our margins.





We
could experience a reduction in home sales and revenues or reduced cash flows if
we are unable to obtain reasonably priced financing to support
our home building and land development activities.





The real
estate development industry is capital intensive, and development requires
significant up-front expenditures to acquire land and begin
development. Accordingly, we incur substantial indebtedness to finance our
home building and land development activities. Although we believe that
internally generated funds and current borrowing capacity will be
sufficient to fund our capital and other expenditures (including land
acquisition, development, and construction activities), the amounts
available from such sources may not be adequate to meet our needs. If such
sources are not sufficient, we would seek additional capital in the form of
debt or equity financing from a variety of potential sources, including bank
financing and or securities offerings. The availability of borrowed funds,
to be used for land acquisition, development, and construction, may be
greatly reduced, and the lending community may require increased amounts of
equity to be invested in a project by borrowers in connection with new
loans. The failure to obtain sufficient capital to fund our planned capital and
other expenditures could have a material adverse effect on our
business.





We are subject to extensive
government regulation which could cause the Company to incur significant
liabilities or restrict its business activities.





Regulatory
requirements also could cause us to incur significant liabilities and operating
expenses and could restrict our business activities. We are subject to
statutes and rules regulating, among other things, certain developmental
matters, building and site design, and matters concerning the protection of
health and the environment. Our operating expenses may be increased by
governmental regulations such as building permit allocation ordinances and other
fees and taxes, which may be imposed to defray the cost of providing
certain governmental services and improvements. Any delay or refusal from
government agencies to grant us necessary licenses, permits, and approvals
could have an adverse effect on our operations.


18


We
may require additional capital in the future, which may not be available on
favorable terms or at all.





Our
future capital requirements will depend on many factors, including industry and
market conditions, our ability to successfully implement our new
branding and marketing initiative, and expansion of our production
capabilities. We anticipate that we may need to raise additional funds in
order to grow our business and implement our business strategy. We
anticipate that any such additional funds would be raised through equity or debt
financings. In addition, we may enter into a revolving credit facility or a
term loan facility with one or more syndicates of lenders. Any equity or debt
financing, if available at all, may be on terms that are not favorable to
us. Even if we are able to raise capital through equity or debt financings, as
to which there can be no assurance, the interest of existing shareholders
in our company may be diluted, and the securities we issue may have rights,
preferences, and privileges that are senior to those of our common stock or
may otherwise materially and adversely affect the holdings or rights of our
existing shareholders. If we cannot obtain adequate capital, we may not be able
to fully implement our business strategy, and our business, results of
operations, and financial condition would be adversely affected. See also
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources.” In addition, we have and will
continue to raise additional capital through private placements or
registered offerings, in which broker-dealers will be engaged. The activities of
such broker-dealers are highly regulated, and we cannot assure that the
activities of such broker-dealers will not violate relevant regulations and
generate liabilities despite our expectation otherwise.





We
depend on the availability of additional human resources for future
growth.





We are
currently experiencing a period of significant growth in our sales volume. We
believe that continued expansion is essential for us to remain
competitive and to capitalize on the growth potential of our business. Such
expansion may place a significant strain on our management and operations and
financial resources. As our operations continue to grow, we will have to
continually improve our management, operational and financial systems,
procedures and controls, and other resources infrastructure, and expand our
workforce. There can be no assurance that our existing or future management,
operating and financial systems, procedures, and controls will be adequate
to support our operations, or that we will be able to recruit, retain, and
motivate employees. Further, there can be no assurance that we will be
able to establish, develop, or maintain the business relationships beneficial to
our operations, or to do so or to implement any of the above activities in
a timely manner. Failure to manage our growth effectively could have a material
adverse effect on our business and the results of our operations and
financial condition.





We
may be adversely affected by the fluctuation in raw material prices and selling
prices of our products.





Our
projects and the raw materials we use have experienced significant price
fluctuations in the past. There is no assurance that they will not be subject to
future price fluctuations or pricing control. The land and raw materials we
use may experience price volatility caused by events such as market fluctuations
or changes in governmental programs. The market price of land and raw
materials may also experience significant upward adjustment, if, for instance,
there is a material under-supply or over-demand in the market. These price
changes may ultimately result in increases in the selling prices of our
products, and may, in turn, adversely affect our sales volume, revenue, and
operating profit.





We
could be adversely affected by the occurrence of natural disasters.





From time
to time, our developed sites may experience strong winds, storms, floods, and
earthquakes. Natural disasters could impede operations and or
damage infrastructure necessary to our constructions and operations. The
occurrence of natural disasters could adversely affect our business, the results
of our operations, prospects, and financial condition, even though we
currently have insurance against damages caused by natural disasters, including
typhoons, accidents, or similar events.




We
are dependent on third-party subcontractors, manufacturers, and distributors for
all construction services and supply construction materials, and a discontinued
supply of such services and materials will adversely affect our construction
projects.
  The
Company is dependent on third-party subcontractors, manufacturers, and
distributors for all construction services and supply construction materials.
Construction services or products purchased from the Company’s five largest
subcontractors/suppliers accounted for approximately 30% for the year ended
December 31, 2009. A discontinued supply of such services and materials
will adversely affect our construction projects.





Intense
competition from existing and new entities may adversely affect our revenues and
profitability.





In
general, the property development industry is intensely competitive and highly
fragmented. We compete with various companies. Many of our competitors
are more established than we are and have significantly greater financial,
technical, marketing, and other resources than we presently possess. Some of
our competitors have greater name recognition and a larger customer base.
These competitors may be able to respond more quickly to new or changing
opportunities and customer requirements and may be able to undertake more
extensive promotional activities, offer more attractive terms to customers, and
adopt more aggressive pricing policies. We intend to create greater
awareness for our brand name so that we can successfully compete with our
competitors. We cannot assure you that we will be able to compete
effectively or successfully with current or future competitors or that the
competitive pressures we face will not harm our business.





Our
operating subsidiaries must comply with environmental protection laws that could
adversely affect our profitability.





We are
required to comply with the environmental protection laws and regulations
promulgated by the national and local governments of the People’s
Republic of China (“PRC” or “China”). Some of these regulations govern the
level of fees payable to government entities providing environmental protection
services and the prescribed standards relating to the constructions.
Although our construction technologies allow us to efficiently control the level
of pollution resulting from our construction process, due to the nature of
our business, wastes are unavoidably generated in the processes. If we fail to
comply with any of these environmental laws and regulations in the PRC,
depending on the types and seriousness of the violation, we may be subject to,
among other things, warning from relevant authorities, imposition of
fines, specific performance and/or criminal liability, forfeiture of profits
made, being ordered to close down our business operations, and suspension
of relevant permits.


19


Our
success depends on our management team and other key personnel, the loss of any
of whom could disrupt our business operations.





Our
future success will depend in substantial part on the continued service of our
senior management, including Mr. Lu Pingji, our Chairman of the Board of
Directors, Mr. Feng Xiaohong, our Chief Executive Officer, and Ms. Lu Jing, our
Chief Operating Officer. The loss of the services of one or more of our
key people could impede implementation of our business plan and result
in reduced profitability. We do not carry key person life or other insurance in
respect of any of our officers or employees. Our future success will
also depend on the continued ability to attract, retain, and motivate
highly qualified technical, sales and marketing, customer support, and
other employees. Because of the rapid growth of the economy in the People’s
Republic of China, competition for qualified people is intense. We cannot
guarantee that we will be able to retain our key people or that we will be
able to attract, assimilate, or retain qualified people in the
future.





Risk
Relating to the Residential Property Industry in China





We
are heavily dependent on the performance of the residential property market in
China, which is at a relatively early development stage.





The
residential property industry in the PRC is still in a relatively early stage of
development. Although demand for residential property in the PRC has
been growing rapidly in recent years, such growth is often coupled with
volatility in market conditions and fluctuation in property prices. It is
extremely difficult to predict how much and when demand will develop, as
many social, political, economic, legal, and other factors, most of which are
beyond our control, may affect the development of the market. The level of
uncertainty is increased by the limited availability of accurate financial and
market information, as well as the overall low level of transparency in
the PRC, especially in tier two cities, which have lagged in progress in
these aspects when compared to tier one cities. The lack of a liquid
secondary market for residential property may discourage investors from
acquiring new properties. The limited amount of property mortgage
financing available to PRC individuals may further inhibit demand for
residential developments.





We
face intense competition from other real estate developers.





The
property industry in the PRC is highly competitive. In the tier two cities on
which we focus, local and regional property developers are our major
competitors, and an increasing number of large state-owned and private
national property developers have started entering these markets. Many of our
competitors, especially the state-owned and private national property
developers, are well capitalized and have greater financial, marketing, and
other resources than we have. Some also have larger land banks, greater
economies of scale, broader name recognition, a longer track record, and
more established relationships in certain markets. In addition, the PRC
government’s recent measures designed to reduce land supply further increased
competition for land among property developers.


Competition
among property developers may result in increased costs for the acquisition of
land for development, increased costs for raw materials, shortages
of skilled contractors, oversupply of properties, decrease in property
prices in certain parts of the PRC, a slowdown in the rate at which new property
developments will be approved and or reviewed by the relevant
government authorities, and an increase in administrative costs for hiring or
retaining qualified personnel, any of which may adversely affect our
business and financial condition. Furthermore, property developers that are
better capitalized than we are may be more competitive in acquiring land
through the auction process. If we cannot respond to changes in market
conditions as promptly and effectively as our competitors, or effectively
compete for land acquisition through the auction systems and acquire other
factors of production, our business and financial condition will
be adversely affected.





In
addition, risk of property over-supply is increasing in parts of China, where
property investment, trading, and speculation have become overly active. We
are exposed to the risk that in the event of actual or perceived
over-supply, property prices may fall drastically, and our revenue and
profitability will be adversely affected.





The
PRC government may adopt further measures to curtail the overheating of the
property sector.





Along
with the economic growth in China, investments in the property sectors have
increased significantly in the past few years. In response to concerns over
the scale of the increase in property investments, the PRC government has
introduced policies to curtail property development. We believe the following
regulations, among others, significantly affect the property industry in
China.





In May
2006, the Ministry of Construction, National Development and Reform Commission
(NDRC), the People’s Bank of China (PBOC), and other relevant PRC
government authorities jointly issued the Opinions on Adjusting the Housing
Supply Structure and Stabilizing the Property Prices, which introduced measures
to limit resources allocated to the luxury residential market. For
instance, the new measures require that at least 70 percent of a residential
project must consist of units with a GFA of less than 90 square meters per
unit, and the minimum amount of down payment was increased from 20 percent to 30
percent of the purchase price of the underlying property if it has a unit
GFA of 90 square meters or more. In September 2007, PBOC and China Banking
Regulatory Commission issued the Circular on Strengthening the Management
of Commercial Real Estate Credit Facilities, which increased the minimum down
payment for any purchase of second or subsequent residential property to 40
percent of the purchase price if the purchaser had obtained a bank loan to
finance the purchase of his or her first property.





In July
2006, the Ministry of Construction, the Ministry of Commerce, NDRC, PBOC, the
State Administration for Industry and Commerce, and the State Administration for
Foreign Exchange issued Opinions on Regulating the Entry and Administration
of Foreign Investment in Real Property Market, which impose significant
requirements on foreign investment in the PRC real estate sector. For
instance, these opinions set forth requirements of registered capital of a
foreign invested real property enterprise as well as thresholds for a
foreign invested real property enterprise to borrow domestic or overseas loans.
In addition, since June 2007, a foreign invested real property enterprise
approved by local authorities is required to register such approvals with the
Ministry of Commerce.


20


The PRC
government’s restrictive regulations and measures to curtail the overheating of
the property sector could increase our operating costs in adapting to these
regulations and measures, limit our access to capital resources or even restrict
our business operations. We cannot be certain that the PRC government
will not issue additional and more stringent regulations or measures, which
could further slow down property development in China and adversely affect our
business and prospects.





Our
sales will be affected if mortgage financing becomes more costly or otherwise
becomes less attractive.





Substantially
all purchasers of our residential properties rely on mortgages to fund their
purchases. An increase in interest rates may significantly increase
the cost of mortgage financing, thus affecting the affordability of
residential properties. In 2009, PBOC did not change the lending rates. The
benchmark lending rate for loans with a term of over five years, which
affects mortgage rates, remained at 5.94 percent on December 31, 2009. The PRC
government and commercial banks may also increase the down payment
requirement, impose other conditions or otherwise change the regulatory
framework in a manner that would make mortgage financing unavailable or
unattractive to potential property purchasers. Under current PRC laws and
regulations, purchasers of residential properties generally must pay at
least 20 percent of the purchase price of the properties before they can finance
their purchases through mortgages. In September 2007, the PRC
government increased the minimum amount of down payment to 40 percent of
the purchase price of the underlying property if such property is purchased as
second property by any household who has not paid up previous
mortgage.  Moreover, the interest rate for bank loans of
such purchase shall not be less than 110 percent of the PBOC benchmark rate
of the same term and category. For further purchases of properties, there would
be upward adjustments on the minimum down payment and interest rate for any
bank loan. In addition, mortgagee banks may not lend to any individual borrower
if the monthly repayment of the anticipated mortgage loan would exceed 50
percent of the individual borrower’s monthly income or if the total debt service
of the individual borrower would exceed 55 percent of such individual’s
monthly income. If the availability or attractiveness of mortgage financing is
reduced or limited, many of our prospective customers may not be able to
purchase our properties and, as a result, our business, liquidity and results of
operations could be adversely affected.





In line
with industry practice, we provide guarantees to PRC banks with respect to loans
procured by the purchasers of our properties for the total amount
of mortgage loans. Such guarantees expire upon the completion of the
registration of the mortgage with the relevant mortgage registration
authorities. If there are changes in laws, regulations, policies, and
practices that would prohibit property developers from providing guarantees to
banks in respect of mortgages offered to property purchasers and as a
result, banks would not accept any alternative guarantees by third parties, or
if no third party is available or willing in the market to provide such
guarantees, it may become more difficult for property purchasers to obtain
mortgages from banks and other financial institutions during sales
and pre-sales of our properties. Such difficulties in financing could
result in a substantially lower rate of sale and pre-sale of our properties,
which would adversely affect our cash flow, financial condition, and
results of operations. We are not aware of any impending changes in laws,
regulations, policies, or practices that will prohibit such practice in
China. However, there can be no assurance that such changes in laws,
regulations, policies, or practices will not occur in China in the
future.





Risks
Related to China





China’s
economic policies could affect our business.





Substantially
all of our assets are located in China and substantially all of our revenue is
derived from our operations in China. Accordingly, our results of
operations and prospects are subject, to a significant extent, to the economic,
political, and legal developments in China. While China’s economy has
experienced significant growth in the past 20 years, such growth has been
uneven, both geographically and among various sectors of the economy. The
Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these
measures benefit the overall economy of China, but they may also have a negative
effect on us. For example, operating results and financial condition may be
adversely affected by the government control over capital investments or changes
in tax regulations.





The
economy of China has been changing from a planned economy to a more
market-oriented economy. In recent years the Chinese government
has implemented measures emphasizing the utilization of market forces for
economic reform and the reduction of state ownership of productive assets, and
the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in China are still owned by the
Chinese government. In addition, the Chinese government continues to play a
significant role in regulating industry development by imposing industrial
policies. It also exercises significant control over China’s economic
growth through the allocation of resources, the control of payment of
foreign currency- denominated obligations, the setting of monetary policy,
and the provision of preferential treatment to particular industries or
companies.





Capital
outflow policies in China may hamper our ability to remit income to the United
States.





China has
adopted currency and capital transfer regulations. These regulations may require
us to comply with complex regulations for the movement of capital. Although
our directors believe that it is currently in compliance with these regulations,
should these regulations or the interpretation of them by courts
or regulatory agencies change; we may not be able to remit all income
earned and proceeds received in connection with our operations or from the sale
of our operating subsidiaries to our stockholders.


21


In
addition, there can be no assurance that we will be able to obtain sufficient
foreign exchange to pay dividends or satisfy other foreign exchange
requirements in the future.




The
fluctuation of the Renminbi may materially and adversely affect your
investments.
  The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in the PRC’s political and economic
conditions. Any significant revaluation of the Renminbi may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert U.S. dollars into Renminbi for our
operations, appreciation of the Renminbi against the U.S. dollar could have a
material adverse effect on our business, financial condition and results of
operations.
  Conversely,
if we decide to convert our Renminbi into U.S. dollars for the purpose of making
payments for dividends on our common shares or for other business purposes and
the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of
the Renminbi we convert would be reduced. Any significant devaluation of
Renminbi may reduce our operation costs in U.S. dollars but may also reduce our
earnings in U.S. dollars. In addition, the depreciation of significant U.S.
dollar denominated assets could result in a charge to our income statement and a
reduction in the value of these assets.
 
 There can
be no assurance that Renminbi will not be subject to devaluation. We may not be
able to hedge effectively against Renminbi devaluation, so there can be no
assurance that future movements in the exchange rate of Renminbi and other
currencies will not have an adverse effect on our financial
condition.
  In
addition, there can be no assurance that we will be able to obtain sufficient
foreign exchange to pay dividends or satisfy other foreign exchange requirements
in the future.





It
may be difficult to effect service of process and enforcement of legal judgments
upon our company and our officers and directors because some of them
reside outside the United States.





As our
operations are presently based in China and some of our key directors and
officers reside outside the United States, service of process on our key
directors and officers may be difficult to effect within the United States.
Also, substantially all of our assets are located outside the United States and
any judgment obtained in the United States against us may not be
enforceable outside the United States. We have appointed Lu Pingji, our Chairman
of the Board of Directors, as our agent to receive service of process in any
action against our company in the United States.





If
relations between the United States and China worsen, our stock price may
decrease, and we may have difficulty accessing the U.S. capital
markets.





At
various times during recent years, the United States and China have had
disagreements over political and economic issues. Controversies may arise in
the future between these two countries. Any political or trade
controversies between the United States and China could adversely affect the
market price of our common stock and our ability to access U.S. capital
markets.





Cessation
of the preferential rate of income tax may have an adverse impact on our net
income.





China
passed a new PRC Enterprise Income Tax Law and its implementing rules, both of
which became effective on January 1, 2008. The PRC Enterprise Income Tax
Law (“EIT Law”) reduces the statutory rate of enterprise income tax from 33% to
25%, and permits companies established before March 16, 2007 to continue to
enjoy their existing tax incentives, adjusted by certain transitional phase-out
rules. However, our Company is not certified as a high-technology company as
defined in the EIT law and administrative regulations implementing the EIT law.
Therefore, our statutory rate of enterprise income tax rate is now 25%, which
may adversely impact our net income and our financial condition.





We
may face obstacles from the communist system in China.





Foreign
companies conducting operations in China face significant political,
economic, and legal risks. The political system in China, including a
cumbersome bureaucracy, may hinder Western investment. We may have difficulty
establishing adequate management, legal, and financial controls in China.
China historically has not adopted a Western style of management and financial
reporting concepts and practices, modern banking, computer, or other
control systems. We may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in China. As a result of these
factors, we may experience difficulty in establishing management, legal, and
financial controls, collecting financial data and preparing financial
statements, books of account and corporate records, and instituting business
practices that meet Western standards.





It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors, and assets based in China.





Because
the Company’s executive officers and directors, including, the chairman of its
board of directors, are Chinese citizens, it may be difficult, if
not impossible, to acquire jurisdiction over these persons in the event a
lawsuit is initiated against us and or our officers and directors by a
stockholder or group of stockholders in the United States. Also, because
the majority of our assets are located in China, it would also be extremely
difficult to access those assets to satisfy an award entered against it in
a United States court.





We
may face judicial corruption in the People’s Republic of China.





Another
obstacle to foreign investment in the People’s Republic of China is corruption.
There is no assurance that we will be able to obtain recourse, if
desired, through the People’s Republic of China’s poorly developed and
sometimes corrupt judicial systems.





Risks
Related to Our Common Stock





There
is no assurance of an established public trading market, which would adversely
affect the ability of shareholders  in our company to sell their
securities in the public markets.
  Although
our common stock trades on the NASD’s automated quotation system (the “NASDAQ
Stock Market”), a regular trading market for the securities may not be sustained
in the future. Market prices for our common stock will be influenced by a number
of factors, including:
 
 •
              the issuance of new equity
      securities;
 
 •
              changes in interest
      rates;
 
 •
              competitive developments,
      including announcements by competitors of new products or services or
      significant contracts, acquisitions, strategic partnerships, joint
      ventures or capital
commitments;
 
 •
              variations in quarterly operating
      results;
 
 •
              change in financial estimates by
      securities analysts;
 
 •
              the depth and liquidity of the
      market for our common stock;
 
 •
              investor perceptions of our
      company and the technologies industries generally;
    and
 
 •
              general economic and other
      national conditions.
 
 The
limited prior public market and trading market may cause volatility in the
market price of our common stock.
  Our
common stock is currently traded on the NASDAQ under the symbol “CHLN.” The
quotation of our common stock on the NASDAQ does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies like us. Our
common stock is thus subject to volatility. In the absence of an active trading
market:
  •
              investors may have difficulty
      buying and selling or obtaining market
  quotations;
 
 •
              market visibility for our common
      stock may be limited; and
 
 •
              a lack of visibility for our
      common stock may have a depressive effect on the market for our common
      stock.




22


Our
principal stockholders and current executive officers and directors own a
significant percentage of our company and will be able to exercise significant
influence over our company.





Our
executive officers and directors and principal stockholders together will
beneficially own a majority of the total voting power of our outstanding
voting capital stock. These stockholders will be able to determine the
composition of our Board of Directors, will retain the voting power to approve
all matters requiring stockholder approval, and will continue to have
significant influence over our affairs. This concentration of ownership could
have the effect of delaying or preventing a change in our control or
otherwise discouraging a potential acquirer from attempting to obtain control of
us, which in turn could have a material and adverse effect on the market
price of the common stock or prevent our stockholders from realizing a premium
over the market prices for their shares of common stock. See “Principal
Stockholders” for information about the ownership of common by our
executive officers, directors, and principal stockholders.





We
do not anticipate paying dividends on the Common Stock.





We have
never paid dividends on our common stock and do not anticipate paying dividends
in the foreseeable future. Our directors intend to follow a policy
of retaining all of our earnings, if any, to finance the development and
expansion of our business.





Our
common stock could be considered to be a “penny stock.”





Our
common stock could be considered to be a “penny stock” if it meets one or more
of the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Securities Exchange Act of 1934, as amended. These
include but are not limited to the following: (i) the stock trades at a price
less than $5.00 per share; (ii) it is NOT traded on a “recognized” national
exchange; (iii) it is NOT quoted on The Nasdaq Stock Market, or even if so,
has a price less than $5.00 per share; or (iv) is issued by a company with
net tangible assets less than $2.0 million, if in business more than a
continuous three years, or with average revenues of less than $6.0 million
for the past three years. The principal result or effect of being designated a
“penny stock” is that securities broker-dealers cannot recommend the stock
but must trade in it on an unsolicited basis.





Broker-dealer
requirements may affect trading and liquidity.





Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated there under by the SEC require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the
risks of penny stocks and to obtain a manually signed and dated written receipt
of the document before effecting any transaction in a penny stock for the
investor’s account.





Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny
stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience, and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written
statement setting forth the basis on which the broker-dealer made the
determination in (ii) above; and (iv) receive a signed and dated copy of
such statement from the investor, confirming that it accurately reflects
the investor’s financial situation, investment experience, and investment
objectives. Compliance with these requirements may make it more difficult
for holders of our common stock to resell their shares to third parties or to
otherwise dispose of them in the market or otherwise.




Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.
  From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act (“Rule
144”), subject to certain limitations. The SEC has recently adopted amendments
to Rule 144 which became effective on February 15, 2008. Under these
amendments, a person who has beneficially owned restricted shares of our common
stock or warrants for at least six months would be entitled to sell their
securities provided that (i) such person is not deemed to have been one of
our affiliates at the time of, or at any time during the three months preceding,
a sale and (ii) we are subject to the Exchange Act periodic reporting
requirements for at least three months before the sale.
  Persons
who have beneficially owned restricted shares of our common stock or warrants
for at least six months but who are our affiliates at the time of, or at any
time during the three months preceding, a sale, would be subject to additional
restrictions, by which such person would be entitled to sell within any
three-month period only a number of securities that does not exceed the greater
of either of the following:
 
 •
              1% of the total number of
      securities of the same class then outstanding;
  or
 
 •
              the average weekly trading volume
      of such securities during the four calendar weeks preceding the filing of
      a notice on Form 144 with respect to the
  sale;
 
 provided,
in each case, that we are subject to the Exchange Act periodic reporting
requirements for at least three months before the sale.
  Such
sales both by affiliates and by non-affiliates must also comply with the manner
of sale, current public information and notice provisions of Rule
144


23




ITEM 2.  PROPERTIES





Our
principal executive offices are located at 6 Youyi Dong Lu, Han Yuan 4 Lou,
Xi’an, Shaanxi Province, China 710054. This office consists of approximately
2,608.06 square meters which we own.





Our
properties are located in Xi’an, Shaanxi province in China.





Name of project
                  Geographic
                    location
                  
                  Subsistence
                    area
                    (square
                    meter)Tsining
      JunJing I
                  North
      Jinhua Road Xi'an City
                  
                  
                  29,929Tsining-24G
                  East
      Erhuan of Xi'an City
                  
                  
                  8,999Tsining
      JunJing II Phase one
                  Dongzhan
      Road of Xi'an City
                  
                  
                  136,012Tsining
      JunJing II Phase two
                  Dongzhan
      Road of Xi'an City
                  
                  
                  112,556Yijing
      Yuan (Land)
                  South
      Erhuan of Xi'an City
                  
                  
                  60,666Other
      Projects
                  
                  
                  
                  4,218Total
                  
                  
                  
                  352,380





(1)
            The
      Company started the JunJing II phase one in the third quarter of 2007 and
      completed it in the third quarter 2009. Total GFA is 136,012 square
      meters. As of December 31, 2009, we have sold 118,961 square meters, with
      17,051 square meters remaining to be
sold.





(2)
            The
      Company started the JunJing II phase two in the second quarter of 2009 and
      expects to complete it in the third quarter of 2010 with total GFA of
      112,556 square meters.





ITEM
3. LEGAL PROCEEDINGS





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm business. We are currently not aware of
any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse affect on business, financial condition or
operating results.





ITEM
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS


Form 8-K
filed with SEC on November 3, 2009 is incorporated by reference herein in its
entirety.





PART
II





ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS





Our
common stock is traded on NASDAQ Capital Market under the symbol CHLN since May
16, 2008. The following table shows, for the periods indicated, the high and low
trading prices for our common stock as reported by the National Quotation
Bureau, Inc., from the first quarter of 2008 through December 31, 2009 . Prior
to May 16, 2008, our stock is traded in the OTCBB market.




High
      & Low Stock
                    Price
                  
                  1st
                    Quarter
                  
                  
                  2nd
                    Quarter
                  
                  
                  3rd
                    Quarter
                  
                  
                  4th
                    Quarter2009High
                  
                  
                  1.90
                  
                  
                  
                  6.15
                  
                  
                  
                  6.59
                  
                  
                  
                  5.30Low
                  
                  
                  0.94
                  
                  
                  
                  1.21
                  
                  
                  
                  3.28
                  
                  
                  
                  2.802008High
                  
                  
                  6.10
                  
                  
                  
                  5.65
                  
                  
                  
                  4.25
                  
                  
                  
                  2.33Low
                  
                  
                  3.30
                  
                  
                  
                  3.80
                  
                  
                  
                  1.85
                  
                  
                  
                  0.752007High
                  
                  
                  3.85
                  
                  
                  
                  5.20
                  
                  
                  
                  5.00
                  
                  
                  
                  8.20Low
                  
                  
                  2.00
                  
                  
                  
                  3.15
                  
                  
                  
                  3.20
                  
                  
                  
                  4.25





On March
11, 2010, the closing price of our common stock was $4.30.





As of
December 31, 2009, there were approximately 240 shareholders of record of
our common stock, excluding shareholders who have their shares held in street
name (by their stock brokerage firms).





Dividends:  We
have not paid any dividends for the past two years.


24


RECENT
SALES OF UNREGISTERED SECURITIES.





Private
Placement on January 28, 2008





On
January 28, 2008, the Company entered into a Securities Purchase Agreement
(Purchase Agreement) with certain investors (Investors). Pursuant to the
Agreement, the Company agreed to sell to Investors 5.0% Senior Secured
Convertible Debt, which are convertible into shares of the Company’s Common
Stock, for an aggregate purchase price of US$ 20,000,000 and to receive, in
consideration for such purchase, Warrants to acquire additional shares of Common
Stock.





The 5%
Senior Secured Convertible Debt (Convertible Debt) shall bear interest at a rate
of 5% per annum (computed based on the actual days elapsed in a period of 360
days) of the RMB Notional Principal Amount, payable quarterly in arrears in U.S.
Dollars on the first business day of each calendar quarter and on the Maturity
Date, in each case in an amount equal to the amount of such interest as
expressed in RMB multiplied by the US$-RMB Exchange Rate as of the applicable
Interest Exchange Rate Determination Date. The Notes are secured by a first
priority, perfected security interest in certain shares of Common Stock of
Lu Pingji, as evidenced by the pledge agreement. The Notes are subject to events
of default customary for convertible securities and for a secured
financing.





The
Company’s 5.0% Senior Secured Convertible Debt were purchased by the following
investors: Whitebox Intermarket Partners, LP, Whitebox Convertible Arbitrage
Partners, LP, Whitebox Hedged High Yield Partners, LP, Whitebox Special
Opportunities Fund Series B Partners, LP, Pope Investments II, LLC, Berlin
Income, L.P., Berlin Capital growth, L.P., Thomas G. Berlin, and Eastern
Management & Financial, LLC. The shares of Common Stock covered by warrants
were 1,437,467 in total. The securities were being offered and sold in
reliance upon the exemptions from securities registration afforded by Section
4(2) of the Securities Act and Rule 506 under Regulation D. All securities were
sold to accredited investors and the Company did not use general solicitation or
advertising to market the securities. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the Purchase
Agreement.





The
Warrants grant the Investors the right to acquire shares of Common Stock at
$6.07 per share of Common Stock, subject to customary anti-dilution adjustments.
The Warrants may be exercised to purchase Common Stock at any time after January
28, 2008 to and including February 28, 2013, the expiration date of the
Warrants.





In
connection with this transaction, the Company and the Investors entered into a
Registration Rights Agreement (Registration Rights Agreement). Pursuant to the
terms and conditions of the Registration Rights Agreement, the Company has
agreed to register within 60 calendar days after closing shares of Common Stock
issuable to the Investors for resale on a Form S-3 Registration Statement to be
effective by 90 calendar days or 120 days if the registration statement is
subject to a full review by the U.S. Securities and Exchange Commission.
The Company shall register an amount of Common Stock for resale that equals at
least 120% of the sum of shares issuable upon conversion of the Notes, the
exercise of the Warrants and the payment of interest accrued on the Notes. The
registration rights granted under the Registration Rights Agreement are subject
to customary exceptions and qualifications and compliance with certain
registration procedures.





SUBSEQUENT
DEVELOPMENTS





In
January 2010, the Company signed an acquisition agreement with Suodi co., Ltd
(“Suodi”), whereby the Company will acquire 100% of the shares of Suodi. The
Company agreed to pay $7.32 million (RMB 50 million) for the acquisition,
including $2.93 million (RMB 20 million) paid in cash and $4.39 million (RMB 30
million) paid in the Company’s common stock. According to the acquisition
agreement, the number of common shares to be issued is 1,118,403.





In
February 2010, the Company received a letter of intent from a third party for an
option to acquire approximately one third of the area of the shopping mall for a
total purchase price of approximately $7.5 million. The shopping mall is
classified as asset held for sale.





In
February 2010, the Company acquired an 11-acre tract of land in Xi'an, China for
the Park Plaza development project. This project was originally announced in
July 2009. Under the terms of the agreement, the Company will pay $23.5 million
(RMB 160 million) to acquire 44,250 sq. meters of land (11 acres) located in
Xi’an’s city center.





In
February 2010 the Company was granted a $22 million (RMB 150 million) loan from
Xinhua Trust Investment Ltd. ("Xinhua Trust"). The loan matures in February 2012
and is secured by the Company’s 24G project. The loan will be used for the
Company's further expansion plans in 2010.


25


ITEM
6. SELECTED FINANCIAL DATA




Summary
of operations


(US$
in thousands, except per share amounts)





As
      of December 312009
                  
                  
                  2008
                  
                  
                  2007Total
      revenue
                  
                  $
                  86,559
                  
                  
                  $
                  26,466
                  
                  
                  $
                  73,913Cost
      of sales
                  
                  
                  62,902
                  
                  
                  
                  21,473
                  
                  
                  
                  43,222Selling,
      general, and administrative expenses
                  
                  
                  9,182
                  
                  
                  
                  8,498
                  
                  
                  
                  2,919Stock-based
      compensation
                  
                  
                  252
                  
                  
                  
                  3,079
                  
                  
                  
                  -Security
      registration expenses
                  
                  
                  1,787
                  
                  
                  
                  613
                  
                  
                  
                  -Interest
      expenses
                  
                  
                  2,323
                  
                  
                  
                  1,346
                  
                  
                  
                  1,652Other
      expenses
                  
                  
                  386
                  
                  
                  
                  296
                  
                  
                  
                  57Accretion
      expense on convertible debt
                  
                  
                  1,213
                  
                  
                  
                  969
                  
                  
                  
                  -Income
      (loss) from operations
                  
                  
                  8,514
                  
                  
                  
                  (9,808)
                  
                  
                  
                  26,062Net
      income
                  
                  $
                  1,732
                  
                  
                  $
                  8,783
                  
                  
                  $
                  16,686Net
      income per common share - Basic
                  
                  
                  0.08
                  
                  
                  
                  0.29
                  
                  
                  
                  0.62Net
      income per common share - Diluted
                  
                  
                  0.08
                  
                  
                  
                  0.28
                  
                  
                  
                  0.62




Financial
data


(in
thousands)





As
      of December 312009
                  
                  
                  2008Total
      assets
                  
                  $
                  259,785
                  
                  
                  $
                  223,172Total
      shareholders’ equity
                  
                  
                  119,098
                  
                  
                  
                  113,122Basic
      weighted average shares outstanding
                  
                  
                  31,180
                  
                  
                  
                  30,516Diluted
      weighted average shares
                  
                  
                  31,180
                  
                  
                  
                  30,527


26


ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Management’s
Discussion and Analysis





FORWARD
LOOKING STATEMENTS





Some of
the statements contained in this Form 10-K that are not historical facts are
“forward-looking statements” that can be identified by the use of terminology
such as estimates, projects, plans, believes, expects, anticipates, intends, or
the negative or other variations of those words, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Form 10-K, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products, and licenses. No assurances can
be given regarding the achievement of future results, as actual results may
differ materially as a result of the risks we face, and actual events may differ
from the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation: our ability to
attract and retain management, and to integrate and maintain technical
information and management information systems; our ability to raise capital
when needed and on acceptable terms and conditions; the intensity of
competition; and general economic conditions. All written and oral
forward-looking statements made in connection with this Form 10-K that are
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by these cautionary statements. Given the uncertainties that
surround such statements, you are cautioned not to place undue reliance on such
forward-looking statements.




Critical
Accounting Policies and Estimates





We
prepare our consolidated financial statements in accordance with U.S. GAAP,
which requires us to make judgments, estimates and assumptions that affect (i)
the reported amounts of our assets and liabilities, (ii) the disclosure of our
contingent assets and liabilities at the end of each reporting period and (iii)
the reported amounts of revenues and expenses during each reporting
period. We continually evaluate these estimates based on our own experience,
knowledge and assessment of current business and other conditions, our
expectations regarding the future based on available information and reasonable
assumptions, which together form our basis for making judgments about matters
that are inherently uncertain. Since the use of estimates is an integral
component of the financial reporting process, our actual results could differ
from those estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.





When
reading our financial statements, you should consider (i) our selection of
critical accounting policies, (ii) the judgment and other uncertainties
affecting the application of such policies and (iii) the sensitivity of reported
results to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgments and estimates used in
the preparation of our financial statements.





Restatement
of Financial Statements




On
October 21, 2009, the management of China Housing & Land Development, Inc.
(the "Company"), in consultation with its independent accounting firm,
determined that the Company will restate its financial statements for the year
ended December 31, 2008 as reported on Form 10-K filed March 25, 2009, as
amended. Consequently, the Company restated the financial statements contained
in Form 10-Q filed May 7, 2009 for the period ended March 31, 2009 and Form 10-Q
filed August 12, 2009 for the period ended June 30, 2009.




Pursuant
to the registration rights agreement entered into in connection with the
Company’s issuance of its 5.0% Senior Secured Convertible Debt (the “Convertible
Debt”), the Company is required to pay the investors of the Convertible Debt
certain late registration payments (“Late Payments”) if the Company failed to
file a registration statement within 60 days after the closing date of the
transaction or if such registration statement failed to become effective by 90
calendar days, or 120 days if the registration statement is subject to a full
review by the U.S. Securities and Exchange Commission. The Company commenced
negotiations with the investors of the Convertible Debt to waive the Late
Payments in December 2008, as the Company and the investors believed that the
registration would become effective within a short period of time. However, as
the registration has not become effective as of September 2009, the investors of
the Convertible Debt have thereafter decided to claim the Late Payments. As a
result, the Company has restated its financial statements for the year ended
December 31, 2008 as reported on Form 10-K and its financial statements
contained in Form 10-Q for the period ended March 31, 2009 and Form 10-Q for the
period ended June 30, 2009 to accrue the corresponding expenses. After the
restatement, the Company presented the late Payments as security registration
expenses.





Warrants
and derivative liability





As of
December 31, 2009, the Company has approximately $5.1 million of warrants
liability and $4.0 million of fair value of embedded derivatives on the
balance sheet, representing approximately 3.6% and 2.8% of the total
liabilities, respectively.


27


We
utilize the Cox-Rubinstein-Ross (“CRR”) Binomial Lattice Model to estimate the
fair values of warrants liability and embedded derivatives. The CRR model
depends on the following assumptions: the Company’s common stock price
underlying the warrants; strike price; conversion price; expected life;
expected volatility; risk free interest rate; and dividend rate. We used the CRR
Binomial Lattice Model for the past 3 years and we do not expect any
significant changes to assumptions except for the common share price and the
expected volatility.





We
estimate the fair value of warrants liability and embedded derivatives every
quarter and recognize the change of fair value as gain or loss on our
current quarter consolidated statement of income. The fair values of warrants
liability and embedded derivatives have changed during the past few years
according to the valuation models and the fair values are positively related to
the market share price movement and the volatility.





During
the year ended December 31, 2009, our common stock price experienced large
fluctuations with the price increasing from $1.29 on December 31, 2008 to
$4.13 on December 31, 2009. The increase in stock price caused an increase in
fair value for warrants liability and embedded derivatives. As a result, we
recognized approximately $4.37 million as a change in fair value of warrants and
$3.23 million as a change in fair value of embedded derivatives, which are
all non-cash gains losses.




The
following table summarizes the fair value of warrant liability and embedded
derivative as at various periods.


2009
                    
                    
                    2008
                    
                    
                    2007Fair
      value of warrants liability
                    
                    $
                    5,074,191
                    
                    
                    $
                    1,117,143
                    
                    
                    $
                    2,631,991Fair
      value of embedded derivatives
                    
                    $
                    3,991,047
                    
                    
                    $
                    760,398
                    
                    
                    $
                    -





The
following tables summarize all the warrants and conversion option outstanding
and the assumptions used for their valuations as ofDecember 31, 2008 and
December 31, 2009.




Investor  Warrants:
                        
                        12/31/2009
                        
                        
                        12/31/2008Strike
      price
                        
                        
                        6.07
                        
                        
                        
                        6.07Market
      price
                        
                        
                        4.13
                        
                        
                        
                        1.29Valuation
      date
                        
                        12/31/2009
                        
                        
                        12/31/2008Expiry
      date
                        
                        2/28/2013
                        
                        
                        2/28/2013Volatility
                        
                        
                        105
                        %
                        
                        
                        90
                        %Risk
      free rate
                        
                        
                        1.78
                        %
                        
                        
                        1.33
                        %Option
      value
                        
                        
                        2.43971
                        
                        
                        
                        0.45822#
      of warrants
                        
                        
                        1,437,467
                        
                        
                        
                        1,437,467Value
                        
                        
                        3,507,000
                        
                        
                        
                        658,682





Investor 
      Warrants:
                                                        
                                                        12/31/2009
                                                        
                                                        
                                                        12/31/2008Strike
      price
                                                        
                                                        
                                                        4.50
                                                        
                                                        
                                                        
                                                        4.50Market
      price
                                                        
                                                        
                                                        4.13
                                                        
                                                        
                                                        
                                                        1.29Valuation
      date
                                                        
                                                        12/31/2009
                                                        
                                                        
                                                        12/31/2008Expiry
      date
                                                        
                                                        5/9/2012
                                                        
                                                        
                                                        5/9/2012Volatility
                                                        
                                                        
                                                        105.00
                                                        %
                                                        
                                                        
                                                        90%
                                                        %Risk
      free rate
                                                        
                                                        
                                                        1.33
                                                        %
                                                        
                                                        
                                                        1.09%
                                                        %Option
      value
                                                        
                                                        
                                                        0.61711
                                                        
                                                        
                                                        
                                                        0.16402#
      of warrants
                                                        
                                                        
                                                        2,539,416
                                                        
                                                        
                                                        
                                                        2,731,382Value
                                                        
                                                        
                                                        1,567,092
                                                        
                                                        
                                                        
                                                        448,011


Conversion Option Valuation:
                          
                          12/31/2009
                          
                          
                          12/31/2008Strike
      price
                          
                          
                          5.57
                          
                          
                          
                          5.57Market
      price
                          
                          
                          4.13
                          
                          
                          
                          1.29Valuation
      date
                          
                          12/31/2009
                          
                          
                          12/31/2008Expiry
      date
                          
                          2/28/2013
                          
                          
                          2/28/2013Volatility
                          
                          
                          105.00
                          %
                          
                          
                          90
                          %Risk
      free rate
                          
                          
                          1.74
                          %
                          
                          
                          1.31
                          %Option
      value
                          
                          
                          2.47002
                          
                          
                          
                          0.4706Host
      Value - principal
                          
                          
                          9,000,000
                          
                          
                          
                          9,000,000Host
      Value - interest
                          
                          
                          0
                          
                          
                          
                          0Shares
      issuable on conversion
                          
                          
                          1,615,799
                          
                          
                          
                          1,615,799Option
      Value - principal
                          
                          
                          3,991,0487
                          
                          
                          
                          760,398Option
      Value- interest
                          
                          
                          0
                          
                          
                          
                          0Option
      value - total
                          
                          
                          3,991,0487
                          
                          
                          
                          760,398Derivative
      value
                          
                          
                          3,991,0487
                          
                          
                          
                          760,398
 28
  Real
estate held for development or sale, intangible asset and deposits on land use
rights





We
evaluate the recoverability of our real estate developments taking into account
several factors including, but not limited to, our plans for future operations,
prevailing market prices for similar properties and projected cash
flows.





We review
real estate projects, whenever events or changes in circumstances indicate that
the carrying amount of an asset may no longer be recoverable. When these events
occur, we measure impairment by comparing the carrying value to the estimated
undiscounted future cash flows expected as a result from the use of the assets
and their eventual disposition. If the total of the expected undiscounted cash
flow is less than the carrying amount of the assets, we would recognize an
impairment loss based on the fair value of the assets.





Our
significant judgments and estimates related to impairment include our
determination if an event has occurred to warrant an impairment test. If a test
is required, other significant judgments and estimates will include our
expectations of future cash flows and the calculation of the fair value of the
impaired assets.




When real
estate costs are determined to be impaired, they are written down to their
estimated net realizable value. The Company evaluates the carrying value for
impairment based on the undiscounted future cash flows of the assets.
Write-downs of real estate costs deemed impaired would be recorded as
adjustments to the cost basis. There has been no impairment on the real estate
inventories and no impairment loss has been recorded for the year ended December
31, 2009, 2008 and 2007.




The
following summarizes the components of real estate inventories as at December
31, 2009, and December 31, 2008:





2009
                                          
                                          2008Finished
      projects
                                          
                                          $
                                          20,417,820
                                          
                                          $
                                          10,181,827Construction
      in progress
                                          
                                          
                                          82,585,709
                                          
                                          
                                          50,468,184Total
      real estate held for development or sale
                                          
                                          $
                                          103,003,529
                                          
                                          $
                                          60,650,011





Intangible asset





The
Company’s intangible asset is related to the exclusive rights to develop 487
acres land in the Baqiao area that the Company acquired during 2007. We assessed
the fair value of this intangible asset based on the current-period operating
cash flow and a projection of future cash flows. It is the Company’s
understanding that the cooperation agreement with Baqiao District Government
will be extended after June 2011. Based on the prevailing market condition in
Xi’an city we concluded that there is no impairment.




According
to the agreement with Baqiao District Government, at the beginning of each year,
the Company will prepare the annual work plan and have it approved by Baqiao
District Government. The annual work plan will include the detailed projects
that will be started during that year and the Baqiao District Government is
responsible for the land clearance. Due to the delay of land
clearance progress, certain scheduled projects have been postponed. The
Baqiao District Government acknowledged the delay and informed us of their
intention to extend the agreement. Currently, we still have 389acres land
undeveloped and $41.4 million in intangible assets. If at any time, the
Baqiao District Government indicates that they will not extend the agreement, we
will assess the impairment of the intangible asset and write off the intangible
asset from our balance sheet.





As of
December 31, 2009, and 2008 intangible asset consists of the
following:





2009
                        
                        
                        2008Intangible
      acquired
                        
                        $
                        47,310,765
                        
                        
                        $
                        47,334,342Accumulated
      amortization
                        
                        
                        (5,955,631
                        )
                        
                        
                        (1,290,682
                        )Intangible
      assets, net
                        
                        $
                        41,355,134
                        
                        
                        $
                        46,043,660


29


The
Company evaluates its intangible assets for impairment whenever events or
changes in circumstances indicate the carrying value may not be recoverable.
Based on the estimated future cash flows, the Company records a write-down for
impairments, if appropriate. For the year ended December 31, 2009, 2008 and
2007, the Company has recorded $0 of impairment on this intangible
asset.





The
Company amortized the intangible asset based on the percentage of the profit
margin realized over the total expected profit margin to be realized from the
487 acre land in the Baqiao project. During fiscal 2007, the Company sold 18.5
acres of land and the related profit margin realized on that sale represented
2.4% of the total estimated profit margin on the whole 487 acre project, as a
result, the Company amortized $1,157,758 (2.4%) of the total intangible asset
during fiscal 2007. This method is intended to match the pattern of amortization
with the income-generating capacity of the intangible asset. For the year ended
December 31, 2008, the Company has recorded $0 of amortization on this
intangible asset. Amortization expense for year ended December 31, 2009 and 2008
amounted to $46,59,290 and $0, respectively. The amortization expense was
capitalized and included in the real estate construction in
progress.





Management
re-evaluated the expected profit margin from the 487 acres of land as at
December 31, 2009 and recalculated the intangible amortization related to the
2007 land sales based on the new estimate. As a result, management found the
difference resulting from the change of estimate was not material. Therefore no
adjustment was made in the year ended December 31, 2009 due to the change of
accounting estimate of total profit margin on the 487 acres of
land.





Deposits
on land use rights





2009
                      
                      2008Deposits
      on land use rights
                      
                      
                      28,084,346
                      
                      47,333,287


The
Company conducts regular reviews of the deposits on land use right. After review
and assessment, the Company concluded that there was no significant decrease in
the market price and therefore no impairment write-down was required. According
to E House (China) Real Estate Research Institute the average residential sale
price in Xi’an city was stable in the fiscal year ended December 31, 2009. The
average sale price increased to 5,080 RMB per square meter (approximately US$
747 per square meter) from 4,642 RMB in the 2008, representing about 9%
year-on-year growth.




Material
trends and uncertainties that may impact our continuing operations




Changes
in national and regional economic conditions, as well as local economic
conditions where we conduct our operations and where prospective purchasers of
our homes live, may result in more caution on the part of homebuyers and
consequently fewer home purchases. According to the data from China Real Estate
Information Corporation, Xi’an city’s real estate transaction volume (in terms
of sq. meter signed) increased about 112% in 2009 compared to 2008. Since the
second quarter of 2009, we see the market sentiment has improved and the
transaction volume has increased compared to same period of 2008.





Virtually
all purchasers of our homes finance their acquisitions through lenders providing
mortgage financing. A substantial increase in mortgage interest rates or
unavailability of mortgage financing would adversely affect the ability of
prospective homebuyers to obtain the financing they would need in order to
purchase our homes, as well as adversely affect the ability of prospective
move-up homebuyers to sell their current homes. For example, if mortgage
financing became less available, demand for our homes could decline. A reduction
in demand could also have an adverse effect on the pricing of our homes because
we (and our competitors) may reduce prices in an effort to better compete for
home buyers. A reduction in pricing could result in a decline in revenues and in
our margins. We do not expect any substantial change of current mortgage policy
and the prevailing mortgage rate in the near future.




The real
estate development industry is capital intensive, and development requires
significant up-front expenditures to acquire land and begin development.
Accordingly, we incur substantial indebtedness to finance our homebuilding and
land development activities. Although we believe that internally generated funds
and current borrowing capacity will be sufficient to fund our capital and other
expenditures (including land acquisition, development and construction
activities), the amounts available from such sources may not be adequate to meet
our needs. If such sources are not sufficient, we would seek additional capital
in the form of debt or equity financing from a variety of potential sources,
including bank financing and/or securities offerings. The availability of
borrowed funds, to be utilized for land acquisition, development and
construction, may be greatly reduced, and the lending community may require
increased amounts of equity to be invested in a project by borrowers in
connection with new loans. Failure to obtain sufficient capital to fund its
planned capital and other expenditures could have a material adverse effect on
our business.




In
addition, regulatory requirements could cause us to incur significant
liabilities and operating expenses and could restrict our business activities.
We are subject to statutes and rules regulating, among other things, certain
developmental matters, building and site design, and matters concerning the
protection of health and the environment. Our operating expenses may be
increased by governmental regulations such as building permit allocation
ordinances and impact and other fees and taxes, which may be imposed to defray
the cost of providing certain governmental services and improvements. Any
delay or refusal from government agencies to grant us necessary licenses,
permits and approvals could have an adverse effect on our
operations.


30


As of
December 31, 2009, we had $36,863,216 of cash and cash equivalents, compared to
$37,425,340 as of December 31, 2008, a decrease of $562,124.





The
Company believes that the combination of present capital resources, internally
generated funds, and unused financing sources are more than adequate to meet
cash requirements. We intend to meet our liquidity requirements, including
capital expenditures related to the purchase of land for the development of our
future projects, through cash flow provided by operations and additional funds
raised by future financings. Upon acquiring land for future development, we
intend to raise funds to develop our projects by obtaining mortgage financing
mainly from local banking institutions with which we have done business in the
past. We believe that our relationships with these banks are in good standing
and that our real estate will secure the loans needed. We believe that adequate
cash flow will be available to fund our operations.





CONSOLIDATED
OPERATING RESULTS




Fiscal
Year Ended December 31, 2009 Compared With 2008





Revenues





Our
revenues are mainly derived from the sale of residential and commercial units in
Western China, mainly in Xi’an city. We also perform infrastructure work for the
local government as well as preliminary land development projects.





The
revenues from the sale of properties in the year ended December 31, 2009
increased 223% to $78.5 million from $24.3 million in the same period of 2008.
We believe, the primary reasons for the growth are the stable market conditions,
customer-friendly design and strong pipeline projects. Compared to 2008, we have
more projects under construction and in the marketing process than those at the
same time during 2009. Our new project, Puhua Phase One was able to achieve very
impressive contract sales amount, approximately $14.4 million in the forth
quarter. We will be able to recognize the revenue in Puhua Phase One from early
2010. This project will further increase our sales and revenue amount in the
coming years.





In 2009,
approximately 95% of our revenue came from Tsining JunJing II Phase One and
Phase Two, We officially started the pre-sale for Tsining JunJing II Phase One
and Phase Two in the second quarter of 2008 and second quarter of 2009,
respectively. As of December 31, 2009, the construction of Tsining JunJing II
Phase One was completed. We have already pre-sold approximately 87% of all
available GFA and 95% of all available units. We also plan to rent out a few
commercial units in JunJing II Phase Two which has a better layout than Phase
One: as a result, we expect it to achieve a higher selling price. During 2009,
the average selling price in Phase Two was about 15% higher than Phase One. As
of December 31, 2009, we have pre-sold about 49% of all available GFA and 51% of
all available units.





Effective
January 1, 2008, the Company adopted the percentage of completion method of
accounting for revenue recognition for all building construction projects in
progress, including the Tsining JunJing II Phase One and Phase Two. The
full accrual method was used before that date for our entire residential,
commercial and infrastructure projects. Infrastructure projects continue to be
accounted for using the full accrual method of accounting.





Revenues by project:
                    
                    2009
                    
                    
                    2008US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One
                    
                    $
                    48,682,294
                    
                    
                    $
                    23,776,789Tsining
      JunJing II Phase Two
                    
                    
                    25,778,463
                    
                    
                    
                    -Puhua
      Phase One
                    
                    
                    -
                    
                    
                    
                    -Projects
      CompletedTsining
      JunJing I
                    
                    
                    (610,582)
                    
                    
                    
                    264,066Tsining-24G
                    
                    
                    3,878,828
                    
                    
                    
                    27,243Tsining
      In Home
                    
                    
                    552,441
                    
                    
                    
                    121,076Additional
      Project
                    
                    
                    229,825
                    
                    
                    
                    116,888Infrastructure
      ProjectBaqiao
      infrastructure construction
                    
                    
                    -
                    
                    
                    
                    -Project
      In ProcessBaqiao
                    
                    
                    -
                    
                    
                    
                    -Revenues
      from the sale of properties
                    
                    $
                    78,511,269
                    
                    
                    $
                    24,306,062


31


Our
project in process is the Baqiao project where we have the exclusive right to
develop 487 acres. In 2007, we acquired the development rights and recognized
$24,405,717 in revenue as a result of an approximately 18 acre land sale to an
unrelated developer. Near the end of 2008, we initiated a joint venture with
Prax Capital to co-develop 79 acres within the Baqiao project. Prax Capital
invested $29.3 million in cash into the joint venture. After setting aside
approximately 42 acres for the newly planned Golden Bay project, approximately
348 acres remain available for development in the Baqiao project.





Revenues by project:
                                        
                                        2009
                                        
                                        
                                        2008US$Project
      Under ConstructionTsining
      JunJing II Phase Onecontract
      sales
                                        
                                        $
                                        39,292,219
                                        
                                        
                                        $
                                        33,166,864Revenue
                                        
                                        $
                                        48,682,294
                                        
                                        
                                        $
                                        23,776,789Total
      gross floor area (GFA) available for sale
                                        
                                        
                                        136,012
                                        
                                        
                                        
                                        136,012GFA
      sold during the period
                                        
                                        
                                        61,955
                                        
                                        
                                        
                                        57,006Remaining
      GFA available for sale
                                        
                                        
                                        17,051
                                        
                                        
                                        
                                        79,006Percentage
      of completion
                                        
                                        
                                        100%
                                        
                                        
                                        
                                        65.95
                                        %Percentage
      GFA sold during the period
                                        
                                        
                                        45.55%
                                        
                                        
                                        
                                        41.91
                                        %Percentage
      GFA sold to date
                                        
                                        
                                        87.46%
                                        
                                        
                                        
                                        41.91
                                        %Average
      sales price per GFA
                                        
                                        $
                                        634
                                        
                                        
                                        $
                                        582Tsining
      JunJing II Phase Twocontract
      sales
                                        
                                        $
                                        40,547,451
                                        
                                        
                                        
                                        -Revenue
                                        
                                        $
                                        25,778,463
                                        
                                        
                                        
                                        -Total
      gross floor area (GFA) available for sale
                                        
                                        
                                        112,556
                                        
                                        
                                        
                                        -GFA
      sold during the period
                                        
                                        
                                        55,561
                                        
                                        
                                        
                                        -Remaining
      GFA available for sale
                                        
                                        
                                        56,995
                                        
                                        
                                        
                                        -Percentage
      of completion
                                        
                                        
                                        63.25%
                                        
                                        
                                        
                                        -Percentage
      GFA sold during the period
                                        
                                        
                                        49.36%
                                        
                                        
                                        
                                        -Percentage
      GFA sold to date
                                        
                                        
                                        49.36%
                                        
                                        
                                        
                                        -Average
      sales price per GFA
                                        
                                        $
                                        733
                                        
                                        
                                        
                                        -


Revenues
from projects under construction





Tsining
JunJing II Phase One





JunJing
II Phase One consists of 13 residential buildings and 3 auxiliary buildings,
including one kindergarten, with a gross floor area of about 136,012 square
meters. JunJing II Phase One was one of our major revenue generating projects
during 2009, contributing approximately $48.7 million in revenues. By December
31, 2009, we had pre-sold approximately 1,126 units in the project, which
accounts for about 95% of all available units totaling approximately 118,961
square meters, about 87% of available GFA. This project began the delivery to
customers for this project began at the end of October, 2009.





Tsining
JunJing II Phase Two





Tsining
JunJing II Phase Two consists of 12 middle-rise and high-rise buildings with
total expected revenues of approximately $94.1 million. We officially started
the pre-sales in the second quarter of 2009 and were able to secure $40.5
million in contract sales for 516 units of which we recognized
approximately $25.8 million in 2009.





Revenues
from projects completed





Revenues
in 2009 from completed projects stayed at the same level of 2008, accounting for
about 5% of total revenue from sales of properties during the year. The
completed projects including Tsining JunJing I, Tsining-24G, Tsining In Home and
other additional projects. As the market price in the retail units went up, we
accelerated our marketing plan and were able to achieve approximately $3.9
million from our remaining retail units in Tsining-24G project.





Other
income





Other
income includes interest income, rental income, other non-operating income as
well as government reimbursement of infrastructure cost on the company’s
investments required to support infrastructure construction, continued river
management, and suburban planning for the entire Baqiao high-technology
industrial park. We recognized $8.0 million in other income for the
year ended December 31, 2009 compared with $2.2 million in the same period of
2008. The 273 percent increase is mainly due to the government reimbursement of
infrastructure cost. During the fourth quarter of 2009, we recognized
approximately $3.7 million as revenue from the #3 river dam project that was
awarded to us by the local government. The interest income from our initial
investment in the Baqiao area for the preliminary land development project also
generated about $0.7 million during the year.


32


Cost
of properties and land





The cost
of properties and land for the year ended December 31, 2009 increased 193
percent to $62.9 million compared with $21.5 million in the same period of 2008.
The increase was primarily a result of the increased sales volume in our JunJing
II Phase One and Phase Two projects.





Revenues
and the cost of revenues from Project Tsining JunJing II Phase One began to
be recognized in the second quarter 2008 and are being recognized using the
percentage of completion method of accounting. The revenues and cost of revenues
for Tsining-24G, most of which was sold in the first quarter 2007, were
recognized using the full accrual method of accounting.





Gross
profit and profit margin





Gross
profit for the year ended December 31, 2009 was $23.7 million, representing
an increase of 373.9 percent from $5.0 million in the same period of
2008. The gross profit margin for the year ended December 31, 2009 was
27.3 percent compared with 18.9 percent in the same period of 2008. The
increase in the gross profit margin was mainly due to more projects under
construction, strict cost control and higher average selling price. The
residential units we sold during the year ended December 31, 2009 generally had
higher profit margins than the units sold in the same period of 2008 mainly due
to the fact that we executed a marketing campaign for JunJing II Phase One
starting in the second quarter of 2008 and used discounted prices to attract
market interest and encourage future sales. During 2009, we concentrated more on
research and development and we are able to deliver real estate with better
quality and higher average sales price. Sales are much better with the
improvement in market conditions.





Selling,
general and administrative expenses





SG&A for
the year ended December 31, 2009 increased 8.1 percent to $ 9.2 million from
$8.5 million in the same period of 2008. The increase in
SG&A is mainly due to the increased sales, for example, the
marketing expenses associated with Tsining JunJing II Phase One and Phase Two
projects and the administrative expenses and marketing expenses related to the
Puhua project. However the ratio of SG&A to total revenues for the year
decreased from 32.1% in 2008 to 10.6% in 2009, because the Company is improving
the management and operating efficiency. In October 2009, we launched the
marketing campaign for the Puhua Phase One project and successfully secured
about $15.0 million of the contract amount, However, due to the overall
construction still in the beginning stage, we were not be able to recognize
revenue from the Puhua Phase One project. Still, we recognized approximately
$2.3 million in selling and administrative expenses in 2009. Without the impact
from Puhua, our SG&A expenses would be about $6.9 million, which, we believe
is reasonable going forward.





Stock-based
compensation





We
incurred stock-based compensation expenses amounting to $252,118 for the year
ended December 31, 2009, comprised of common stock issued for service provided
by the Company’s directors and former CFO, compared to $3.0 million in 2008,
representing an 91.8 percent decrease. The number of shares granted to each
individual was calculated in accordance with the Company’s Detail
Implementation Rule for Restricted Stock Incentive Plan of 2008-2009. The
compensation was based on the stock price on the grant date of July 2, 2008
the day the awards were formally approved by the Board of
Directors.





Other
expenses





Other
expenses consist mainly of late delivery settlements and maintenance
costs.





Other
expenses in the year ended December 31, 2009 increased 30.5 percent to $385,652
compared with $295,595 in the same period of 2008. The Company incurred the
maintenance expenses related to the delivery of JunJing Phase One
projects.





Operating
profit and operating profit margin





Operating
profit ended December 31, 2009 was $8.5 million compared with a $9.8 million
operating loss in the same period of 2008 , primarily due to the higher
revenue generated by Tsining JunJing II Phase One and Phase Two. As a result,
the operating profit margin was 9.8 percent for the year ended December 31, 2009
compared with negative 37.1 percent for the year ended December 31,
2008.





Interest
expense





Interest
expense for the year ended December 31, 2009 increased 72.6 percent to $2.3
million from $1.3 million for the year ended December 31, 2008. This change
was primarily due to the fact that we have more projects that are using
bank loans to finance the construction. We were able to pay down $24.3 million
in bank loans through out the year and maintain our outstanding bank loan amount
at $36.2 million which is 1.6% higher than $35.6 million outstanding at the end
of 2008. During 2009, we obtained about $24.9 million new bank loan to finance
our construction, of which, $12.4 million was from Bank of Beijing, with an
interest rate of People’s Bank of China reference rate.


33


Change
in fair value of embedded derivative





The
Company recorded a $3.2 million expense in the change in fair
value of embedded derivatives for the year ended December 31, 2009 compared with
$3.2 million reversal of expense in the same period of 2008.





The
embedded derivatives are related to the Company’s $20 million convertible debt
offering completed in January 2008. The change in the fair value of embedded
derivatives was a periodic adjustment to the estimated cost to the Company,
which was provided by a valuation model. The Company booked a$3.2 million
expense during 2009 which was mainly a result of the stock price
change.





Change
in fair value of warrants





In 2006,
2007 and 2008 the Company issued warrants in conjunction with the issuance of
common shares or Convertible Debt. The warrants permit the shareholders to buy
additional common shares at the prices specified in the warrant
agreements.





In
addition, the Company was required to estimate the fair value of its remaining
warrants outstanding and adjust the value as appropriate, and it chose to use
the Cox-Ross-Rubinstein Binomial Lattice valuation model to estimate their fair
value.





The
change in fair value of warrants was $4.4 million for the year ended December
31, 2009, compared to negative $4.9 million during the same period of 2008,
which consisted of the periodic adjustment to the estimated cost to the Company
to provide the common shares, assuming that all of the warrants will be
exercised sometime in the future. The basis for estimating the cost to provide
the common shares was provided by the valuation model. The CRR model depends on
the following assumptions: the Company’s common stock price underlying the
warrants; strike price; expected life; expected volatility; risk free interest
rate; and dividend rate. During 2009, our common stock price experienced large
fluctuations with the price increasing from $1.29 on December 31, 2008 to $4.31
on December 31, 2009. The increase in stock price and expected
volatility caused an increase in fair value for warrants and the change of fair
value was booked as a non-cash expense.





In 2008,
shareholders exercised a total of 1,870 warrants to buy a total of 1,870 common
shares. A shareholder typically only exercises a warrant to buy common shares
when the stock price is higher than the warrant exercise price, the shareholder
pays the exercise price and the Company covers the difference between the
warrant exercise price and the share price at the time of
conversion.





The
change in fair value of warrants of negative $4.9 million in 2008 consisted of
the periodic adjustment to the estimated cost to the Company to provide the
common shares, assuming that all the warrants will be exercised sometime in the
future. The basis for estimating the cost to provide those common shares was
provided by the valuation model.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible Debt,
the Company was required to pay the investors certain late registration payments
(“Late Payments”) if the Company failed to file a Registration Statement within
60 days after the closing date of the 5% Senior Secured Convertible Debt. The
Company commenced negotiations with the investors of the 5% Senior Secured
Convertible Debt to waive the Late Payments in December 2008, as both parties
believed that the registration statement would become effective within a short
period of time. However, as the registration statement has not become effective
as of September 2009, the investors of the Convertible Debt have decided to
claim the Late Payments. The Company has accrued for the Late Payments of
1.78 million in 2009. On September 28, 2009, the Company reached a First
Amendment (the “Amendment”) with the Investors to settle the Late Payments, in
the amount of $2.4 million by the issuance of 614,290 common stock shares. The
614,290 common stock was determined by dividing $2.4million the total Late
Payments up to September 28, 2009, by 95% of the historical volume weighted
average price (“VWAP”) of the common stock shares, as determined by using
Bloomberg function VWAP, for the immediate preceding 30 days period. In
accordance with the Amendment, the Investors will waive any further Late
Payments against the Company under the Registration Rights Agreement. We do not
expect any similar claim in the future.





The
security registration expenses were $1.8 million for the year ended December 31,
2009, compared with $0.6 million in the same period of 2008.





Recovery
of income taxes





The
Company booked a recovery for income tax provision of $0.8 million compared
with $10.5 million in the same period of 2008. The Company calculates
income tax provision based on the 25% statutory rate for each of the
subsidiaries. The recovery was caused by the tax settlement between Hao Tai and
the local tax bureau.





Non-controlling
Interest





We
recorded a $737,882 loss attributable to non-controlling shareholder of Puhua
and Success Hill for the year ended December 31, 2009, which was related to
the Puhua Phase One project. We recorded $159,564 loss attributable to
non-controlling shareholder for the year ended December 31, 2008. Beginning in
October 2009, we launched the marketing campaign for the Puhua Phase One project
and successfully secured about $15.0 million of the contract amount. However,
due to the overall construction still in the beginning stage, we were not be
able to recognize revenue from the Puhua Phase One project. We expensed
approximately $2.3 million selling and administrative expenses during
2009.


34


We
recorded a $159,564 loss attributable to non-controlling shareholder of
Puhua and Success Hill, which is related to the formation of Puhua in the fourth
quarter of 2008.





Net
income attributable to China Housing & Land Development, Inc.





Net
income attributable to China Housing & Land Development, Inc. for the year
ended December 31, 2009 decreased 71.1 percent to $2,47 million from $8.94
million in the same period of 2008.





The
decrease in net income attributable to China Housing & Land Development,
Inc. was primarily due to the non cash expenses related to the change in
fair value of derivatives, approximately $7.6 million. By taking this into
consideration, we arrive at the Non-GAAP normalized Net income of $10.2 million
which is about 14.6 percent higher than in 2008.





2009Net
      income attributable to China Housing & Land Development,
      Inc.
                        
                        $
                        2.5
      millionAdd:   
      CHANGE IN FAIR VALUE OF DERIVATIVESChange in fair value of embedded derivatives
                        
                        
                        3.2
      millionChange in fair value of warrants
                        
                        
                        4.4
      millionNon-GAAP
      normalized Net income attributable to China Housing & Land
      Development, Inc.
                        
                        $
                        10.2
      million





The
overall real estate market condition in Xi’an has improved since the beginning
of 2009, which is demonstrated in the pre-sales results of our current projects
under construction, i.e. JunJing II Phase One, Phase Two and Puhua Phase
One. In 2009, we were able to secure approximately $79.6 million in contract
sales and were able to recognize approximately $74.4 million as revenue. Both
the contract sale amount and revenue are the highest recorded in the Company’s
history.





With the
introduction of JunJing II Phase Two and Puhua Phase One, we expect the
gross margin to improve slightly in the future, primarily because of the better
quality and higher average sale price of JunJing II Phase Two.
The average price for Phase Two has reached $733/square meter, $95 higher than
Phase One.





Basic
and diluted EPS attributable to China Housing & Land Development,
Inc.





Basic EPS
attributable to China Housing & Land Development, Inc. was $0.08 for
the year ended December 31, 2009, compared to $0.29 in the same period of
2008. Diluted EPS attributable to China Housing & Land Development,
Inc. was $0.08 for the year ended December 31, 2009, compared to
$0.28 in the same period of 2008. The number of shares outstanding doesn’t
change significantly from year to year. When the non-cash expenses related to
change in fair value of derivatives are taken into consideration; the Pro forma
Basic EPS will be $0.33 and Pro forma Diluted EPS will be $0.33. The Pro forma
EPS represents a 13.8% increase compared to 2008.





Common
shares used to calculate basic and diluted EPS attributable to China Housing
& Land Development, Inc.





The
weighted average shares outstanding used to calculate basic EPS
attributable to China Housing & Land Development, Inc. was 31,180,246
shares in the year ended December 31, 2009 and 30,516,411 shares in the same
period of 2008. The weighted average shares outstanding used to calculate the
diluted EPS attributable to China Housing & Land Development, Inc. was
31,180,246 shares in the year ended December 31, 2009 and 30,527,203 shares in
the same period of 2008.





Foreign
exchange





The
Company operates in China and the functional currency is Chinese Renminbi (RMB)
but the reporting currency is U.S. dollar, based on the exchange rates of the
two currencies. The fluctuation of exchange rate during 2009 and the same period
of 2008, when translating the operating results and financial positions at
different exchange rates, created the accrued gain (loss) on foreign exchange.
The loss on foreign exchange for the year ended December 31, 2009 was
$234,318, compared with a gain of $5,882,178 in the same period of
2008.





Fiscal
Year Ended December 31, 2008 Compared With 2007





Revenues





Effective
January 1, 2008, the Company adopted the percentage of completion method of
accounting for revenue recognition for all building construction projects in
progress, including the Tsining JunJing II Phase One and Phase Two. The
full accrual method was used before that date for our entire residential,
commercial and infrastructure projects. Infrastructure projects continue to be
accounted for using the full accrual method of accounting.


35


Our
project in process is the Baqiao project where we have the exclusive right to
develop 487 acres. In 2007, we acquired the development rights and recognized
$24,405,717 in revenue as a result of an approximately 18 acre land sale to an
unrelated developer. Near the end of 2008, we initiated a joint venture with
Prax Capital to co-develop 79 acres within the Baqiao project. Prax Capital
invested $29.3 million in cash into the joint venture. After setting aside
approximately 42 acres for the newly planned Golden Bay project, approximately
348 acres remain available for development in the Baqiao project.





Revenues by project:
                    
                    2008
                    
                    
                    2007US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One
                    
                    $
                    23,776,789
                    
                    
                    $Tsining
      JunJing II Phase Two
                    
                    
                    -Puhua
      Phase One
                    
                    
                    -Projects
      CompletedTsining
      JunJing I
                    
                    
                    264,066
                    
                    
                    
                    8,964,783Tsining-24G
                    
                    
                    27,243
                    
                    
                    
                    25,198,128Tsining
      In Home
                    
                    
                    121,076
                    
                    
                    
                    323,751Additional
      Project
                    
                    
                    116,888
                    
                    
                    
                    3,896,336Infrastructure
      ProjectBaqiao
      infrastructure construction
                    
                    
                    -
                    
                    
                    
                    10,790,610Project
      In ProcessBaqiao
                    
                    
                    -
                    
                    
                    
                    24,405,717Revenues
      from the sale of properties
                    
                    $
                    24,306,062
                    
                    
                    $
                    73,579,325





The
revenues from the sale of properties in the 2008 decreased 67.0% to $24,306,062
from $73,579,325 in 2007. The decrease was primarily due to the absence of a
land sale in 2007, and the completion of several projects in 2007.





The
revenue from our project under construction and completed projects totaled
$24,306,062 in 2008 compared with $38,382,998 in 2007. The 36.7% decrease was
due mainly to the absence of 2007 revenues from Tsining-24G and JunJing I
because both projects had come to completion and most of the revenues for those
two projects were recognized at one moment using the full accrual method of
accounting, partly offset in 2008 by revenues we recognized from Tsining JunJing
II phase one using the percentage of completion method of accounting and by the
2008 sales of some units in completed projects.





Our
infrastructure project in the Baqiao area generated $1,433,837 in revenues and
was booked under other revenue in 2008, which consisted of the government’s
allowance for the equivalent cost of interest on the Company’s investments
required to support the infrastructure construction, plus continued river
management and suburban planning for the entire Baqiao high-technology
industrial park. In 2007 we acquired the Baqiao infrastructure project and
constructed and delivered a river dam to the local government during the year,
for which we recognized $10,790,610 in revenues in 2007. In 2008, we were
awarded another dam project on the same river but have not recognized revenues
from it under full accrual method of accounting because the project is still in
progress. We expect to finish the river dam in second quarter 2009 and recognize
the revenues when the project is delivered to the local government.





Our
project in process is the Baqiao project where we have the exclusive right to
develop 487 acres. We acquired the development rights in 2007 and recognized
$24,405,717 in revenue in 2007 as a result of a land 18.4 acre land sale to an
unrelated developer, we established a joint venture with Prax Capital Real
Estate Holdings Limited (Prax Capital) to co-develop 79 acres within the Baqiao
project. Prax Capital invested $29.3 million cash in the joint venture. Under
Generally Accepted Accounting Principles, we did not recognize any revenue from
the creation of this development project in 2008. About 390 acres remain
available for development in the Baqiao project.





Other
income





Other
income includes rental income, revenues from disposal of fixed assets as well as
government’s allowance for the equivalent cost of interest on the Company’s
investments required to support infrastructure construction, plus continued
river management and suburban planning for the entire Baqiao high-technology
industrial park. We recognized $2,159,784 as other income in 2008 compared with
$333,525 in 2007. Also in 2008, we generated a minor amount of revenue from
leasing commercial units, parking spaces, and ancillary facilities in our
completed projects.





Cost
of properties and land





The cost
of properties and land in 2008 decreased 50.3 percent to $21.4 million compared
with $43.2 million in 2007. The decrease was primarily as a result of the lower
number of projects sold. In 2008, we had one project recognize a portion of
pre-sales using the percentage of completion method of accounting, compared with
sales of two projects in 2007 using the full accrual method of
accounting.


36


Revenues
and the cost of revenues from Project Tsining JunJing II Phase One began to
be recognized in the second quarter 2008 and are being recognized using the
percentage of completion method of accounting. The revenues and cost of revenues
for Tsining-24G, most of which was sold in the first quarter 2007, were
recognized using the full accrual method of accounting.





Gross
profit and profit margin





Gross
profit for 2008 was $4,992,420, down 83.7 percent from $30,691,093 in 2007. The
gross profit margin for 2008 was 18.9 percent compared with 41.5 percent in
2007. The decrease in the gross profit was due to the smaller number of projects
on sale in 2008 and the sales of residential units in 2008 had lower profit
margins than the premium-priced retail and residential units sold in 2007 and
the sale of land in 2007 had a better margin. Most buildings sold in 2008 were
in the Tsining JunJing II residential project, which included the first units in
the project that were negotiated in 2007 at attractive prices to stimulate the
market interest and encourage future sales.





Selling,
general and administrative expenses





Selling,
general, and administrative expenses for 2008 increased 191.1 percent to $8.5
million from $2.9 million in 2007. The increase was due primarily to the
following reasons:





1.  
Advertising, marketing, and selling expenses totaled $1.26 million in 2008
compared with $781,998 in 2007. Advertising and sales promotion costs are
expensed as incurred. The higher advertising, marketing, and selling expenses
resulted from the Company’s aggressive marketing campaign during 2008 for
Tsining JunJing II Phase One project, which included advertising and fully
furnished showrooms where potential buyers could see possible layouts and
decorative effects. These showrooms have attracted hundreds of potential buyers
and continue to create buyer interest and result in additional pre-sales
purchase agreements.





2.  During
the fourth quarter of 2008, we completed the formation of the Puhua project with
Prax Capital. Start-up costs totaling $0.63 million were expensed in
2008. We had no similar start-up costs in 2007.





3.  An
increase in allowance for bad debts. The Company provides an allowance for
doubtful accounts equal to the estimated uncollectible amounts. The Company's
estimated uncollectible amounts are based on historical collection experience
and a review of the current status of trade accounts receivable. We booked an
allowance for doubtful accounts of $1.28 million 2008 compared with $94,514
in 2007.





4.  Higher
professional expenses that resulted from the Company’s upgrade to NASDAQ where
its common shares began trading in May 2008. The Company believes its listing on
NASDAQ will provide more liquidity and transparency for shareholders and
additional financing flexibility for the Company. Audit, legal, and other
professional costs totaled $780,032 in 2008 compared with $392,251 in
2007.





5.  Higher
stamp tax and land use tax paid in 2008 due to changes in local regulations
that caused us to recognize $429,593 for those taxes in 2008 compared with
$6,964 in 2007.





6.  Debt
issuance costs are capitalized as deferred financing cost and amortized on a
straight line basis over the term of the debt. The amortization of debt issuance
costs for 2008 was $148,606 and no such costs were incurred in
2007.





Stock-based
compensation





The
Company recorded a $3 million noncash expense for restricted common shares
during the third quarter of 2008, which was related the Company’s incentive
program for performance achieved in 2007. The Company also recorded a $78,600
noncash expense as we issued shares to certain directors and officer as part of
their 2008 salary.





Other
expenses





Other
expenses mainly consist of the losses (gains) related to the cleanup of fixed
assets, donations to charitable organizations, late delivery settlements, and
maintenance costs.





Other
expenses in 2008 increased 414.8 percent to $295,595 compared with $57,416 in
2007. The other expenses in 2008 include $146,412 (RMB 1,000,000) in donations
to earthquake relief funds in China.





Operating
profit and operating profit margin





Operating
loss in 2008 was $9.8 million compared with income of 26.1 million
in 2007, down 137.6 percent, primarily due to lower gross profit on the
residential portion of Tsining JunJing II, the absence of high operating profit
from the Tsining-24G commercial spaces sold in the first quarter of 2007 higher
profit from the land sale in 2007, higher selling, general, and administrative
expenses in 2008 that included higher professional expenses associated with the
listing on the NASDAQ stock market and non-cash stock-based incentive
compensation in 2008. As a result, the operating profit margin was negative
37.1% for 2008 compared with 35.3 percent for 2007.


37


Interest
expense





Interest
expense in 2008 decreased 18.5 percent to $1.3 million from $1.6 million in
2007. The decrease was primarily due to the capitalization of interest directly
related to the construction. We capitalized $4.7 million in the year ended
December 31, 2008 compared to $3.5 million during the same period of 2007. In
mid-2008, the Company signed a RMB 1 billion (about $147 million) construction
credit line agreement with China Construction Bank. During 2008, we drew down
about $22 million on the credit line. The loan from China Construction Bank has
an interest rate that floats at 110 percent of the People’s Bank of China
reference rate.





Change
in fair value of embedded derivatives


The
embedded derivatives are related to the Company’s $20 million convertible debt
offering completed in January 2008. The change in the fair value of embedded
derivatives was a periodic adjustment to the estimated cost to the Company,
which was provided by a valuation model. During the fiscal year 2008, we
recognized approximately a negative $3.17 million as change in fair value of
embedded derivatives.




Change
in fair value of warrants





In 2007
and 2008 the Company issued warrants in conjunction with the issuance of common
shares or Convertible Debt. The warrants permit the shareholders to buy
additional common shares at the prices specified in the warrant
agreements.





In
addition, the Company was required to estimate the fair value of its remaining
warrants outstanding and adjust the value as appropriate, and it chose to use
the Cox-Ross-Rubinstein Binomial Lattice valuation model to estimate their fair
value.





In 2008,
shareholders exercised a total of 1,870 warrants to buy a total of 1,870 common
shares. A shareholder typically only exercises a warrant to buy common shares
when the stock price is higher than the warrant exercise price, the shareholder
pays the exercise price and the Company covers the difference between the
warrant exercise price and the share price at the time of
conversion.





The
change in fair value of warrants of negative $4.9 million in 2008 consisted of
the periodic adjustment to the estimated cost to the Company to provide the
common shares, assuming that all the warrants will be exercised sometime in the
future. The basis for estimating the cost to provide those common shares was
provided by the valuation model.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible Debt,
the Company was required to pay the investors certain late registration payments
(“Late Payments”) if the Company failed to file a Registration Statement within
60 days after the closing date of the 5% Senior Secured Convertible Debt. The
Company commenced negotiations with the investors of the 5% Senior Secured
Convertible Debt to waive the Late Payments in December 2008, as both parties
believed that the registration statement would become effective within a short
period of time. However, as the registration statement has not become effective
as of September 2009, the investors of the Convertible Debt have decided to
claim the Late Payments. The Company has accrued for the Late Payments of
1.78 million 2009. On September 28, 2009, the Company reached a First Amendment
(the “Amendment”) with the Investors to settle the Late Payments, in the amount
of 2.4million, by the issuance of 614,290 common stock shares. The 614,290
common stock was determined by dividing 2.4million the total Late Payments up to
September 28, 2009, by 95% of the historical volume weighted average price
(“VWAP”) of the common stock shares, as determined by using Bloomberg function
VWAP, for the immediate preceding 30 days period. In accordance with the
Amendment, the Investors will waive any further Late Payments against the
Company under the Registration Rights Agreement. We do not expect any similar
claim in the future.





The
security registration expenses were $613,483 for the year ended December 31,
2008. The Company had no such expenses in the same period of 2007.





Provision
for income taxes


During
the fourth quarter of 2008, the local tax authority conducted a tax examination
and reached a tax settlement with us regarding our income tax liability; we
realized a gain of $12,712,153, which is included in the provision for income
taxes. Local tax authority examined the Company’s tax records and issued an
income tax settlement report. As a result, the Company adjusted its provision
for income taxes to $(10,490,833) compared with the $8,743,556 provision
recorded in 2007.


Non-controlling
Interest





We
recorded negative $159,564 minority interest attributable to the minority
shareholder of Puhua and Success Hill, which is relate to the formation of Puhua
in the fourth quarter of 2008. We did not have any minority interest in
2007.


38


Net
income





Net
income in 2008 decreased 46.4 percent to $8.8 million from $16.7 million in
2007. As explained above, the decrease in net income was due primarily to the
absence of a land sale, fewer projects in the sales cycle, lower gross profit,
higher selling, general, and administrative expenses, the restricted common
stock issued in 2008 as incentive compensation for the year 2007, and accretion
on convertible debt, partly offset by the change in the fair value of warrants
and embedded derivatives and the tax settlement in fourth quarter of
2008.





Basic
and diluted earnings per share





Basic
earnings per share were $0.29 in 2008, down 53.2 percent from $0.62 in 2007.
Diluted earnings per share were $0.28 in 2008, down 54.8 percent from $0.62 in
2007. The increases in the weighted average shares outstanding in 2008 compared
with 2007 were due to the restricted common shares issued in the third quarter
2008 as incentive compensation for the year 2007 performance.





Common
shares used to calculate basic and diluted EPS attributable to China Housing
& Land Development, Inc.





The
weighted average shares outstanding used to calculate the basic earnings per
share were 30,516,411 shares in 2008 and 26,871,388 shares in 2007. The weighted
average shares outstanding used to calculate the diluted earnings per share were
30,527,203 shares in 2008 and 26,871,388 shares in 2007. The increase was
primarily due to the incentive shares we issued to certain managements for their
2007 performance.





Foreign
exchange





The
Company operates in China and the functional currency is Chinese Renminbi (RMB)
but the reporting currency is U.S. dollar, based on the exchange rates of the
two currencies. The fluctuation of exchange rate during 2008 and the same period
of 2007, when translating the operating results and financial positions at
different exchange rates, created the accrued gain (loss) on foreign exchange.
The gain on foreign exchange for the year ended December 31, 2008 was
$5,882,178, compared with a gain of $3,617,405 in the same period of
2007.




Cash
flow discussion
 
 There is
net cash outflow of $ 574,573for the year ended December 31, 2009 compared
with $34.35 million cash inflow during the same period of 2008.
 
 There was
a cash inflow of $2,050,295 from operating activities in the year ended December
31, 2009, compared with $29.08 million of outflow in 2008. The major cash inflow
are from the change in fair value of warrants and change in fair value of
embedded derivatives, which are $4.4 million of inflow and $3.2 million of
inflow respectively, compared with $4.9 million of outflow and $3.2 million of
outflow in 2008. Also, during 2009, there was an increase in advances from
customers, which represents an $11.9 million of cash inflow compared to $3.6
million of cash inflow during 2008.
 
 There was
a cash outflow of $1,477,909 from investing activities in 2009, compared with a
cash outflow of $510,713 for the same period of 2008. The increase was primarily
due to the purchase of buildings, equipment and automobiles, which brought a
$2,747,785 cash outflow to the Company compared a $1,063,332 of outflow last
year. Also, the cash from acquired business contributed $0.5 million cash
inflow for the year ended December 31, 2009.
 
 There was
a cash outflow of $1,146,959 for financing activities in the year ended
December 31, 2009, compared with $63,933,480 of inflow in 2008. The
difference is primarily attributable to the financings that took place during
2008, including $20 million convertible notes issued in January 2008, $46
million new bank loan as well as the $30 million from JV partner Prax
Capital.
 
 2008 – The increase in
cash for the year 2008 was $34,346,145 compared with $2,007,132 in
2007.
 
 Cash flow
from operating activities in 2008 decreased 436.9 percent to $(29,076,622) from
$8,611,383 in 2007, primarily due to the operating cash outflow associated with
the development of Tsining JunJing II Phase One.
 
 The use
of cash in investing activities in 2008 was $(510,713), which was 98.0 percent
less than 2007, primarily due to the increase of the restricted cash and the
absence of the subsidiary acquisition. We acquired 100 percent equity of New
Land in March 2007.
 
 Cash flow
from financing activities in 2008 provided $63,933,480, up 247.2 percent from
2007, primarily due to $29,268,914 net proceeds from the creation of the joint
venture with Prax Capita, the $19,230,370 proceeds from the convertible notes
offering in January 2008 and funds from construction loans with banks that
totaled $46,054,762, partly offset by payments on loans totaling
$25,905,804.
  In
mid-2008, the Company signed a RMB 1 billion (about $147 million) construction
credit line agreement with China Construction Bank to support the Company’s
development projects. The Company has been granted a total RMB 22 million loan
for the JunJing II Phase One project and expects another RMB 22 million loan
once the JunJing II Phase Two project begins.


39





Debt
leverage





Total
debt consists of Loans payable, Convertible Debt, Payables for acquisition of
businesses and Loans from employees.





Total
debt outstanding as of December 31, 2009 was $59.8 million compared with $59.19
million as of December 31, 2008.





Net debt
outstanding (total debt less cash) as of December 31, 2009 was $22,237,637
compared with $20,955,952 as of December 31, 2008. A major reason for the
increase in net debt outstanding is the decrease in cash decreased to $37.6
million at December 31, 2009 from $38.2 million on December 31, 2008. The
Company's net debt as a percentage of total capital (net debt plus shareholders'
equity) was 15.7 percent on December 31, 2009 and 16.0 percent on December 31,
2008, a slight increase due to the cash balance decrease.





2008 – Total debt
outstanding as of December 31, 2008 was $59,186,304 compared with $27,922,125 on
December 31, 2007.





Net debt
outstanding (total debt less cash) as of December 31, 2008 was $20,955,952
compared with $25,469,759 on December 31, 2007. The Company's net debt as a
percent of total capital (net debt plus shareholders' equity) was 19.8 percent
on December 31, 2008 and 27.8 percent on December 31, 2007. The decrease in net
debt as a percent of total capital was primarily due to the increase of cash. In
the fourth quarter of 2008, we completed the formation of a joint venture and
received $29.3 million in cash from Prax Capital for their share of the
participation.





Liquidity
and capital resources





Our
principal liquidity demands are based on the development of new properties,
property acquisitions, and general corporate purposes.





As of
December 31, 2009, we had $37,564,233 of cash and cash equivalents, compared
with $38,230,352 of cash and cash equivalents as of December 31, 2008, a
decrease of $666,119. Our cash flow from operating activities provided over
$2 million for the year ended December 31, 2009 compared with an outflow of
$29.1 million for the year ended December 31, 2008. Along with progress in
projects, we started seeing positive cash flow from operations and we can use
this internally generated cash flow to fund our projects in the
pipeline.





The
Company leases part of its office and hotel space under various operating lease
agreements. The future minimum rental payments required under the operating
lease agreements are summarized below.  As of December 31, 2009, the
Company had one land use right with an unpaid balance of approximately $2.6
million. The balance is not due until the vendor removes the existing building
on the land and changes the zoning status of the land use right
certificate.




Payment due by periodCommitments and Contingencies
                        
                        Total
                        
                        
                        Less than
                          1 year
                        
                        
                        1-3 years
                        
                        
                        3-5 years
                        
                        
                        Over 5  yearsRental
      lease
                        
                        $
                        469,173
                        
                        
                        $
                        136,583
                        
                        
                        $
                        141,422
                        
                        
                        $
                        52,808
                        
                        
                        $
                        138,360Consulting
      contract
                        
                        
                        549,378
                        
                        
                        
                        549,378Land
      use right
                        
                        
                        2,593,065
                        
                        
                        
                        -
                        
                        
                        
                        2,592,951
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        $
                        3,611,616
                        
                        
                        $
                        685,961
                        
                        
                        $
                        2,734,487
                        
                        
                        $
                        52,808
                        
                        
                        $
                        138,360





Financial
obligations





As of
December 31, 2009, we had total bank loans of $36,185,705 with a weighted
average interest rate of 6.56percent.





Mortgage
debt (total bank loans) is secured by the assets of the Company.





Loans
payable





Loans
payable represent amounts due to various banks and are due on demand or normally
due within three years. These loans generally can be renewed with the banks when
the loans mature.





Most of
the obligations of the Company are tied to specific projects. The terms of the
loans typically are 1 to 3 years. Loan extensions are determined by mutual
agreement when the current term expires and both parties will consider the
remaining time needed to complete the project. Most of these loans are payable
when the project has been completed and the residents or businesses take
possession.





On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a RMB 1
billion credit line for real estate development of the Company and its
subsidiaries. Under the MOU, the Company and its subsidiaries are required to
set up a basic deposit account with China Construction Bank, to maintain a
current ratio of not less than 90% and to maintain liabilities to assets ratio
of not greater than 65%. On August 28, 2008, the Company entered a first loan
agreement with China Construction Bank Xi’an Branch to draw down the first RMB
150 million loans, which will mature on August 27, 2011. $21,986,076 (RMB
150 million) was outstanding at December 31, 2008. During the year ended
December 31, 2009, the Company paid down the loan to $3,223,018 (RMB 22
million). On August 30, 2009, the Company entered a second loan agreement with
China Construction Bank Xi’an Branch to draw down another RMB 85 million loan,
which will mature on September 8, 2012. $12,452,571 (RMB 85 million) was
outstanding as of December 31, 2009.





40





As of
December 31, 2008 and December 31, 2009, our current ratios were
approximately136.3% and 206.7%, respectively, and our liabilities to assets
ratios were approximately 49.3% and54.2%, respectively. The Company will be able
to draw down approximately another $82 million before we reach the maximum
liabilities to assets ratio of 65%.





The
following table summarizes the amounts and types of the Company's obligations
and provides the estimated period of maturity for the financial obligations by
class as of December 31, 2009:




Obligations Due by Period
                      
                      1 year
                      
                      
                      1-3 years
                      
                      
                      3-5 years(Millions of dollars)Current
      liabilities:Accounts
      payable
                      
                      $
                      20.71Income
      and other taxes payable
                      
                      
                      
                      
                      
                      $
                      8.19Other
      payables
                      
                      
                      
                      
                      
                      $
                      4.52Advances
      (deposits) from customers
                      
                      
                      
                      
                      
                      $
                      21.3Accrued
      expenses
                      
                      $
                      5.59Current
      portion of long term loans payable
                      
                      $
                      8.06Long-term
      liabilities:Warranties
      liabilities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      5.07Deferred
      tax
                      
                      
                      
                      
                      
                      $
                      11.50Fair
      value of embedded derivatives
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      3.99Convertible
      Debt
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      14.83Long-term
      debt:Loans
      payable
                      
                      
                      
                      
                      
                      $
                      28.13Payable
      for acquisition of businesses
                      
                      $
                      5.92Loans
      form employees
                      
                      
                      
                      
                      
                      $
                      2.87





The
following table summarizes the Company's loans payable that were outstanding as
of December 31, 2009 and December 31, 2008:





2009
                              
                              
                              
                              2008Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21 percent, guaranteed by
      Tsining and secured by the Company's Xin Xing Tower and part of the
      JunJing II project
                              
                              
                              5,127,528
                              
                              
                              
                              5,130,084Xi'an
      Rural Credit union Zao Yuan Rd. BranchDue July
      3, 2010, annual interest is at 8.496 percent, secured by the
      Company's Jun Jing Yuan I, Han Yuan and Xin Xing Tower
      projects
                              
                              
                              2,930,017
                              
                              
                              
                              3,371,198China
      Construction Bank, Xi'an BranchDue
      August 27, 2011, annual interest is at floating interest rate based on 110
      percent of People’s Bank of China rate, secured by the Company's Jun
      Jing Yuan II project within a minimum payment of $7.3million required in
      2011
                              
                              
                              3,223,018
                              
                              
                              
                              21,986,076Due
      September 8, 2012, annual interest is at a floating interest rate based on
      110 percent of the People’s Bank of China prime rate, secured by the
      Company's Jun Jing Yuan II project
                              
                              
                              12,452,571
                              
                              
                              
                              -Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012 , annual interest is at People’s Bank of China rate,
      secured by the Puhua in constructionProject
      with a minimum payment of $7.3 million required in 2011
                              
                              
                              12,452,571
                              
                              
                              
                              -Total
                              
                              $
                              36,185,705
                              
                              
                              $
                              30,487,358





The
currently indicated annual interest requirement on these loans totals about $2.4
million.





41





Liquidity
expectation





The
Company believes that the combination of present capital resources, internally
generated funds, and unused financing sources are more than adequate to meet
cash requirements for the year 2009.





We intend
to meet our liquidity requirements, including capital expenditures related to
the purchase of land for the development of our future projects, through cash
flow provided by operations and additional funds raised by future financings.
Upon acquiring land for future developments, we intend to raise funds to develop
our projects by obtaining mortgage financing mainly from local banking
institutions with which we have done business in the past. We believe that our
relationships with these banks are in good standing and that our real estate
will secure the loans needed. We believe that adequate cash flow will be
available to fund our operations.


The
majority of the Company's revenues and expenses were denominated primarily in
renminbi (RMB), the currency of the People's Republic of China. There is no
assurance that exchange rates between the RMB and the U.S. dollar will remain
stable. The Company does not engage in currency hedging. Inflation has not
had a material impact on the Company's business.


Off-Balance
Sheet Arrangements
 
 Neither
us, nor any of our subsidiaries has any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on their financial
condition or results of operations.


ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK





The
Company is subject to the following market risks, including but not limit
to:





General
Real Estate Risk





There is
a risk that the Company’s property values could go down due to general economic
conditions, a weak market for real estate generally, or changing supply and
demand. The Company’s property held for sale value, approximately $14 million at
the end of December, 2009, may change due to market fluctuations. Currently, it
is valued at our cost which is significantly below the market
value.





Risk
Relating to Property Sales





The
Company may not be able to sell a property at a particular time for our full
value, particularly in a poor market.





Foreign
Currency Exchange Rate Risk





The
Company is doing all our business in the People’s Republic of China. All the
revenue and profit is denominated in RMB. When RMB depreciates, it may adversely
affect the Company’s financial performance. Specifically, since the Company’s
recent $20 million senior convertible note interest payment is denominated
in U.S. dollars; the depreciation of RMB may incur additional cost to our
financial cost. However, the effect likely would be small.





42





ITEM 8
FINANCIAL STATEMENT AND SUPPLEMENTARY DATA





Report
of Independent Registered Public Accounting Firm





To the
Shareholders and Board of Directors of China Housing & Land Development,
Inc.





We have
audited the accompanying consolidated balance sheets of China Housing & Land
Development, Inc., and subsidiaries (the “Company”) as at December 31, 2009 and
2008 and the related consolidated statements of income and comprehensive income,
shareholders’ equity and cash flows for each of the three years ended December
31, 2009. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We are not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.





In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2009 and
2008, and the results of its operations and its cash flows for the each of three
years ended December 31, 2009, in accordance with accounting principles
generally accepted in the United States of America.


Signed:
      “MSCM LLP”MSCM
      LLP
                          Toronto,
      Canada
                          March
      12,
2010





43





CHINA
HOUSING & LAND DEVELOPMENT, INC., AND SUBSIDIARIES





Consolidated
Balance Sheets


As of
December 31, 2009 and 2008





2009
                  
                  
                  2008ASSETSCash
      and cash equivalents
                  
                  $
                  36,863,216
                  
                  
                  $
                  37,425,340Cash
      - restricted
                  
                  
                  701,017
                  
                  
                  
                  805,012Accounts
      receivable, net of allowance for doubtful accounts of $389,996 and
      $1,278,156, respectively
                  
                  
                  6,088,482
                  
                  
                  
                  813,122Other
      receivables and prepaid expenses and other assets, net
                  
                  
                  2,484,221
                  
                  
                  
                  1,263,526Notes
      receivable, net
                  
                  
                  -
                  
                  
                  
                  811,695Real
      estate held for development or sale
                  
                  
                  103,003,529
                  
                  
                  
                  60,650,011Property
      and equipment, net
                  
                  
                  15,307,478
                  
                  
                  
                  12,391,501Asset
      held for sale
                  
                  
                  14,301,564
                  
                  
                  
                  14,308,691Advances
      to suppliers
                  
                  
                  10,368,386
                  
                  
                  
                  704,275Deposits
      on land use rights
                  
                  
                  28,084,346
                  
                  
                  
                  47,333,287Intangible
      asset, net
                  
                  
                  41,355,134
                  
                  
                  
                  46,043,660Goodwill
                  
                  
                  816,469
                  
                  
                  
                  -Deferred
      financing costs
                  
                  
                  411,457
                  
                  
                  
                  622,118Total
      assets
                  
                  $
                  259,785,299
                  
                  
                  $
                  223,172,238LIABILITIESAccounts
      payable
                  
                  $
                  20,706,263
                  
                  
                  $
                  10,525,158Advances
      from customers
                  
                  
                  21,301,876
                  
                  
                  
                  9,264,385Accrued
      expenses
                  
                  
                  5,587,837
                  
                  
                  
                  3,539,842Accrued
      security registration expenses
                  
                  
                  -
                  
                  
                  
                  613,483Payables for
      acquisition of businesses
                  
                  
                  5,916,354
                  
                  
                  
                  8,429,889Income
      and other taxes payable
                  
                  
                  8,194,659
                  
                  
                  
                  8,349,759Other
      payables
                  
                  
                  4,524,288
                  
                  
                  
                  5,183,251Loans
      from employees
                  
                  
                  2,864,824
                  
                  
                  
                  1,517,039Loans
      payable
                  
                  
                  36,185,705
                  
                  
                  
                  35,617,442Deferred
      tax liability
                  
                  
                  11,505,181
                  
                  
                  
                  11,510,915Warrants
      liability
                  
                  
                  5,074,191
                  
                  
                  
                  1,117,143Fair
      value of embedded derivatives
                  
                  
                  3,991,047
                  
                  
                  
                  760,398Convertible
      debt
                  
                  
                  14,834,987
                  
                  
                  
                  13,621,934Total
      liabilities
                  
                  
                  140,687,212
                  
                  
                  
                  110,050,638SHAREHOLDERS'
      EQUITYCommon
      stock: $.001 par value, authorized 100,000,000 shares issued and
      outstanding 31,884,969 and 30,893,757, respectively
                  
                  
                  31,885
                  
                  
                  
                  30,894Additional
      paid in capital
                  
                  
                  35,461,706
                  
                  
                  
                  31,390,750Common
      stock subscribed
                  
                  
                  252,118
                  
                  
                  
                  -Statutory
      reserves
                  
                  
                  4,922,248
                  
                  
                  
                  3,541,226Retained
      earnings
                  
                  
                  39,895,179
                  
                  
                  
                  38,651,579Accumulated
      other comprehensive income
                  
                  
                  10,163,483
                  
                  
                  
                  10,397,801Total
      China Housing & Land Development, Inc. shareholders’
      equity
                  
                  
                  90,726,619
                  
                  
                  
                  84,012,250Noncontrolling
      interest
                  
                  
                  28,371,468
                  
                  
                  
                  29,109,350Total
      shareholders' equity
                  
                  
                  119,098,087
                  
                  
                  
                  113,121,600Total
      liabilities and shareholders' equity
                  
                  $
                  259,785,299
                  
                  
                  $
                  223,172,238





The
accompanying notes are an integral part of these consolidated financial
statements.





44




CHINA
HOUSING & LAND DEVELOPMENT, INC., AND SUBSIDIARIES





Consolidated
Statements of Income


For The
Years Ended December 31, 2009, 2008 and 2007





2009
                      
                      
                      2008
                      
                      
                      2007REVENUESSale
      of properties
                      
                      $
                      78,511,269
                      
                      
                      $
                      24,306,062
                      
                      
                      $
                      73,579,325Other
      income
                      
                      
                      8,047,883
                      
                      
                      
                      2,159,784
                      
                      
                      
                      333,525Total
      revenues
                      
                      
                      86,559,152
                      
                      
                      
                      26,465,846
                      
                      
                      
                      73,912,850Cost
      of sales
                      
                      
                      62,902,441
                      
                      
                      
                      21,473,426
                      
                      
                      
                      43,221,757Gross
      margin
                      
                      
                      23,656,711
                      
                      
                      
                      4,992,420
                      
                      
                      
                      30,691,093OPERATING
      EXPENSESSelling,
      general, and administrative expenses
                      
                      
                      9,182,165
                      
                      
                      
                      8,497,562
                      
                      
                      
                      2,919,360Stock-based
      compensation
                      
                      
                      252,118
                      
                      
                      
                      3,078,600
                      
                      
                      
                      -Security
      registration expenses
                      
                      
                      1,786,517
                      
                      
                      
                      613,483
                      
                      
                      
                      -Other
      expenses
                      
                      
                      385,652
                      
                      
                      
                      295,595
                      
                      
                      
                      57,416Interest
      expense
                      
                      
                      2,323,141
                      
                      
                      
                      1,346,183
                      
                      
                      
                      1,652,349Accretion
      expense on convertible debt
                      
                      
                      1,213,063
                      
                      
                      
                      968,962
                      
                      
                      
                      -Total
      operating expenses
                      
                      
                      15,142,656
                      
                      
                      
                      14,800,385
                      
                      
                      
                      4,629,125NET
      INCOME (LOSS) FROM BUSINESS OPERATIONS
                      
                      
                      8,514,055
                      
                      
                      
                      (9,807,965
                      )
                      
                      
                      26,061,968CHANGE
      IN FAIR VALUE OF DERIVATIVESChange
      in fair value of embedded derivatives
                      
                      
                      3,230,649
                      
                      
                      
                      (3,166,977
                      )
                      
                      
                      -Change
      in fair value of warrants
                      
                      
                      4,365,633
                      
                      
                      
                      (4,932,961
                      )
                      
                      
                      632,296Total
      change in fair value of derivatives
                      
                      
                      7,596,282
                      
                      
                      
                      (8,099,938
                      )
                      
                      
                      632,296Income
      (loss) before provision for income taxes and noncontrolling
      interest
                      
                      
                      917,773
                      
                      
                      
                      (1,708,027
                      )
                      
                      
                      25,429,672(Recovery)
      provision for income taxes
                      
                      
                      (814,155
                      )
                      
                      
                      (10,490,833
                      )
                      
                      
                      8,743,556NET
      INCOME
                      
                      
                      1,731,928
                      
                      
                      
                      8,782,806
                      
                      
                      
                      16,686,116Add:
      Net loss attributed to noncontrolling interest
                      
                      
                      737,882
                      
                      
                      
                      159,564
                      
                      
                      
                      -Net
      income attributable to China Housing & LandDevelopment,
      Inc.
                      
                      $
                      2,469,810
                      
                      
                      $
                      8,942,370
                      
                      
                      $
                      16,686,116WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
                      
                      
                      31,180,246
                      
                      
                      
                      30,516,411
                      
                      
                      
                      26,871,388Diluted
                      
                      
                      31,180,246
                      
                      
                      
                      30,527,203
                      
                      
                      
                      26,871,388EARNINGS
      PER SHAREBasic
                      
                      $
                      0.08
                      
                      
                      $
                      0.29
                      
                      
                      $
                      0.62Diluted
                      
                      $
                      0.08
                      
                      
                      $
                      0.28
                      
                      
                      $
                      0.62





The
accompanying notes are an integral part of these consolidated financial
statements.





45





CHINA
HOUSING & LAND DEVELOPMENT, INC., AND SUBSIDIARIES





Consolidated
Statements of Comprehensive Income


For The
Years Ended December 31, 2009, 2008 and 2007




2009
                        
                        
                        2008
                        
                        
                        2007NET
      INCOME
                        
                        $
                        1,731,928
                        
                        
                        $
                        8,782,806
                        
                        
                        $
                        16,686,116OTHER
      COMPREHENSIVE INCOME (LOSS)(Loss)
      gain in foreign exchange translation
                        
                        
                        (234,318
                        )
                        
                        
                        5,882,178
                        
                        
                        
                        3,617,405COMPREHENSIVE
      INCOME
                        
                        
                        1,497,610
                        
                        
                        
                        14,664,984
                        
                        
                        
                        20,303,521Add:
      Comprehensive loss attributable to noncontrolling interest
                        
                        
                        737,882
                        
                        
                        
                        159,564
                        
                        
                        
                        -Comprehensive
      income attributable to China Housing & LandDevelopment,
      Inc.
                        
                        $
                        2,235,492
                        
                        
                        $
                        14,824,548
                        
                        
                        $
                        20,303,521





The
accompanying notes are an integral part of these consolidated financial
statements.





46





CHINA
HOUSING & LAND DEVELOPMENT INC., AND SUBSIDIARIES




Consolidated
Statements of Cash Flows


For The
Years Ended December 31, 2009, 2008 and 2007




December 31,
                                  
                                  
                                  December 31,
                                  
                                  
                                  December 31,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                  
                                  $
                                  1,731,928
                                  
                                  
                                  $
                                  8,782,806
                                  
                                  
                                  $
                                  16,686,116Adjustments
      to reconcile net income to cashprovided
      by (used in) operating activities:Bad
      debt (recovery) expense
                                  
                                  
                                  (603,917
                                  )
                                  
                                  
                                  1,420,434
                                  
                                  
                                  
                                  -Depreciation
                                  
                                  
                                  633,930
                                  
                                  
                                  
                                  454,728
                                  
                                  
                                  
                                  423,932Loss
      (gain) on disposal of property and equipment
                                  
                                  
                                  108,189
                                  
                                  
                                  
                                  15,167
                                  
                                  
                                  
                                  (48,347
                                  )Gain
      on income tax settlement
                                  
                                  
                                  (4,859,401
                                  )
                                  
                                  
                                  (12,712,153
                                  )
                                  
                                  
                                  -Amortization
      of deferred financing costs
                                  
                                  
                                  210,661
                                  
                                  
                                  
                                  148,606
                                  
                                  
                                  
                                  -Amortization
      of stock issued for investor relations fees
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  131,400Amortization
      of intangible asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,157,758Stock-based
      compensation
                                  
                                  
                                  252,118
                                  
                                  
                                  
                                  3,078,600
                                  
                                  
                                  
                                  -Security
      registration expenses settled with common stocks
                                  
                                  
                                  1,786,517
                                  
                                  
                                  
                                  613,483
                                  
                                  
                                  
                                  -Change
      in fair value of warrants
                                  
                                  
                                  4,365,633
                                  
                                  
                                  
                                  (4,932,961
                                  )
                                  
                                  
                                  632,296Change
      in fair value of embedded derivatives
                                  
                                  
                                  3,230,649
                                  
                                  
                                  
                                  (3,166,977
                                  )
                                  
                                  
                                  -Accretion
      expense on convertible debt
                                  
                                  
                                  1,213,063
                                  
                                  
                                  
                                  968,962
                                  
                                  
                                  
                                  -Non-cash
      proceeds from sales
                                  
                                  
                                  (43,500
                                  )
                                  
                                  
                                  (166,148
                                  )
                                  
                                  
                                  (10,783,201
                                  )(Increase)
      decrease in assets:Accounts
      receivable
                                  
                                  
                                  (4,758,938
                                  )
                                  
                                  
                                  10,758,758
                                  
                                  
                                  
                                  (8,463,433
                                  )Other
      receivables and prepaid expenses
                                  
                                  
                                  185,426
                                  
                                  
                                  
                                  (114,638
                                  )
                                  
                                  
                                  658,893Real
      estate held for development or sale
                                  
                                  
                                  (37,698,632
                                  )
                                  
                                  
                                  (23,463,229
                                  )
                                  
                                  
                                  13,696,294Advances
      to suppliers
                                  
                                  
                                  (9,688,941
                                  )
                                  
                                  
                                  1,600,308
                                  
                                  
                                  
                                  (1,480,596
                                  )Refund
      (deposit) on land use rights
                                  
                                  
                                  19,198,186
                                  
                                  
                                  
                                  (15,387,541
                                  )
                                  
                                  
                                  (17,695,934
                                  )Deferred
      financing costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  202,888
                                  
                                  
                                  
                                  -Increase
      (decrease) in liabilities:Accounts
      payable
                                  
                                  
                                  10,170,003
                                  
                                  
                                  
                                  570,250
                                  
                                  
                                  
                                  2,556,717Advances
      from customers
                                  
                                  
                                  11,911,360
                                  
                                  
                                  
                                  3,576,253
                                  
                                  
                                  
                                  2,066,546Accrued
      expenses
                                  
                                  
                                  1,915,238
                                  
                                  
                                  
                                  1,607,633
                                  
                                  
                                  
                                  42,522Other
      payables
                                  
                                  
                                  (1,815,769
                                  )
                                  
                                  
                                  1,003,031
                                  
                                  
                                  
                                  (1,016,610
                                  )Income
      and other taxes payable
                                  
                                  
                                  4,606,492
                                  
                                  
                                  
                                  (3,934,882
                                  )
                                  
                                  
                                  10,047,030Net
      cash provided by (used in) operating activities
                                  
                                  
                                  2,050,295
                                  
                                  
                                  
                                  (29,076,622
                                  )
                                  
                                  
                                  8,611,383CASH
      FLOWS FROM INVESTING ACTIVITIES:Change
      in restricted cash
                                  
                                  
                                  103,478
                                  
                                  
                                  
                                  (684,040
                                  )
                                  
                                  
                                  1,039,410Purchase
      of buildings, equipment and automobiles
                                  
                                  
                                  (2,747,785
                                  )
                                  
                                  
                                  (1,063,332
                                  )
                                  
                                  
                                  (244,355
                                  )Notes
      receivable collected
                                  
                                  
                                  452,054
                                  
                                  
                                  
                                  364,313
                                  
                                  
                                  
                                  1,272,541Cash
      acquired from acquisition of business
                                  
                                  
                                  519,309
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Proceeds
      from sale of property and equipment
                                  
                                  
                                  195,035
                                  
                                  
                                  
                                  872,346
                                  
                                  
                                  
                                  (27,087,844
                                  )Net
      cash (used in) investing activities
                                  
                                  
                                  (1,477,909
                                  )
                                  
                                  
                                  (510,713
                                  )
                                  
                                  
                                  (25,020,248
                                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of convertible debt
                                  
                                  
                                  -
                                  
                                  
                                  
                                  19,230,370
                                  
                                  
                                  
                                  -Investment
      and advances from minority shareholder
                                  
                                  
                                  -
                                  
                                  
                                  
                                  29,268,914
                                  
                                  
                                  
                                  -Loans
      from banks
                                  
                                  
                                  24,894,444
                                  
                                  
                                  
                                  46,054,762
                                  
                                  
                                  
                                  3,944,359Payments
      on loans payable
                                  
                                  
                                  (24,306,429
                                  )
                                  
                                  
                                  (25,905,804
                                  )
                                  
                                  
                                  (14,202,410
                                  )Loans
      from (repayment to) employees, net
                                  
                                  
                                  1,347,937
                                  
                                  
                                  
                                  (1,018,357
                                  )
                                  
                                  
                                  1,226,736Repayment
      of payables for acquisition of businesses
                                  
                                  
                                  (4,267,573
                                  )
                                  
                                  
                                  (3,704,820
                                  )
                                  
                                  
                                  4,207,315Proceeds
      from issuance of common stock and warrants
                                  
                                  
                                  1,184,662
                                  
                                  
                                  
                                  8,415
                                  
                                  
                                  
                                  23,239,997Net
      cash (used in) provided by financing activities
                                  
                                  
                                  (1,146,959
                                  )
                                  
                                  $
                                  63,933,480
                                  
                                  
                                  $
                                  18,415,997(DECREASE) INCREASE
      IN CASH AND CASH EQUIVALENTS
                                  
                                  
                                  (574,573
                                  )
                                  
                                  
                                  34,346,145
                                  
                                  
                                  
                                  2,007,132Effects
      on foreign currency exchange
                                  
                                  
                                  12,449
                                  
                                  
                                  
                                  728,180
                                  
                                  
                                  
                                  (35,750
                                  )Cash
      and cash equivalents, beginning of year
                                  
                                  
                                  37,425,340
                                  
                                  
                                  
                                  2,351,015
                                  
                                  
                                  
                                  379,633Cash
      and cash equivalents, end of year
                                  
                                  $
                                  36,863,216
                                  
                                  
                                  $
                                  37,425,340
                                  
                                  
                                  $
                                  2,351,015




The
accompanying notes are an integral part of these consolidated financial
statements.





47





CHINA
HOUSING & LAND DEVELOPMENT, INC., AND SUBSIDIARIES





Consolidated
Statements of Shareholders' Equity


For The
Years Ended December 31, 2009, 2008 and 2007





Common
                          
                          
                          Additional
                          
                          
                          
                          
                          
                          
                          
                          
                          Capital
                          
                          
                          AccumulatedCommon Stock
                          
                          
                          stock
                          
                          
                          paid in
                          
                          
                          Statutory
                          
                          
                          Retained
                          
                          
                          contribution
                          
                          
                          comprehensive
                          
                          
                          NoncontrollingShares
                          
                          
                          Par Value
                          
                          
                          subscribed
                          
                          
                          capital
                          
                          
                          reserves
                          
                          
                          earnings
                          
                          
                          receivable
                          
                          
                          income
                          
                          
                          Interest
                          
                          
                          TotalsBALANCE,
      December 31, 2006
                          
                          
                          20,619,223
                          
                          
                          $
                          20,619
                          
                          
                          $
                          -
                          
                          
                          $
                          7,192,600
                          
                          
                          $
                          2,150,138
                          
                          
                          $
                          14,414,181
                          
                          
                          $
                          (5,462,798
                          )
                          
                          $
                          898,218
                          
                          
                          $
                          -
                          
                          
                          $
                          19,212,958Common
      stock issued for consulting services
                          
                          
                          60,000
                          
                          
                          
                          60
                          
                          
                          
                          -
                          
                          
                          
                          131,340
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          131,400Common
      stock and warrants issued at $2.70
                          
                          
                          9,387,985
                          
                          
                          
                          9,388
                          
                          
                          
                          -
                          
                          
                          
                          20,532,623
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          20,542,011Common
      stock issued from warrants conversion
                          
                          
                          74,679
                          
                          
                          
                          75
                          
                          
                          
                          -
                          
                          
                          
                          524,971
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          525,046Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          16,686,116
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          16,686,116Adjustment
      to statutory reserve
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          735,141
                          
                          
                          
                          (735,141
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Capital
      contribution receivable
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,462,798
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,462,798Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3,617,405
                          
                          
                          
                          -
                          
                          
                          
                          3,617,405BALANCE,
      December 31, 2007
                          
                          
                          30,141,887
                          
                          
                          $
                          30,142
                          
                          
                          $
                          -
                          
                          
                          $
                          28,381,534
                          
                          
                          $
                          2,885,279
                          
                          
                          $
                          30,365,156
                          
                          
                          $
                          -
                          
                          
                          $
                          4,515,623
                          
                          
                          $
                          -
                          
                          
                          $
                          66,177,734Common
      Stock issued from warrants conversion
                          
                          
                          1,870
                          
                          
                          
                          2
                          
                          
                          
                          -
                          
                          
                          
                          9,966
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          9,968Stock
      based compensation
                          
                          
                          750,000
                          
                          
                          
                          750
                          
                          
                          
                          -
                          
                          
                          
                          2,999,250
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3,000,000Initial
      investment from noncontrolling interest
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          29,268,914
                          
                          
                          
                          29,268,914Net
      Income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,942,370
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          (159,564
                          )
                          
                          
                          8,782,806Adjustment
      to statutory reserve
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          655,947
                          
                          
                          
                          (655,947
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,882,178
                          
                          
                          
                          -
                          
                          
                          
                          5,882,178BALANCE,
      December 31, 2008
                          
                          
                          30,893,757
                          
                          
                          $
                          30,894
                          
                          
                          $
                          -
                          
                          
                          $
                          31,390,750
                          
                          
                          $
                          3,541,226
                          
                          
                          $
                          38,651,579
                          
                          
                          $
                          -
                          
                          
                          $
                          10,397,801
                          
                          
                          $
                          29,109,350
                          
                          
                          $
                          113,121,600Stock
      based compensation
                          
                          
                          54,583
                          
                          
                          
                          55
                          
                          
                          
                          -
                          
                          
                          
                          78,545
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          78,600Common
      Stock issued from warrants conversion
                          
                          
                          288,889
                          
                          
                          
                          289
                          
                          
                          
                          -
                          
                          
                          
                          1,494,316
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,494,605Common
      stock issued from cashless warrants
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -conversion
                          
                          
                          33,450
                          
                          
                          
                          33
                          
                          
                          
                          -
                          
                          
                          
                          98,709
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          98,742Common
      stock subscribed from liability
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -settlement
                          
                          
                          614,290
                          
                          
                          
                          614
                          
                          
                          
                          -
                          
                          
                          
                          2,399,386
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,400,000Stock
      based compensation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          252,118
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          252,118Net
      Income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,469,810
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (737,882
                          )
                          
                          
                          1,731,928Adjustment
      to statutory reserve from
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -acquisition
      of Xinxing Property
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          154,812
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          154,812Adjustment
      to statutory reserve
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,226,210
                          
                          
                          
                          (1,226,210
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (234,318
                          )
                          
                          
                          -
                          
                          
                          
                          (234,318
                          )BALANCE,
      December 31, 2009
                          
                          
                          31,884,969
                          
                          
                          $
                          31,885
                          
                          
                          $
                          252,118
                          
                          
                          $
                          35,461,706
                          
                          
                          $
                          4,922,248
                          
                          
                          $
                          39,895,179
                          
                          
                          $
                          -
                          
                          
                          $
                          10,163,483
                          
                          
                          $
                          28,371,468
                          
                          
                          $
                          119,098,087





The
accompanying notes are an integral part of these consolidated financial
statements.





48





Note
1 – Organization and Basis of Presentation





China
Housing & Land Development, Inc., (the “Company”) is a Nevada corporation,
incorporated on July 6, 2004 under the name Pacific Northwest Productions Inc.,
(“Pacific”). On May 5, 2006, the Company changed its name to China Housing &
Land Development, Inc. The Company, through its subsidiaries, is engaged in
acquisition, development, management, and sale of commercial and residential
real estate properties located primarily in Xi'an, Shaanxi Province, People’s
Republic of China (PRC or China).




The
Company’s subsidiaries include: Xi'an Tsining Housing Development Company Inc.
(“Tsining”), Xi'an New Land Development Co. (“New Land”), Xi'an Hao Tai Housing
Development Company Inc. (“Hao Tai”), Manstate Assets Management
Limited (“Manstate”), Xi’an Xinxing Property Management Co., Ltd.
(“Xinxing Property”) (note 3), Xi’an Xinxing Hotel Management Co., Ltd.
(“Xinxing Hotel”) (note 3), Puhua (Xi’an) Real Estate Development Co., Ltd (75%
interest) (“Puhua”), Success Hill Investments Limited (60% interest)
(“Success Hill”), Wayfast Holdings Limited (“Wayfast”), Clever Advance Limited
(“Clever Advance”), Gracemind Holdings Limited (“Gracemind”) and Treasure Asia
Holdings Limited (Treasure Asia”)  (collectively, the
“Subsidiaries”). Wayfast with its 100% subsidiary - Clever Advance and
Gracemind with its 100% subsidiary - Treasure Asia were incorporated as holding
companies in March 2009 and they were inactive during the year ended December
31, 2009.





Note
2 – Summary of Significant Accounting Policies





Principles
of Consolidation and Basis of Presentation





The
accompanying consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”). The consolidated
financial statements include the accounts of the Company and the Subsidiaries
and have been reported in United States dollars. All inter-company balances and
transactions have been eliminated on consolidation.





The 25%
ownership interests of the noncontrolling stockholder of PuHua and 40% ownership
interests of the noncontrolling stockholder of Success Hill were presented as
noncontrolling interests in the consolidated balance sheet. In the consolidated
statements of operations, net income attributable to China Housing & Land
Development, Inc. reflects an adjustment for the noncontrolling stockholders’
share of the net loss of PuHua and Success Hill.





Use of
Estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates, and changes in these estimates are recorded when known. Significant
estimates made by management include: revenue recognition, allowance for
doubtful accounts, useful lives of property and equipment, amortization of the
intangible asset, future cash flows associated with impairment testing for
tangible and intangible asset and goodwill, income taxes, inventory obsolescence
and fair value of warrants liability, embedded derivatives and stock-based
compensation.





Reporting
Currency and Foreign Currency Translation





As of
December 31, 2009, the accounts of the Company and its Subsidiaries are
maintained in their functional currency, the Chinese Yuan Renminbi ("RMB"). The
consolidated financial statements of the Company have been translated into U.S.
dollars in accordance with the accounting standard on foreign currency
translation. All assets and liabilities of the Subsidiaries are translated at
the exchange rate on the balance sheet date, shareholders' equity is translated
at the historical rates and the statements of income and cash flows are
translated at the weighted average exchange rate for the year. The resulting
translation adjustments are reported under comprehensive income and as a
separate component of shareholders’ equity.





Foreign
exchange rates used:





December
                    31, 2009
                  
                  
                  December
                    31, 2008
                  
                  
                  December
                    31, 2007Period end
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.8259
                  
                  
                  
                  6.8225
                  
                  
                  
                  7.2946Average
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.8307
                  
                  
                  
                  6.9483
                  
                  
                  
                  7.6058





Revenue
Recognition





Effective
January 1, 2008, the Company changed its revenue recognition policy for sales of
development properties to the percentage of completion method. Previously, the
full accrual method was used. The percentage of completion method is based on
estimated costs incurred. The change more accurately reflects the business
activity of the Company and matches revenues with the costs incurred in earning
such revenue. The standard “Accounting Changes and Error Corrections” requires
that a change in accounting policy be reflected through retrospective
application of the new accounting policy to all prior periods, unless it is
impracticable to do so. The Company has determined that retrospective
application to periods prior to January 1, 2008 is not practical as the
necessary information needed to restate prior periods is not available.
Therefore, the Company began to apply the percentage completion method on a
prospective basis beginning January 1, 2008.





49








Real
estate sales are reported in accordance with the provisions of the standard
“Accounting for Sales of Real Estate". Profit from the sales of real estate
properties is recognized on the percentage of completion method on the sale of
individual units when all the following criteria are met:





a.
            Construction
      is beyond a preliminary state.


b.
            The
      buyer is committed to the extent of being unable to require a refund
      except for non-delivery of the units or
  interest.


c.
            Sufficient
      units have already been sold to assure that the entire property will not
      revert to rental property.


d.
            Sales
      prices are collectible.


e.
            Aggregate
      sales proceeds and costs can be reasonably
  estimated.





If any of the above
criteria are not met, proceeds shall be accounted for as advances from customers
until the criteria are met.





Under the
percentage of completion method, revenues from condominium units sold and
related costs are recognized over the course of the construction period, based
on the completion progress of a project. In relation to any project, revenue is
determined by calculating the ratio of incurred costs, including land use rights
costs and construction costs, to total estimated costs and applying that ratio
to the contracted sales amounts. Cost of sales is recognized by determining
the ratio of contracted sales during the period to total estimated sales value,
and applying that ratio to the incurred costs. Current period amounts are
calculated based on the difference between the life-to-date project totals and
the previously recognized amounts.





Significant
judgments and estimates related to applying the percentage of completion method
include the Company’s estimates of the time necessary to complete the project,
the total expected revenue and the total expected costs. Fluctuations in sales
prices and variances in costs from budgets could change the percentages of
completion and affect the amount of revenue and costs recognized. Changes in
total estimated project costs, if any, are recognized in the period in which
they are determined. Revenue recognized to date in excess of amounts received
from customers is included in accounts receivable. Included in accounts
receivable at December 31, 2009 is $4,721,729 (2008 - $299,745) representing
amounts due from customers for which the Company has already recognized
revenues. Amounts received from customers in excess of revenue recognized to
date are classified as current liabilities under advances from customers. As of
December 31, 2009 and 2008, the related advances from customers were $20,745,756
and $9,264,385, respectively.





For the
Company’s self financed sales, the Company recognizes sales based on the full
accrual method provided that the buyer's initial and continuing investment is
adequate according to the standard, “Accounting for Sales of Real Estate”. The
initial investment is the buyer's down-payment less the loan amount provided by
the Company. Interest on these loans is amortized over the term of the loans.
The Company discontinued this type of sale during 2009.





For land
sales, the Company recognizes revenue when title to the land development right
is transferred and collectability of the proceeds is assured.





Real
estate rental income is recognized on the straight-line basis over the
terms of the tenancy agreements.





For the
reimbursement of infrastructure costs, the Company recognizes income, which is
at a value agreed to by the Company and the government of the PRC, under a
binding agreement.





Real
Estate Capitalization and Cost Allocation





Real
estate held for development or sale consists of residential and commercial units
under construction and units completed. The real estate held for development
includes costs associated with development and construction of the Baqiao
project, the JunJing II project, the Junjing III project, PuHua Project, Tang Du
and other projects.





The
Company leases land for the residential and commercial unit sites under land use
rights from the government of the PRC.





Real
estate held for development or sale is stated at cost or estimated net
realizable value, whichever is lower. Costs include land and land improvements,
direct construction costs and development costs, including predevelopment costs,
engineering costs, interest on indebtedness, real estate taxes, wages,
insurance, construction overhead and indirect project costs. All costs are
accumulated by specific projects and allocated to residential and commercial
units within the respective projects. Selling and advertising costs are expensed
as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification
methods.





Land and
land improvement costs include the cost of land use rights, land improvements
and real estate taxes. Appropriate costs are allocated to projects on the basis
of acreage and the number of dwelling units.





When real
estate held for development or sale is determined to be impaired, it is written
down to its estimated net realizable value. The Company evaluates the
carrying value for impairment based on the undiscounted future cash flows of the
assets. Write-downs of real estate held for development or sale deemed impaired
would be recorded as adjustments to the cost basis. No impairment loss was
incurred or recorded for the year ended December 31, 2009 (2008 - $Nil). No
depreciation is provided for real estate held for development or
sale.





50





Capitalization
of Interest





In
accordance with the standard “Capitalization of Interest Cost”, interest
incurred during and directly related to construction is capitalized to
construction in progress. All other interest is expensed as
incurred.





For the
year ended December 31, 2009, interest incurred by the Company was
$5,096,871 (2008 - $4,659,778 and 2007 - $3,454,862) and capitalized
interest for the same period was $2,890,457 (2008 - $3,313,595).





Concentration
of Risks





The
Company sells residential and commercial units to residents and small business
owners and sells land to other real estate developers. There was no major
customer that accounted for more than 5% of the sales for the year ended
December 31, 2009 and 2008. One customer accounted for approximately 14% of
accounts receivable as at December 31, 2009. A different customer accounted for
approximately 44% of account receivable as at December 31, 2008. The Company had
four major customers that accounted for approximately 62% of the Company’s sales
for the year ended December 31, 2007. One of these customers accounted
for 84% of accounts receivable as at December 31, 2007.





The
Company is dependent on third-party sub-contractors, manufacturers, and
distributors for all construction services and supply of construction materials.
Construction services or products purchased from the Company's five largest
sub-contractors and suppliers accounted for 41% of total services and
supplies for the year ended December 31, 2009 (2008 - 30% and  2007
– 56%). Accounts payable to these subcontractors and suppliers was 53% of
total accounts payable as at December 31, 2009 (2008 – 43% and 2007 –
19%).





The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC and by the general state
of the PRC’s economy. The Company's business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.





Cash and
Cash Equivalents and Concentration of Risk





Cash and
cash equivalents include cash on hand and highly liquid investments with
maturities of three months or less when purchased in accounts maintained with
state-owned banks within the PRC. Total cash ((including restricted cash) and
cash equivalent in state-owned banks at December 31, 2009 amounted to
$37,263,615 (2008 - $38,230,352) of which no deposits are covered by insurance.
The Company has not experienced any losses in such accounts. Total cash
equivalents as at December 31, 2009 amounted to $4,395,025 (2008 -
$Nil).





Restricted
Cash





The bank
grants mortgage loans to home purchasers and will transfer these amounts to the
Company's bank account once title passes. If the homes are not completed and the
new home owners have no ownership documents to secure the loan, the bank will
deduct 10% of the home owner's loan from the Company's bank account and transfer
that amount to a designated bank account classified on the balance sheet as
restricted cash. Interest earned on the restricted cash is credited to the
Company's normal bank account. The bank will release the restricted cash after
home purchasers have obtained the ownership documents to secure the mortgage
loan. Total restricted cash in state-owned banks amounted to $701,017 as of
December 31, 2009 (2008 - $805,012).





Accounts
Receivable





Accounts receivable consists of
balances due from customers for the sale of residential and commercial units in
the PRC. The Company provides an allowance for doubtful accounts equal to the
estimated uncollectible amounts. The Company's estimateduncollectible amounts are based on
historical collection experience and a review of the current status of trade
accounts receivable. It is reasonably possible that the Company's estimate
of the allowance for doubtful accounts will change.





51





Other
Receivables





Other
receivables consist of various cash advances to unrelated companies and
individuals. These amounts are not related to operations of the Company, are
unsecured, non-interest bearing and generally short term in nature.





Notes
Receivable





The
Company finances sales to certain new homeowners with terms of one to three
years. These loans are non-interest bearing, therefore the Company has
discounted the carrying amount of notes receivable at the market mortgage rate
at 5.4% for the year ended December 31, 2008. For the year ended December 31,
2009, the Company collected all remaining balances of the notes
receivable.





2009
                      
                      
                      2008Notes
      receivable
                      
                      $
                      402,504
                      
                      
                      $
                      859,682Less:
      unamortized interest
                      
                      
                      -
                      
                      
                      
                      (47,987
                      )Less:
      allowance for doubtful accounts
                      
                      
                      (402,504)
                      
                      
                      
                      -Notes
      receivable, net
                      
                      $
                      -
                      
                      
                      $
                      811,695





Property
and Equipment





Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method, with 3% residual value, over the estimated useful lives of
the assets. Estimated useful lives of the assets are as follows:





Estimated
                            Useful LifeBuildings
      and improvements
                          
                          6-30
      yearsIncome
      producing properties and improvements
                          
                          21
      - 30 yearsVehicles
                          
                          6
      yearsElectronic
      equipment
                          
                          5
      yearsOffice
      furniture
                          
                          5
      yearsComputer
      software
                          
                          3
      years





Maintenance
and repairs are charged directly to expenses as incurred. Major additions and
betterment to property and equipment are capitalized and depreciated over the
remaining useful life of the assets.





Long-lived
Assets





The
Company periodically evaluates the carrying value of long-lived assets in
accordance with the standard, “Accounting For Impairment on Disposal of
Long-Lived Assets” which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair value of the
long-lived assets. Loss on long-lived assets to be disposed of is determined in
a similar manner, except that fair values are reduced for the cost of disposal.
Based on its review, the Company believes there were no impairments of
its long-lived assets as of December 31, 2009 and 2008.





Asset
Held for Sale





The
Company intends to sell one of its fixed assets which consist of 13,609 square
meters of retail units. The fixed assets are classified as asset held for sale
and the Company has ceased depreciation of the asset. Subsequent to December 31,
2009, the Company has received a letter of intent from an unrelated party to
acquire 1/3 of this retail property (note 23).





Advances
to Suppliers





Advances
to suppliers consist of amounts paid in advance to contractors and vendors for
services and materials.





Deposits
on Land Use Rights





Deposits
on land use rights consist of deposits held by the PRC government to purchase
land use rights in Baqiao and other projects currently planned.





52





Intangible
Asset




Intangible
asset relates to the development rights for 487 acres of land in Baqiao
Park obtained from the acquisition of New Land in fiscal 2007. The
intangible asset has a finite life. In accordance with accounting standard,
“Goodwill and Other Intangible Assets”, the intangible asset is subject to
amortization over its estimated useful life. The amortization of the intangible
asset is based on the percentage of profit margin realized over the total
expected profit margin to be realized from the 487 acres of land in the Baqiao
project. The Company reviews its business plan for its 487 acres of land in
Baqiao Park periodically and updates its assumptions based on the
prevailing market prices and management’s judgments on the profit
margins.  The method of amortization selected reflects
the pattern in which the economic benefits of the intangible asset are
realized. This method is intended to match the pattern of amortization with
the income-generating capacity of the asset.





The
Company evaluates its intangible asset for impairment whenever events or changes
in circumstances indicate the carrying value may not be recoverable. Based on
estimated future cash flows, the Company records a write-down for impairments,
if appropriate. No impairment write-down was recognized for December 31, 2009,
2008 and 2007.




Goodwill





Goodwill
represents the excess of the purchase price of acquired businesses over the
estimated fair value of the identifiable net assets acquired (note 3). Goodwill
is not amortized but is tested for impairment at least annually at the reporting
unit level or whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. The impairment test compares the
reporting unit’s carrying value to its fair value and, when appropriate, the
carrying value of goodwill is reduced to fair value. No goodwill
impairment was recognized for December 31, 2009, 2008 and 2007.





Deferred
Financing Costs





Debt
issuance costs are capitalized as deferred financing costs and amortized on a
straight line basis over the term of the related debt. The amortization expense
for the year ended December 31, 2009 was $210,661 (2008 - $148,606 and 2007
- $Nil). This amortization expense was included in selling, general, and
administrative expense.





Fair
Value of Financial Instruments





Effective
January 1, 2008, the Company adopted the standard, "Fair Value Measurements,"
which provides a framework for measuring fair value under GAAP. As defined in
the standard, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that the Company believes market participants would use in
pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can be readily
observable, market corroborated or generally unobservable.





The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available information.
Accordingly, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. The Company is
able to classify fair value balances based on the observability of those
inputs.





The
standard establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy defined by the
standard are as follows:





Level
      1
              Quoted
      prices are available in active markets for identical assets
      or liabilities as of the reporting date. Active markets are those
      in which transactions for the asset or liability occur in
      sufficient frequency and volume to provide pricing information on an
      ongoing basis. Level 1 primarily consists of financial instruments
      such as exchange-traded derivatives, listed equities and U.S.
      government treasury securities.Level
      2
              Pricing
      inputs are other than quoted prices in active markets included in
      Level 1, which are either directly or indirectly observable as of the
      reporting date. Level 2 includes those financial instruments that are
      valued using models or other valuation methodologies. These
      models are primarily industry-standard models that consider
      various assumptions, including quoted forward prices for commodities,
      time value, volatility factors, and current market and contractual
      prices for the underlying instruments, as well as other relevant
      economic measures. Substantially all of these assumptions are
      observable in the marketplace throughout the full term of the
      instrument, can be derived from observable data or are supported by
      observable levels at which transactions are executed in the
      marketplace. Instruments in this category include non-exchange-traded
      derivatives such as over the counter forwards, options and repurchase
      agreements.Level
      3
              Pricing
      inputs include significant inputs that are generally less observable
      from objective sources. These inputs may be used with internally
      developed methodologies that result in management's best estimate of
      fair value from the perspective of a market participant. Level 3
      instruments include those that may be more structured or otherwise
      tailored to customers' needs. At each balance sheet date, the
      Company performs an analysis of all instruments subject to the standard
      and includes in Level 3 all of those whose fair value is based on
      significant unobservable
inputs.





53





Assets
and liabilities measured at fair value on a recurring basis include the
following as of December 31, 2009:





Fair Value Measurements Using
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level3
                      
                      
                      At Fair ValueCash
      equivalents
                      
                      $
                      4,395,025
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      4,395,025Warrants
      liability
                      
                      
                      -
                      
                      
                      
                      5,074,191
                      
                      
                      
                      -
                      
                      
                      
                      5,074,191Fair
      value of embedded derivatives
                      
                      
                      -
                      
                      
                      
                      3,991,047
                      
                      
                      
                      -
                      
                      
                      
                      3,991,047Total
                      
                      $
                      4,395,025
                      
                      
                      $
                      9,065,238
                      
                      
                      $
                      -
                      
                      
                      $
                      13,460,263





Assets
and liabilities measured at fair value on a recurring basis include the
following as of December 31, 2008:





Fair Value Measurements Using
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  At Fair ValueWarrants
      liability
                  
                  $
                  -
                  
                  
                  $
                  1,117,143
                  
                  
                  $
                  -
                  
                  
                  $
                  1,117,143Fair
      value of embedded derivatives
                  
                  
                  -
                  
                  
                  
                  760,398
                  
                  
                  
                  -
                  
                  
                  
                  760,398Total
                  
                  $
                  -
                  
                  
                  $
                  1,877,541
                  
                  
                  $
                  -
                  
                  
                  $
                  1,877,541





Accounts
Payable





Accounts
payable consists of balances due to subcontractors and suppliers for the
purchase of construction and other services.





Advances
from Customers




Advances
from customers represent prepayments by customers. The Company records such
prepayments as advances from customers when the payments are
received.





Other
Payables





Other
Payables consist of balances for non-construction costs with unrelated companies
and individuals. These amounts are unsecured, non-interest bearing and short
term in nature.





Advertising
Costs





Advertising
and sales promotion costs are expensed as incurred. Advertising expense for the
year totaled $1,965,551 (2008 - $1,261,495 and 2007 - $781,998).





Warranty
Costs





Generally,
the Company provides all of its customers with a limited (half a year to 5
years) warranty period for defective workmanship. Any significant material
defects are generally under warranty with the Company's construction
contractors. Currently, the Company retains 5% of the total contract cost
from the construction contractors for a period of one to five years after the
completion of the construction. Such retention amounts will be used to pay for
any repair expense incurred due to defects in the construction. Any excess
amounts are expensed in the period when they occur. The Company has not
historically incurred any significant litigation requiring additional specific
reserves for its product offerings. As of December 31, 2009 and 2008, the
Company did not recognize any warranty liability or incurred any warranty costs
in excess of the amount retained from construction contractors.





Income
Taxes




The
Company utilizes the standard, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. At December 31, 2009 and 2008 the
significant accounting to tax difference was related to the intangible asset and
certain real estate held for development or sale which has no tax
value.





The
Company adopted the provisions of the interpretation, "Accounting for
Uncertainty in Income Taxes”, on January 1, 2007. The Company did not have any
material unrecognized tax benefits and there was no effect on its financial
condition or results of operations as a result of implementing the
interpretation. During fiscal 2009, the Company settled a prior year income tax
liability with the PRC local tax authority resulting in an income tax recovery
of $4,859,401 (2008 - $12,712,153 and 2007 - $Nil), which is included in the
provision for income taxes. For both settlements, the local tax authority
examined the Company’s tax records and issued an income tax assessment. The
Company believes there is only a remote possibility that the local tax authority
or higher tax authority will reassess these tax settlements.





The
Company is required to report income tax returns in the PRC jurisdictions. The
Company does not believe there will be any material changes in its unrecognized
tax positions over the next 12 months.





54




The
Company's policy is to recognize interest and penalties accrued on any
unrecognized tax liability as a component of selling,  general and
administrative expense. As of the date of adoption of the interpretation, the
Company did not have any accrued interest or penalties associated with any
unrecognized tax rate differences from the federal statutory rate primarily due
to non-deductible expenses, temporary differences and preferential tax
treatment. No assessments of income taxes for the years ended December 31,
2009, 2008 and 2007 have been received by the Company, except for the income tax
settlement report issued by local tax authority as previously
described.





PRC and
Local Income Tax





The
subsidiaries of the Company are governed by the Income Tax Laws of the PRC
concerning Chinese registered limited liability companies. Under the Income Tax
Laws of the PRC, Chinese enterprises are generally subject to income tax at a
statutory rate of 25% on income reported in the statutory financial statements
after appropriate tax adjustments, unless the enterprise is located in a
specially designated region for which more favorable effective tax rates are
applicable. New Land and Hao Tai are entitled to a refund of 6% of taxes
otherwise payable if they meet certain annual earning criteria.





The
provision for income taxes for the year ended December 31, 2009, 2008 and 2007
consisted of the following:





2009
                          
                          
                          2008
                          
                          
                          2007(Recovery)
      provision for PRC income and local tax
                          
                          $
                          (814,155
                          )
                          
                          $
                          (10,490,833
                          )
                          
                          $
                          9,125,616Recovery
      of deferred taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (382,060
                          )Total
      (recovery) provision for income taxes
                          
                          $
                          (814,155
                          )
                          
                          $
                          (10,490,833
                          )
                          
                          $
                          8,743,556




2009
                      
                      
                      2008
                      
                      
                      2007Income
      (loss) before provision for income taxes
                      
                      $
                      917,773
                      
                      
                      $
                      (1,708,027
                      )
                      
                      $
                      25,429,672U.S.
      statutory rate of 34%
                      
                      $
                      312,043
                      
                      
                      $
                      (580,729
                      )
                      
                      $
                      8,646,088Non-deductible
      expense (non-taxable income)
                      
                      
                      3,602,593
                      
                      
                      
                      (2,215,948
                      )
                      
                      
                      819,055Foreign
      (income) loss not recognized in US
                      
                      
                      (4,288,359
                      )
                      
                      
                      2,092,057
                      
                      
                      
                      (9,766,843
                      )Foreign
      income (loss) taxed at 25% (2008 – 25%; 2007 - 33%)
                      
                      
                      3,149,829
                      
                      
                      
                      (1,538,277
                      )
                      
                      
                      9,541,001Favorable
      foreign income tax settlement
                      
                      
                      (4,859,401
                      )
                      
                      
                      (12,712,153
                      )
                      
                      
                      -Tax
      on favorable foreign income tax settlement
                      
                      
                      -
                      
                      
                      
                      3,170,407
                      
                      
                      
                      -Tax
      incentive on New Land and Hao Tai
                      
                      
                      (12,030
                      )
                      
                      
                      -
                      
                      
                      
                      (344,133
                      )Recovery
      of future income tax provision
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      (382,060
                      )Change
      in valuation allowance
                      
                      
                      1,281,170
                      
                      
                      
                      1,293,810
                      
                      
                      
                      230,448(Recovery)
      provision for income taxes
                      
                      $
                      (814,155
                      )
                      
                      $
                      (10,490,833
                      )
                      
                      $
                      8,743,556





Deferred Tax





The tax
effects of temporary differences that give rise to the Company’s deferred tax
liability as of December 31, 2009 and 2008 are as follows:





2009
                      
                      
                      2008Deferred
      tax assetNon-capital
      losses
                      
                      $
                      2,811,658
                      
                      
                      $
                      1,530,488Valuation
      allowance
                      
                      
                      (2,811,658
                      )
                      
                      
                      (1,530,488
                      )Net
      deferred tax asset
                      
                      $
                      -
                      
                      
                      $
                      -Deferred
      tax liabilityTemporary
      difference related to certain real estate held for development or
      sale
                      
                      $
                      1,166,398
                      
                      
                      $
                      -Temporary
      difference related to intangible asset
                      
                      
                      10,338,783
                      
                      
                      
                      15,907,880Income
      tax rate change
                      
                      
                      -
                      
                      
                      
                      (4,396,965
                      )Net
      deferred tax liability
                      
                      $
                      11,505,181
                      
                      
                      $
                      11,510,915




As at
December 31, 2009, the Company has PRC subsidiaries that are in the start up
stage and have a net operating loss carry forward of approximately
$6,145,151, which will begin to expire in 2013. The Company also has a U.S.
net operating loss carry forward of approximately $3,751,088 from the
holding company, which will begin to expire in 2026.





55





Basic and
Diluted Earnings Per Share





Earnings
per share is calculated in accordance with the standard, "Earnings per Share".
Basic net earnings per share are based upon the weighted average number of
common shares outstanding. The computation of diluted earnings per share
includes the estimated impact of the exercise of the outstanding warrants to
purchase common stocks using the treasury stock method and the potential shares
of converted common stock associated with the convertible debt using the
if-converted method.




Share-Based
Compensation





The
Company records stock-based compensation pursuant to the standard, “Share-Based
Payments”. The Company measures the cost of services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. The
cost is recognized over the period the services are rendered.





Comprehensive
Income





Comprehensive
income consists of net income and foreign currency translation gains and losses
affecting shareholders' equity that, under GAAP, are excluded from net income.
The loss on foreign exchange translation totaled $234,318 for the year ended
December 31, 2009 (2008 – gain of $5,882,178 and 2007 – gain of
$3,617,405).





Statement
of Cash Flows





In
accordance with the standard, "Statement of Cash Flows," cash flows from the
Company's operations are calculated based upon the local currencies translated
at the weighted average exchange rate for the year. As a result, amounts related
to assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet.





Effect of
Change in Estimate





Revisions
in estimated gross profit margins related to revenue recognized under the
percentage of completion method are made in the period in which circumstances
requiring the revisions become known. During 2009, real estate development
projects with gross profits recognized in 2008 had changes in their estimated
gross profit margins. As a result of these changes of gross profit, net income
for the year ended December 31, 2009 increased by $538,087 or increased $0.017
basic and diluted earnings per share (2008 - $Nil and 2007 - $Nil).





Reclassifications





Certain
reclassifications have been made to the prior year’s financial statements to
conform to the 2009 presentation. The effects of the reclassifications were not
material to the Company’s consolidated financial statements.




Accounting
Principles Recently Adopted





In July
2009, the FASB issued “FASB
Accounting Standards Codification”, as the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (GAAP). The
Codification is effective for interim and annual periods ending after September
15, 2009. All existing accounting standards are superseded as described in SFAS
168. All other accounting literature not included in the Codification is
non-authoritative. Therefore, beginning with the 10Q filing for September 30,
2009, all references made by the Company to GAAP in the consolidated financial
statements will be the new codification numbering system.  The
Codification does not change or alter existing GAAP and therefore, does not have
any impact on the Company’s consolidated financial statements.





In
December 2007, the FASB issued new accounting guidance “Business Combinations”
which establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquirer and the
goodwill acquired. It also establishes disclosure requirements which will enable
users to evaluate the nature and financial effects of the business combination.
The adoption on January 1, 2009 of this standard did not have a material impact
on the Company’s consolidated financial statements.





In
December 2007, the FASB issued new accounting guidance, “Noncontrolling
Interests in Consolidated Financial Statements”. This guidance establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. It also establishes
reporting requirements that provide sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
noncontrolling owners. The adoption on January 1, 2009 of this standard resulted
in changes to our presentation for noncontrolling interests and did not have a
material impact on the Company’s results of operations and financial
condition.





In March
2008, the FASB issued new accounting guidance, “Disclosures about Derivative
Instruments and Hedging Activities”. It requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit risk related contingent features in derivative
agreements. The adoption on January 1, 2009 of this standard did not have a
material impact on the Company’s consolidated financial position or results of
operations and the required disclosures have been included in note
13.





56





In April
2008, the FASB issued new accounting guidance, “Determination of the Useful Life
of Intangible Assets.” This guidance is intended to improve the consistency
between the useful life of a recognized intangible asset under the previous
guidance for Goodwill and Other Intangible Assets and the period of expected
cash flows used to measure the fair value of the asset when the underlying
arrangement includes renewal or extension of terms that would require
substantial costs or result in a material modification to the asset upon
renewal or extension. Companies estimating the useful life of a recognized
intangible asset must now consider their historical experience in renewing or
extending similar arrangements or, in the absence of historical experience, must
consider assumptions that market participants would use about renewal or
extension as adjusted for some entity-specific factors. The adoption on January
1, 2009 of this standard did not have a material impact on the Company’s
consolidated financial statements.





In May
2008, the FASB issued new accounting guidance, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”. This guidance requires the issuer of certain Convertible Debt
instruments that may be settled in cash (or other assets) on conversion to
separately account for the liability (debt) and equity (conversion option)
components of the instrument in a manner that reflects the issuer's
non-Convertible Debt borrowing rate. Such separate accounting also requires
accretion of the resulting discount on the liability component of the debt to
result in interest expense equal to an issuer`s non-Convertible Debt borrowing
rate. In addition, the guidance provides for certain changes related to the
measurement and accounting related to derecognition, modification or exchange.
The adoption on January 1, 2009 of this standard did not have a material impact
on the Company’s consolidated financial statements.





In
September 2008, the FASB issued new accounting guidance “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities”. It addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need
to be included in the earnings allocation in computing income per share under
the two-class method. This guidance establishes that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. The adoption on January 1, 2009 of this standard did not have a material
impact on the Company’s consolidated financial statements.





In April
2009, the FASB issued new accounting guidance “Recognition and Presentation of
Other-Than-Temporary Impairments”, which provides operational guidance for
determining other-than-temporary impairments (“OTTI”) for debt securities. This
standard is effective for interim and annual periods ending after June 15,
2009. The adoption of this standard did not have a material impact on the
Company’s consolidated financial statements.





In
April 2009, the FASB issued new accounting guidance, “Determining Fair
Value When Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”. It
provides guidance on how to determine the fair value of assets and liabilities
when the volume and level of activity for the asset/liability has significantly
decreased. It also provides guidance on identifying circumstances that indicate
a transaction is not orderly. In addition, it requires disclosure in interim and
annual periods of the inputs and valuation techniques used to measure fair value
and a discussion of changes in valuation techniques. Since the volume and level
of activity for the assets or liabilities of the Company have not decreased and
there are no transactions identified as not orderly, the adoption of this
standard did not have a material impact on the Company’s consolidated financial
statements.





In May
2009, the FASB issued new accounting standard, “Subsequent Events”. The standard
provides general guidelines to account for the disclosure of events that occur
after the balance sheet date but before financial statements are issued or
available to be issued. These guidelines are consistent with current accounting
requirements, but clarify the period, circumstances, and disclosures for
properly identifying and accounting for subsequent events. The standard is
effective for interim periods and fiscal years ending after June 15, 2009. The
adoption of this standard did not have a material impact on the Company's
consolidated financial statements.





Recent
Accounting Pronouncements





In
June 2009, the FASB made changes to accounting standard “Consolidation”.
These changes eliminate certain scope exceptions previously permitted, provide
additional guidance for determining whether an entity is a variable interest
entity, and require companies to more frequently reassess whether they must
consolidate variable interest entities. The changes also replace the previously
required quantitative approach to determining the primary beneficiary of a
variable interest entity with a requirement for an enterprise to perform a
qualitative analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest
entity. Changes are effective as of the beginning of the first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The Company anticipates that the
new accounting guidance will not have a material effect on its consolidated
financial statements, as the Company does not currently have any variable
interest or interests that give it a controlling financial interest in a
variable interest entity.





Note
3 – Acquisition




On
January 20, 2009, the Company signed an equity purchase agreement with the
shareholders of Xinxing Property and acquired 100% ownership of Xinxing Property
and its 100% subsidiary Xinxing Hotel for a purchase price of RMB 12 million
(approximately $1.76 million). Xinxing Property provides property
management services to residential and commercial projects and operates a hotel.
The acquisition strengthens the Company’s ability to improve the value to
customers during the after-sale phase of the real estate development business.
The synergies and benefits gained are reflected in the value of goodwill
recorded.





According
to the purchase agreement, the operational control of Xinxing Property passed to
the Company effective January 1, 2009, and, accordingly, the results of Xinxing
Property’s operations have been included in the Company’s consolidated statement
of income and other comprehensive income from that date. This acquisition
is not considered material to the Company, and therefore, pro-forma information
for the comparative period has not been presented.





57





The total
purchase price included an initial cash payment of RMB 2.0 million
(approximately $0.3 million) payable upon signing of the purchase agreement, a
cash payment of RMB 3.6 million (approximately $0.5 million) payable on
March 30, 2009, an additional cash payment of RMB 3.6
million (approximately $0.5 million) payable on June 30, 2009 and a
final cash payment of RMB 2.8 million (approximately $0.4 million)
payable on September 30, 2009.  As of December 31, 2009, the full
amount of purchase price has been paid.





The
acquisition was accounted for using the purchase method. The purchase price was
allocated to the identifiable assets and liabilities assumed based on their fair
values.





Purchase
      Price
                    
                    $
                    1,758,886Value
      assigned to assets and liabilities:Assets:Cash
                    
                    
                    519,309Accounts
      receivable
                    
                    
                    81,769Other
      Receivable/Prepaid expenses and other assets
                    
                    
                    1,313,754Property
      and equipment, net
                    
                    
                    612,796Liabilities:Accounts
      payable
                    
                    
                    11,907Advance
      from customers
                    
                    
                    2,381Accrued
      expenses
                    
                    
                    120,188Income
      tax and other taxes payable
                    
                    
                    151,143Other
      payables
                    
                    
                    1,299,999Total
      net assets
                    
                    $
                    942,010Goodwill
      as at January 1, 2009
                    
                    
                    816,876Foreign
      exchange translation adjustment
                    
                    
                    (407
                    )Goodwill
      as at December 31, 2009
                    
                    $
                    816,469





In
connection with the Xinxing Property acquisition, the statutory
reserve increased by $154,812.





Note
4 – Supplemental Disclosure of Cash Flow Information





Income
taxes paid amounted to $42,136, $225,964 and $384,615 for the year ended
December 31, 2009, 2008 and 2007, respectively. Interest paid for the years
ended December 31, 2009, 2008 and 2007 amounted to $4,431,659, $3,724,070 and
$1,975,917 respectively.




Included
in property and equipment are non-cash additions of $502,064 for the year ended
December 31, 2009 (2008 and 2007 - $Nil). The non-cash additions were in
settlement of amounts due from a customer at fair value as result of a court
order.





Note
5 – Real Estate Held for Development or Sale





The
following summarizes the components of real estate inventories as at December
31, 2009 and 2008:





2009
                  
                  
                  2008Finished
      projects
                  
                  $
                  20,417,820
                  
                  
                  $
                  10,181,827Construction
      in progress
                  
                  
                  82,585,709
                  
                  
                  
                  50,468,184Total
      real estate held for development or sale
                  
                  $
                  103,003,529
                  
                  
                  $
                  60,650,011




Note
6 – Accounts Receivable





Accounts
receivable consist of the following as at December 31, 2009 and
2008:





2009
                
                
                2008Accounts
      receivable
                
                $
                6,478,478
                
                
                $
                2,091,278Allowance
      for doubtful accounts
                
                
                (389,996
                )
                
                
                (1,278,156
                )Accounts
      receivable, net
                
                $
                6,088,482
                
                
                $
                813,122




Note
7 – Other Receivables and Prepaid Expenses





Other
receivables, prepaid expenses and other assets consist of the following as at
December 31, 2009 and 2008:




2009
                
                
                2008Other
      receivables
                
                $
                1,222,028
                
                
                $
                916,886Allowance
      for bad debts
                
                
                (206,545
                )
                
                
                (473,058
                )Prepaid
      expenses
                
                
                261,836
                
                
                
                2,669Prepaid
      other tax expenses
                
                
                1,206,902
                
                
                
                817,029Other
      receivables and prepaid expenses, net
                
                $
                2,484,221
                
                
                $
                1,263,526




58





Note
8 — Property and Equipment





Property
and equipment consist of the following as at December 31, 2009 and December 31,
2008:




2009
                                
                                
                                2008Buildings
      and improvements
                                
                                $
                                5,286,461
                                
                                
                                $
                                3,234,628Income
      producing properties and improvements
                                
                                
                                11,095,868
                                
                                
                                
                                10,055,310Electronic
      equipment
                                
                                
                                330,218
                                
                                
                                
                                238,422Vehicles
                                
                                
                                425,099
                                
                                
                                
                                71,140Office
      furniture
                                
                                
                                182,309
                                
                                
                                
                                183,939Computer
      software
                                
                                
                                174,995
                                
                                
                                
                                91,272Totals
                                
                                
                                17,494,950
                                
                                
                                
                                13,874,711Accumulated
      depreciation
                                
                                
                                (2,187,472
                                )
                                
                                
                                (1,483,210
                                )Property
      and equipment, net
                                
                                $
                                15,307,478
                                
                                
                                $
                                12,391,501





Depreciation
expense for the year ended December 31, 2009, 2008 and 2007 amounted to
$633,930, $454,728 and $423,932 respectively. Depreciation expense was included
in selling, general and administrative expenses and cost of sales.





Note
9 — Intangible asset





Intangible
asset consists of the following as at December 31, 2009 and 2008:




2009
                  
                  
                  2008Intangible
      acquired
                  
                  $
                  47,310,765
                  
                  
                  $
                  47,334,342Accumulated
      amortization
                  
                  
                  (5,955,631)
                  
                  
                  
                  (1,290,682
                  )Intangible
      asset, net
                  
                  $
                  41,355,134
                  
                  
                  $
                  46,043,660





For the
year ended December 31, 2009, the Company has recorded $4,665,592 (2008 -
$Nil and 2007 - $1,157,758) of amortization on the intangible asset. The
amortization was capitalized and included in the real estate held for
development or sale.





Note
10 – Payables for Acquisition of Businesses





The
Company has unsecured loans payable to previous shareholders of New Land
totaling to $5,916,354 at December 31, 2009 (2008 - $8,429,889). Of the total,
$4,860,661 (2008 - $5,606,449) relates to the acquisition of New Land and was
due in December 2009. The remaining balance pertains to additional loans made to
these shareholders which was also due in December 2009. The loans bear interest
at 10% per annum. Until such time as final payments are arranged, the loans
remain outstanding and the Company continues to pay interest at 10% per
annum.





Note
11 – Loans from Employees




The
Company has borrowed monies from certain employees to fund the Company's
construction projects. These unsecured loans bear interest at rates ranging
between 7% and 12%.





59





Note
12 – Loans Payable





Loans
payable represent amounts due to various banks and are due on demand or within
three years. These loans generally can be renewed with the banks when they
mature. Loans payable at December 31, 2009 and December 31, 2008 consisted of
the following:





2009
                  
                  
                  2008Xi'an
      Rural Credit union Zao Yuan Rd. BranchDue
      July 3, 2010, annual interest is at 8.496 percent, secured by the
      Company's Jun Jing Yuan I, Han Yuan and Xin Xing Tower
      projects
                  
                  $
                  2,930,017
                  
                  
                  $
                  3,371,198China
      Construction Bank, Xi'an BranchDue
      August 27, 2011, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                  
                  
                  3,223,018
                  
                  
                  
                  21,986,076Due
      September 8, 2012, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                  
                  
                  12,452,571
                  
                  
                  
                  -Commercial
      Bank Weilai BranchDue
      December 25, 2009, annual interest is at 11.34 percent, secured by the
      Company’s Xinxing Gangwan, Xinxing Tower and Ming Yuan
      projects
                  
                  
                  -
                  
                  
                  
                  5,130,084Due
      August 29, 2010, annual interest is at 10.21 percent, secured by the
      Company's Jun Jing Yuan I and XinXing Tower projects
                  
                  
                  5,127,528
                  
                  
                  
                  5,130,084Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012, annual interest is at the bank’s prime rate, secured by
      the PuHua project with a minimum repayment of $7.3 million required in
      2011.
                  
                  
                  12,452,571
                  
                  
                  
                  -Total
                  
                  $
                  36,185,705
                  
                  
                  $
                  35,617,442





On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a $147
million (RMB 1 billion) credit line for real estate development by the
Company and its subsidiaries. Under the MOU, the Company and
its subsidiaries are required to set up a basic deposit account with China
Construction Bank, to maintain a current ratio of not less than 90% and to
maintain liabilities to assets ratio of not greater than 65%. On August 28,
2008, the Company entered a loan agreement with China Construction Bank Xi’an
Branch to draw down the first $21,986,076 (RMB 150 million) loan,
which will mature on August 27, 2011. $21,986,076 (RMB 150 million)
was received by the Company as at  December 31, 2008. During the year
ended December 31, 2009, the Company paid down the loan to $3,223,018 (RMB 22
million). On August 30, 2009, the Company entered a second loan agreement with
China Construction Bank Xi’an Branch to draw down another $12,452,571 (RMB 85
million) loan, which will mature on September 8, 2012. $12,452,571 (RMB 85
million) was outstanding as of the end of December 31, 2009. As of December 31,
2009, the Company’s current ratio was approximately 207%, and the
liabilities to assets ratio was approximately 54%. The Company will be able
to draw down approximately $80 million more before it reaches the maximum
liabilities to assets ratio of 65%. If the Company is unable to meet all above
covenants, the Company may not be able to draw down new loans from China
Construction Bank and this could cause a delay in projects under
construction.





The loans
payable balances were secured by the Company’s certain real estate held for
development or sales with a carrying value of $91,657,685 (2008 -
$51,903,754) and certain buildings and income producing properties and
improvements with a carrying value of $9,738,804 at December 31,
2009 (2008 - $9,980,899). The weighted average interest rate on loans
payable as at December 31, 2009 was 6.6% (2008 -8.7%).





Note
13 – Convertible Debt





On
January 28, 2008, the Company issued Senior Secured Convertible Debt due in 2013
(the "Convertible Debt") and warrants to subscribe for common shares for an
aggregate purchase price of $20 million. The Convertible Debt bears interest at
5% per annum (computed based on the actual days elapsed in a period of 360 days)
of the RMB notional principle amount, payable quarterly in arrears in U.S.
Dollars on the first business day of each calendar quarter and on the maturity
date. In addition, 1,437,467 five-year warrants were granted with a strike price
of $6.07 per common share, which are callable if certain stock price thresholds
are met. Approximately 215,620 warrants are also available as a management
incentive if certain milestones are met. If the aggregate principal amount of
the Convertible Debt is reduced to $10 million or less as a result of
repayment by the Company or as a result of any optional conversion by the
Investors or mandatory conversion by the Company of the Convertible Debt, then
each Investor agrees to surrender to the Company warrants for an aggregate
number of shares of common stock equal to such Investors’ pro rata share of
107,810 shares. If the aggregate principal amount of the Convertible Debt
is reduced to $Nil as a result of repayment by the Company or as a result of any
optional conversion by the Investors or mandatory conversion by the Company of
the Convertible Debt, then each Investor agrees to surrender to the Company
warrants in addition to the 107,810 warrants surrendered pursuant to the
$10 million reduction noted above for an aggregate number of shares of
common stock equal to such Investor’s pro rata share of 107,810 shares. The
Company may hold in treasury and reissue to the officers and directors of the
Company any warrants surrendered by the Investors. As of December 31, 2009, the
Company did not repay any principle of Convertible Debt and the Investors
did not deliver any optional conversion request to the
Company.





60





The
Investors have the right to convert up to 45% ($9 million) of the
principal amount of the Convertible Debt into common shares at an initial
conversion price of $5.57, subject to an upward adjustment. The Company, at
its discretion, may redeem the remaining $11 million of Convertible Debt at
100% of the principle amount, plus any accrued and unpaid interest. The
warrants associated with the Convertible Debt grant the Investors the right
to acquire shares of common stock at $6.07 per share, subject to customary
anti-dilution adjustments. The warrants may be exercised to purchase common
stock at any time up to and including February 28, 2013.





The
Convertible Debt is secured by a first priority, perfected security
interest in certain shares of common stock of Lu Pingji, the
Chairman of the Company. The Convertible Debt is subject to events of
default customary for convertible securities and for a secured
financing.





Both the
warrant and embedded conversion option associated with the Convertible Debt meet
the definition of a derivative instrument according to the standard, ”Accounting
for Derivative Instruments and Hedging Activities”.  Because the
warrant and the convertible debt are denominated in U.S. dollars but the
Company’s functional currency is the Chinese RMB, the exemption from derivative
instrument accounting provided by the standard is not available and therefore
the warrant and embedded conversion option are recorded as a derivative
instrument liability and periodically marked-to-market. The fair value of the
warrants and embedded conversion option on inception were determined to be
$3,419,653 and $3,927,375, respectively, using the Cox-Ross-Rubinstein Binomial
Lattice Model (the “CRR Model”) with the following assumptions: expected
life 4.32 years, expected volatility - 75%, risk free interest rate - 2.46%
and dividend rate - 0%. The fair value of the warrants and embedded conversion
option at December 31, 2009 were determined to be of $3,507,000 and
$3,991,047 respectively (2008 - $658,682 and $760,398), using the CRR Model
with the following assumption: expected life 3.08 ~ 3.16 years (2008 - 4.08~
4.16 years), expected volatility - 105% (2008 – 90%), risk free interest rate -
1.74% - 1.78% (2008 – 1.31% - 1.33%) and dividend rate - 0% (2008 – 0%). For the
year ended December 31, 2009, the Company recorded an increase in fair value for
the warrants and embedded derivatives of $2,848,318 and $3,230,649, respectively
( 2008 – decrease of $2,760,971 and $3,166,977, 2007 - $Nil), in the
consolidated statement of income and comprehensive income.





After
allocating the gross proceeds to the fair value of the warrants and the embedded
derivative instrument, the remaining proceeds were allocated as the initial
carrying value of the Convertible Debt. The initial carrying value of the
Convertible Debt is accreted to its stated amount on maturity using the
effective interest method. The effective interest rate was determined to be
15.42%. The carrying value of Convertible Debt at December 31, 2009 was
$14,834,987 (2008 - $13,621,934). Related interest expense and accretion expense
for the year ended December 31, 2009 were $1,013,879 and $1,213,063,
respectively (2008 - $964,897 and $968,962, 2007 - $Nil).





In
connection with this transaction, the Company and the Investors entered into a
registration rights agreement (the “Registration Rights Agreement”). Pursuant to
the terms and conditions of the Registration Rights Agreement, the Company
agreed to register within 60 calendar days after closing shares of common
stock issuable to the Investors for resale on a Form S-3 Registration Statement
to be effective no later than the 180th day after the closing date of the
transaction. If the Form S-3 was not available at that time, then the Company
would file a Registration Statement on such form as was then available to affect
a registration of the registrable securities, subject to the consent of the
Investors, which consent would not be unreasonably withheld. The Company would
register an amount of common stock for resale that equals at least 125% of the
sum of shares issuable upon conversion of the Convertible Debt and the exercise
of the warrants. The registration rights granted under the Registration Rights
Agreement would be subject to customary exceptions and qualifications and
compliance with certain registration procedures. The Company was subject to the
late registration penalty payment (the “Late Payments”) equal to the product of
(i) the Investor’s outstanding principal amount and (ii) the quotient obtained
by dividing 12% by 360.





The
Company commenced negotiations with the Investors in December 2008 for a waiver
for the Late Payments, as the Company and the Investors believed that the
registration would become effective within a short period of time. On September
28, 2009, the Company reached a First Amendment (the “Amendment”) with the
Investors to settle the Late Payments, in the amount of $2,400,000, by the
issuance of 614,290 common shares. That number was determined by dividing
$2,400,000, the total Late Payments up to September 28, 2009, by 95% of the
historical volume weighted average price (“VWAP”) of the common stock, as
determined by using Bloomberg function VWAP, for the immediate preceding 30 days
period. In accordance with the Amendment, the Investors waived any further Late
Payments against the Company under the Registration Rights Agreement. The
Company issued 614,290 shares of common shares on October 21, 2009.




Note
14 – Noncontrolling interest





Noncontrolling
interest consists of the interest of noncontrolling shareholders in the
subsidiaries of the Company. As of December 31, 2009 noncontrolling
interest amounted to $28,371,468 (2008 - $29,109,350).





On
November 5, 2008, the Company and Prax Capital entered into a conditional joint
venture agreement to develop 79 acres within China Housing’s Baqiao project
located in Xi’an. Prax Capital invested $29.3 million for a 25% interest in
Puhua with various distribution rights. Prax Capital’s shares are redeemable at
the option of holder, provided that Prax gives advance notice, and with the
Company’s approval. Prax Capital has the first right of distribution and there
is a maximum amount that Prax Capital can receive. At this time, the Company
believes that it is not probable that Prax Capital will exercise their
redemption option.





On
November 5, 2008, New Land entered into a Deed of Guarantee (the “Guarantee”),
in favor of Prax Capital and Success Hill (Success Hill and together with Prax
Capital, the “Beneficiaries”) whereby the Company guarantees the performance of
certain obligations of New Land and Manstate pursuant to the terms and
conditions of various agreements entered into by and between Prax Capital,
Success Hill and New Land, among others, in connection with a Framework
Agreement entered into on November 5, 2008, (“Framework Agreement”) by and
between New Land, the Company and Prax Capital. Prax Capital and New Land,
through the Framework Agreement and the other related agreements, intend to
jointly participate in bidding for land use rights with respect to a parcel
of land and shall cause that land to be developed, operated and
sold.





61





The
Guarantee is a continuing Guarantee and shall remain effective until a
termination event occurs as contemplated by the Guarantee. If the Company fails
to timely and fully perform its obligations under the Guarantee then the
Beneficiaries shall be afforded the appropriate remedy as contemplated by the
Guarantee, including, but not limited to, a claim for damages and the
reimbursement of expenses. Any amounts payable under the Guarantee by the
Company shall include interest accrued at the rate of 10% from the due date of
such payment.





As of
December 31, 2008, the Company owned a 75% interest in Puhua. Given the
Company’s majority ownership interest, the accounts of Puhua have been
consolidated with the accounts of the Company, and a non-controlling interest
has been recorded for the noncontrolling investors’ interests in the net assets
and operations of Puhua to the extent of the non-controlling investor’s
investments.





Noncontrolling-interestInitial
      investment from noncontrolling interest shareholder at November 5,
      2008
                
                $
                29,268,914Non
      controlling interests’ share of loss for fiscal 2008
                
                
                (159,564
                )Distributions
      for the year
                
                
                -Noncontrolling
      interests at December 31, 2008
                
                $
                29,109,350Noncontrolling
      interests’ share of loss for fiscal 2009
                
                
                (737,882
                )Distributions
      for the year
                
                
                -Noncontrolling
      interests at December 31, 2009
                
                $
                28,371,468





Note
15 – Accrued Expenses





2009
                
                
                2008Accrued
      expenses
                
                $
                2,252,903
                
                
                $
                855,270Accrued
      Interest
                
                
                3,334,934
                
                
                
                2,684,572Total
                
                $
                5,587,837
                
                
                $
                3,539,842





Note
16 – Shareholders' Equity




Common
stock





From time
to time, the Company has sold common stock and warrants, as described
below.  All warrants are denominated in U.S.
dollars.  Because the Company’s functional currency is the Chinese
RMB, the warrants are accounted for as derivative instrument liabilities at fair
value and marked-to-market each period.





1.
            On
      January 15, 2007, the Company issued 60,000 shares of common stock to an
      investor relations company in consideration for one year of consulting
      service through December 31, 2007. The 60,000 shares of common stock have
      been recorded at $2.19 per share or $131,400 based on the trading price of
      the shares on January 12, 2007. This amount was included in prepaid
      expenses and was amortized over the service
  period.





2.
            Pursuant
      to securities purchase agreements with accredited investors dated May 7,
      2007, the Company received $25,006,978 and issued total of 9,387,985
      shares of common stock and 2,778,554 warrants. Each warrant is exercisable
      for five years at $4.50 per share. The Company paid a 7% placement fee of
      $1,750,488 and $394,040 legal and other fees related to this stock
      issuance.





The
warrants provide that if the VWAP of the Common Stock price on any day for any
continuous period of 20 days equals or exceeds 200% of the exercise price, the
Company can send a call notice in respect of the Warrants to the Holder
requiring the mandatory exercise by the Holder of the Warrants. The Holders
then have 60 calendar days to exercise the Warrants. If the Holders fail to
exercise the Warrants within 60 calendar days, the Warrants are cancelled and
forfeited.





The
Company uses the CRR Binomial Lattice Model, which is similar to the Black
Scholes model, to determine the fair value of the warrants because that model
can reflect the Company’s ability to require conversion or forfeiture of the
warrants if the market price exceeds 200% of the exercise price, as discussed
above. The fair value allocated to warrants liability was $2,257,508 using the
CRR Binomial Lattice Model with the following assumptions: expected life -5
years; expected volatility -75%, risk free interest rate -4.55% and dividend
rate -0%. In connection with the May 7, 2007 stock issuance, according to
Section 4.8- Anti-Dilute of the Share Purchase Agreements, the Company issued
27,364 warrants to previous warrants holders and Company reduced the exercise
price of all related warrants from $3.60 to $3.31. The fair value allocated to
related warrants liability was $62,931 using the CRR Binomial Lattice Model with
the following assumptions: expected life -2.15 to 2.29 years; expected
volatility -75%, risk free interest rate -4.55% and dividend rate
-0%.





62





3.
            In
      July, 2007, 45,302 warrants having an excise price of $4.50 were exercised
      on a cash basis, resulting in the issuance of 45,302 shares of common
      stock with proceeds of $203,859. In addition, 123,845 warrants having an
      exercise price of $3.31 were exercised on non-cash, basis resulting in the
      issuance of 29,377 shares of common stock. Total fair value of related
      warrants at the time of exercise was $321,187, which was included in
      additional paid in capital.





4.
            1,870
      warrants having an exercise price of $4.50 were exercised in February 2008
      on a cash basis, resulting in the issuance of 1,870 shares of common stock
      with proceeds of $8,415. The fair value of related warrants at the time of
      exercise was $1,553, which was included in additional paid in
      capital.





5.
            On
      July 2, 2008, the Company granted 750,000 shares of common stock that
      vested immediately to members of management. The number of shares granted
      to each individual is calculated in accordance with the Company’s Detail
      Implementation Rule for Restricted Stock Incentive Plan of 2007-2008. The
      Company recognized a $3,000,000, based on the stock price on the grant
      date, stock-based compensation expense for the year ended December 31,
      2008 (2007 and 2006 – Nil).





In July
2007, the Board of Directors and the Compensation Committee approved the
Restricted Stock Incentive Plan of 2007-2008 (the 2007 Plan). The Plan covers
fiscal year 2007 and 2008 and if the restricted shares were not fully utilized,
the Plan will continue to fiscal year 2009. The total number of shares of
restricted stock that may be granted under the 2007 Plan is 1,000,000 shares.
Unless the Board approves a further extension, no further restricted stocks will
be granted under this Plan.





The 2007
Plan was proposed by the Board of Directors in July 2007 and a majority of the
shareholders approved the 2007 Plan at that time. However, the Board of
Directors and the majority shareholders only approved the maximum aggregate
number of shares that may be issued under the 2007 Plan. The detailed incentive
plan for fiscal year 2007 which specified a performance goal of $16.3 million
net profit without stock-based compensation, the calculation formula, the
discretionary individual’s performance assessment scores in current year and the
750,000 restricted shares to be issued for 2007 performance were not reviewed by
the Compensation Committee until June 6, 2008, and not approved by the Board of
Directors until July 2, 2008. Therefore, the award was not authorized until July
2, 2008 which is considered as the date of grant.





In
addition, all employees under the Plan were notified of the general framework of
the 2007 Plan but were not aware of the detailed calculation formula and the
performance goal for fiscal year 2007 until July 2, 2008. Therefore, July 2,
2008 is the grant date.





6.
            As
      of December 31, 2008, the Company accrued $78,600 as a liability for stock
      based compensation expense for 54,583 shares of common stock granted by
      the Company to various directors and executives in 2009. These common
      shares were issued during the three months ended June 30,
      2009.





7.
            During
      2009, the Company issued a total of 288,889 common shares upon the
      exercise of 288,889 warrants at a price between $3.31 and $4.50 per
      share with total proceeds of $1,184,662. These warrants had a fair value
      of $309,943 and the fair value was recorded as additional paid in capital
      upon exercise. In addition, 33,450 common shares were issued upon the
      exercise of 81,921 warrants on a non-cash basis. The fair value of
      these warrants for $98,742 was recorded in additional paid in capital upon
      exercise.





8.
            On
      September 28, 2009, the Company issued 614,290 common shares to settle the
      security registration expense of $2,400,000 (note
  13).





9.
            As
      at December 31, 2009, the Company has accrued $252,118 of stock-based
      compensation to the former CFO and directors. A total of 62,014 common
      shares will be issued subsequent to the year
  end.





Pursuant
to accounting guidance, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settle in a Company's Own Stock", the warrants issued
contain a provision permitting the holder to demand payment based on a valuation
in certain circumstances. Therefore, the Company recorded the warrants issued
through private placements in 2006 and 2007 as a liability at their fair value
on the date of grant and then revalued them to $1,567,191 at December 31,
2009 (2008 - $458,461) using the CRR Binomial Lattice Model with the
following assumptions: expected life of 2.36 years; expected volatility - 105%,
risk fee interest rate of 1.33% and dividend rate - 0%. The loss from the change
in fair value of warrants for the year ended December 31, 2009 was
$1,517,315 (2008 – gain of $2,171,990 and 2007 – loss of
$632,296).





Including
the fair value of warrants associated with the convertible debenture (note 13),
the total warrant liability as at December 31, 2009 was $5,074,191 (2008 -
$1,117,143). The total loss from the change in fair value of warrants for the
year ended December 31, 2009 was $4,365,633 (2008 – gain of $4,932,961, 2007
– loss of $632,296).





63




Warrants





The
following is a summary of the warrant activity:





Number of
                  Warrants
                  Outstanding
                
                
                Weighted Average
                  Exercise
                  PriceDecember
      31, 2006
                
                
                309,612
                
                
                $
                3.31Granted
                
                
                2,805,918
                
                
                
                4.49Exercised
                
                
                (169,147
                )
                
                
                3.63December
      31, 2007
                
                
                2,946,383
                
                
                $
                4.41Granted
                
                
                1,437,467
                
                
                
                6.07Exercised
                
                
                (1,870
                )
                
                
                4.50December
      31, 2008
                
                
                4,381,980
                
                
                $
                4.96Exercised
                
                
                (370,810)
                
                
                
                3.93Expired
                
                
                (34,287)
                
                
                
                3.31December
      31, 2009
                
                
                3,976,883
                
                
                $
                5.07





The
following summarizes the weighted-average information about the outstanding
warrants as at December 31, 2009:




Outstanding WarrantsExercise
                                    Price
                                  
                                  Number
                                  
                                  Average Remaining
                                    Contractual Life$
                                  4.50
                                  
                                  
                                  2,539,416
                                  
                                  2.36
      years$
                                  6.07
                                  
                                  
                                  1,437,467
                                  
                                  3.16
      years$
                                  5.07
                                  
                                  
                                  3,976,883
                                  
                                  2.65
      years





Note
17 – Statutory Reserves





In
accordance with the laws and regulations of the PRC, a wholly-owned Foreign
Invested Enterprises' income, after the payment of the PRC income taxes, shall
be allocated to the statutory surplus reserves. The proportion of allocation for
reserve funds is no less than 10 percent of the profit after tax until the
accumulated amount of allocation for statutory surplus reserve funds reaches 50
percent of the registered capital. Statutory reserves represent restricted
retained earnings. The use of statutory reserves is restricted for set off
against losses, expansion of production and operation or increase in registered
capital. These reserves are not available for distribution except on
liquidation.





Total
registered capital of all the PRC subsidiaries at December 31, 2009 is
approximately $82.7 million (2008 - $81.8 million). As at December 31, 2009, the
Company appropriated $1,226,210 (2008 - $665,947 and 2007 - $735,141) to this
surplus reserve.





Note
18 – Employee Welfare Plan





Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan for all permanent employees. The Company established a
retirement pension insurance, unemployment insurance, health insurance and house
accumulation fund for the employees during the term they are employed. For the
year ended December 31, 2009, 2008 and 2007, the Company made contributions in
the amount of $73,171, $71,705 and $51,781, respectively.





64





Note 19–Earnings Per
Share





Earnings
per share for the years ended December 31, 2009, 2008 and 2007 were determined
by dividing net income attributable to China Housing & Land Development,
Inc. for the years by the weighted average number of both basic and diluted
shares of common stock and common stock equivalents outstanding.




2009
                        
                        
                        2008
                        
                        
                        2007NumeratorIncome
      attributable to China Housing & Land Development, Inc.
      - basic
                        
                        $
                        2,469,810
                        
                        
                        $
                        8,942,370
                        
                        
                        $
                        16,686,116Effect
      of dilutive securitiesWarrants
                        
                        
                        -
                        
                        
                        
                        (536,480
                        )
                        
                        
                        -Income
      attributable to China Housing & Land Development, Inc. -
      diluted
                        
                        $
                        2,469,810
                        
                        
                        $
                        8,405,890
                        
                        
                        $
                        16,686,116DenominatorWeighted
      average shares outstanding - basic
                        
                        
                        31,180,246
                        
                        
                        
                        30,516,411
                        
                        
                        
                        26,871,388Effect
      of dilutive securitiesWarrants
                        
                        
                        -
                        
                        
                        
                        10,792
                        
                        
                        
                        -Weighted
      average shares outstanding - diluted
                        
                        
                        31,180,246
                        
                        
                        
                        30,527,203
                        
                        
                        
                        26,871,388Earnings
      per shareBasic
      earnings per share
                        
                        $
                        0.08
                        
                        
                        $
                        0.29
                        
                        
                        $
                        0.62Diluted
      earnings per share
                        
                        $
                        0.08
                        
                        
                        $
                        0.28
                        
                        
                        $
                        0.62





All
outstanding warrants and conversion options for the convertible debt have an
anti-dilutive effect on the earnings per share and are therefore excluded from
the determination of the 2009 diluted earnings per share
calculation.





Notes
20 – Other Income





2009
                
                
                2008
                
                
                2007Interest
      income
                
                $
                833,275
                
                
                $
                1,433,837
                
                
                $
                42,380Government
      reimbursement of infrastructure cost
                
                
                3,664,889
                
                
                
                -
                
                
                
                -Rental
      income, net
                
                
                2,848,051
                
                
                
                369,798
                
                
                
                153,359Other
      non-operating income
                
                
                701,668
                
                
                
                339,568
                
                
                
                89,439Gain
      on disposal of fixed assets and inventory
                
                
                -
                
                
                
                16,581
                
                
                
                48,347Total
                
                $
                8,047,883
                
                
                $
                2,159,784
                
                
                $
                333,525





Note
21 – Segmented Information




The
Company has one operating segment, being the real-estate sales and development.
All revenues are from customers located in the PRC and all of the Company’s
assets are located in the PRC.





Note
22 – Commitments and Contingencies




The
Company leases part of its office and hotel space under various operating lease
agreements with expiring dates between year 2011 and 2016.





The
Company entered into a consulting service contract with a third party. The
contract has a set payment schedule which will be realized in less than a
year.





The
Company also had one land use right with an unpaid balance of approximately $2.6
million. The balance is not due until the vendor removes the existing building
on the land and changes the zoning status of the land use right
certificate.





All
future payments required under the various agreements are summarized
below.





Payment
      due by periodCommitments
      and Contingencies
                                                                                                                                          
                                                                                                                                          Total
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Less
      than
                                                                                                                                            1
      year
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1-3
      years
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3-5
      years
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Over 5 yearsOperating
      lease
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          469,173
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          136,583
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          141,422
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          52,808
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          138,360Consulting
      contract
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          549,378
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          549,378Land
      use right
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,593,065
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,593,065Total
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          3,611,616
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          685,961
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          2,734,487
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          52,808
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          138,360





65





Note
23 – Subsequent events





In
January 2010, the Company signed an acquisition agreement with Suodi co., Ltd
(“Suodi”), whereby the Company will acquire 100% of the shares of Suodi.
The Company agreed to pay $7.32 million (RMB 50 million) for the acquisition,
including $2.93 million (RMB 20 million) paid in cash and $4.39 million (RMB 30
million) paid in the Company’s common stock.  According to the
acquisition agreement, the number of common shares to be issued is
1,118,403.





In
February 2010, the Company received a letter of intent from a third party for an
option to acquire approximately one third of the area of the shopping mall for a
total purchase price of approximately $7.5 million. The shopping mall is
classified as asset held for sale.





In
February 2010, the Company acquired an 11-acre tract of land in Xi'an, China for
the Park Plaza development project. This project was originally announced in
July 2009.  Under the terms of the agreement, the Company will pay
$23.5 million (RMB 160 million) to acquire 44,250 sq. meters of land (11 acres)
located in Xi’an’s city center.





In
February 2010 the Company was granted a $22 million (RMB 150 million) loan from
Xinhua Trust Investment Ltd. ("Xinhua Trust"). The loan matures in February 2012
and is secured by the Company’s 24G project. The loan will be used for the
Company's further expansion plans in 2010.





66





ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




There is
no reportable event nor any disagreement, as defined in Item 304 (a)(1)(iv) or
304(a)(1)(v) of Regulation S-K.





ITEM
9A(T). CONTROLS AND PROCEDURES.




(a)
    Evaluation of Disclosure Controls and
Procedures.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the Exchange Act)). Disclosure controls and procedures are controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including our
principal executive officer and our principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were not effective because of
the significant deficiencies in our internal control over financial
reporting as described below. The Company has engaged Ernst & Young to help
us comply with SOX 404.





Management’s
Annual Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act.  We performed an evaluation of the
effectiveness of our internal control over financial reporting that is designed
by, or under the supervision of, our principal executive and principal financial
officers, and effected by our board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP and includes those policies and procedures
that:






            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with Generally Accepted
      Accounting Principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and





            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company's assets that
      could have a material effect on the financial
  statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2009. Based on such evaluation, our management, including the
CEO and CFO, has concluded that the Company’s internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended) as of December 31, 2009 were not effective,
based on the criteria established in COSO's Internal Control — Integrated
Framework because there were certain identified significant deficiencies as of
December 31, 2009 as follows:






            the
      Company does not have adequate qualified personnel to ensure that the
      accounting records are recorded in accordance with U.S.
    GAAP





Notwithstanding
the foregoing, there can be no assurance that the Company’s internal control
over financial reporting will detect or uncover all failures of persons within
the Company to comply with these procedures.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report
was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the SEC that permit us to provide only
management’s report
in this annual report.




Starting
February 2009, the
Company has engaged Ernst&
Young to help the Company perform SOX 404 evaluation and preparation work. Our
management believesthat
this course of action will further improve theCompany’sinternal
control.




Changes
in Internal Control over Financial Reporting.




During
the year ended
December 31, 2009, there was nomaterialchange in
our internal control over financial reporting (as such term is defined in Rule
13a-15(f)under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over
financial reporting.





67





ITEM
9B. OTHER INFORMATION.





Not
Applicable.





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.





Executive
Officers and Directors





NameFirst
              
              Last
              
              Age
              
              Title (1)Pingji
              
              Lu
              
              59
              
              ChairmanXiaohong
              
              Feng
              
              45
              
              Chief Executive Officer and DirectorJing
              
              Lu
              
              30
              
              Chief Operating Officer & Board SecretaryMichael
              
              Marks
              
              38
              
              Independent DirectorCarolina
              
              Woo
              
              70
              
              Independent DirectorAlbert
              
              McLelland
              
              51
              
              Independent DirectorSuiyi
              
              Gao
              
              56
              
              Independent DirectorCangsang
              
              Huang
              
              31
              
              Chief Financial Officer and Director




Officers
are elected annually by the Board of Directors, at the Company’s annual meeting,
to hold such office until an officer’s successor has been duly appointed and
qualified, unless an officer sooner dies, resigns or is removed by the
Board.




Mr.
Pingji Lu, Chairman




Mr.
Pingji Lu, 59, has served as the Chairman of the Board of Directors since
joining the Company in September 1999. In addition, Mr. Lu was the founder of
Lanbo Financial Investment Company Group Limited, where he was the Chairman of
the Board and Chief Executive Officer from our formation in September 2003 until
its merger with Lanbo Financial Group, Inc., when Mr. Lu served as the Chairman
of the Board and Chief Executive Officer of Lanbo Financial Group, Inc. until
December 2005. Prior to that Mr. Lu was the Chairman of the Board and Chief
Executive Officer of Xian Newstar Real Estate Development Co., Ltd. from 1998
and previously served as General Manager from 1992 to 2003. From February
1968 to December 1999, Mr. Lu held various positions in the Chinese
military, including soldier, Director of Barrack Administration, supervisor, and
Senior Colonel. Mr. Lu is member of the Enterprise Credit Association of Shaanxi
Province. Mr. Lu graduated from Xi’an Army College with a major in architectural
engineering. On January 12, 2009, Mr. Lu resigned as Chief Executive Officer but
has remained as Chairman of the Company. We believe Mr. Pingji Lu, the founder
of the Company, has the most extensive knowledge and experience
in real estate industry within the Company, which qualifies him for the Chairman
position.




Mr.
Xiaohong Feng, Chief Executive Officer & Director




Mr.
Xiaohong Feng, 45, has served as the Chief Operating Officer and a Director of
the Company since joining in January 2003. In addition, Mr. Xiaohong Feng was a
director of Lanbo Financial Group, Inc. from November 2004 until December 2005.
Previously Mr. Feng served as President and a director of Xian Newstar Real
Estate Development Co., Ltd. from 2003 to 2004. From June 1996 to December 2002,
Mr. Feng was general manager and president of Xi’an Honghua Industry, Inc. He is
a member of the China Architecture Association, vice-president of Shaanxi
Province Real Estate Association, and vice director of Xi’an Decoration
Association. Mr.Feng received an M.S. of Architecture Science from Xi’an
Architecture & Technology University in 1990. On January 12, 2009, Mr. Feng
was appointed as Chief Executive Officer of the Company. We believe Mr. Xiaohong
Feng has extensive real estate knowledge and experiences, as well as strong
architecture background. In addition, serving as Chief Executive Officer,
provides him with intimate knowledge of our operations and the markets in which
we conduct our business.




Mr.
Cangsang Huang, Chief Financial Officer and Director





Mr.
Cangsang Huang, 31, has served as a Director since October 2009 and served first
as Assistant CFO and then CFO of the Company, since October 2008. Mr. Huang
worked at Cantor Fitzgerald from 2006 and played an active role in several
public financings for companies in the transportation/shipping sectors as well
as several U.S. listed publicly-traded Chinese companies.  Since 2007, Mr.
Huang worked for Merriman Curhan & Ford Inc. followed by Collins Stewart
LLC.  He helped set up Merriman and Collins Stewart’s China banking
practice and participated in several China related financing transactions,
including General Steel (NYSE: GSI) and FUQI International (Nasdaq:
FUQI).  From 2001 to 2004, Mr. Huang worked in Guangzhou, China with
China Communication Construction Company Limited (1800.HK) as a project manager
where he provided financial advisory services to both private and state-owned
companies and participated in multiple multi-billion RMB infrastructure
projects. Mr. Huang graduated from Shanghai Maritime University with a
degree in transportation economics and has a Master’s degree in Statistics from
Columbia University. Mr. Huang is a CFA Level III candidate and has his
NASD Series 7 & 63 licenses. We believe Mr. Cangsang Huang is qualified for
the Director position because he has extensive investment banking
experiences, and extensive knowledge about US capital markets.





Ms. Jing
Lu, Chief Operating Officer, and Board Secretary




Ms. Lu,
age 30, has served as Chief Operating Officer since January 2009. She previously
served as Vice President of the Company from 2004 through 2008. Ms. Lu continues
to serve as Board Secretary, which she has done since 2004, and is the Company's
primary spokeswoman with investors and security analysts. She received her
Master’s degree from King's College in London in September 2004. Ms. Lu is the
daughter of Mr. Pingji Lu.





68




Ms.
Carolina Woo, Independent Director




Ms.
Carolina Woo, 70, has served as independent Director of our Company since
October, 2007. She is currently the owner of CW Group, a consulting firm focused
in real estate development, planning and design. Ms. Woo is also a member of the
Board of Trustees of the Rhode Island School of Design. Previously, Ms. Woo
worked at Skidmore, Owings & Merrill LLP (SOM) beginning in 1969, and
retired as a partner of the international architecture-engineering office
of SOM where she served as the President of SOM International Ltd. with overall
responsibility for SOM’s work in China, Hong Kong, Taiwan, and the Asia-Pacific
region. Ms. Woo received her Master’s Degree from Columbia University
Graduate School of Business and her Bachelor’s Degree in Architecture from the
Road Island School of Design. We believe Ms. Carolina Woo is an architect who
can provide great insights on the Company's designing and planning, which is
crucial to our Company.




Mr.
Michael Marks, Independent Director




Mr.
Michael Marks, 38, has served as independent Director of our Company since
October, 2007. Until December 2007 he was a managing director and principal of
Sonnenblick Goldman Asia Pacific Limited, a firm that provides advisory services
in real estate investment. Until July 2009, Mr. Marks was the President and
Director of Middle Kingdom Alliance Corp., a Special Purpose Acquisition
Corporation, which invested in and merged with Pypo Digital Company Limited, a
leading distributor and retailer of mobile phones in China.  Mr. Marks
continues to serve as a director of the board of the newly merged company,
Funtalk China Holdings Limited (NASDAQ: FTLK). Mr. Marks is currently audit
committee chairman and independent director of China Yida Holding, Co. (NASDAQ:
CNYD) and Shengkai Innovation, Inc. (NYSE AMEX: SHE), and is also an independent
director of Yanglin Soybean, Inc. (OTCBB: YSYB). Previously, Mr. Marks served as
a director of Horwath Asia Pacific from January 2002 to December 2005 and was
the Chief Executive Officer and Director at B2Gglobe (Pty) Limited from May 2001
to December 2002. Mr. Marks received both Bachelor’s and Master’s Degrees in
Commerce from the University of the Witwatersrand in Johannesburg, South Africa
in 1994 and 1997, respectively, and also received a Bachelor’s Degree in
Psychology from the University of South Africa in 1998. In 1997, Mr. Marks
qualified as a Chartered Accountant in South Africa, and in 1999 as a Fellow of
the Association of International Accountants in the United Kingdom. We believe
Mr. Michael Marks, has rich experiences as directors for public listed
Chinese companies.  In addition, his experience as a chartered accountant
also serves him well as an Independent Director.




Mr. Suiyi
Gao, Independent Director




Mr. Suiyi
Gao, 56, has served as independent Director of our Company since October 2007.
He has over 30 years experience in human resource and management consulting
area. Mr. Gao is currently the head of the Shaanxi Senior Talent Office, which
is affiliated with Shaanxi Provincial government and focused on corporation
management, consultation and human resources services. Mr. Gao is the founder
and chairman of Shanxi management Member Club, one of the largest manager clubs
in Shanxi province. Mr. Gao is currently an independent director of six
enterprises, and also acted as senior consultant for more than twenty
enterprises. Previously, Mr. Gao worked in government since 1973. In 1998, Mr.
Gao received his degree in Master of Business Administration from Northwest
University in China. We believe Mr. Gao's qualifications to serve on our board
include his extensive knowledge and experiences in human resource and management
consulting and his knowledge of the industry




Mr.
Albert McLelland, Independent Director




Mr.
Albert McLelland has served as an Independent Director since February 2009. He
also serves as the Chairman of the Board's Audit Committee. Since September
2008, Mr. McLelland has served as an independent director and Chairman of the
audit committee of the Board of Directors for China Fire & Security Group,
Inc. On March 9, 2009, Mr. McLelland became an independent director and
Chairman of the audit committee of the Board of Directors for Yanglin
Soybean, Inc. Mr. McLelland has been Senior Managing Director of AmPac Strategic
Capital LLC since 2003. He is also a founder and Managing Director of AmPac-TDJ
LLC. Prior to founding AmPac Strategic Capital, Mr. McLelland was responsible
for the day to day cross-border transactions practice of PricewaterhouseCoopers’
Financial Advisory Services. Mr. McLelland has extensive investment and merchant
banking experience, has built two Asian-based financial service firms, and has
led the corporate finance department at CEF Taiwan Limited. He began his
investment banking career in Public Finance at Shearson Lehman. He holds an
M.B.A. degree from the University of Chicago and a Master of International
Affairs degree from Columbia University. He completed his undergraduate studies
at the University of South Florida and studied Mandarin at the National Normal
University in Taiwan. He has also earned a Certificate of Director Education
from the National Association of Corporate Directors. We believe Mr. Albert
McLelland's qualifications to serve on our Board include his extensive knowledge
and experience in auditing, and his extensive knowledge of the Company and the
industry.




(1)
            In
      early January 2009, executives in the Company changed positions. Mr.
      Pingji Lu continued as Chairman of the Board of Directors and his CEO
      responsibilities were assumed by Mr. Xiaohong Feng, who was previously
      Chief Operating Officer. Ms. Jing Lu, previously Vice President, was
      elected Chief Operating Officer.





We chose
to separate the positions of Chairman of Board and CEO because the Chairman, Mr.
Lu has extensive experience in business development and CEO, Mr. Feng is an
architect and has deep knowledge of the construction industry. We do not have a
lead Independent Director.





In
consideration of diversity for the composition of the Board, We chose to elect
Mr. Marks, Mr. McLelland and Ms. Woo as our Directors based on their unique
experiences with both the U.S capital markes and the Chinese capital
markets.





69





Involvement
in Certain Legal Proceedings





During
the past ten years, no present or former director, executive officer or person
nominated to become a director or an executive officer of our
Company:





(1)
            Was a general partner or
      executive officer of any business against which any bankruptcy petition
      was filed, either at the time of the bankruptcy or two years prior to that
      time;





(2)
            Was convicted in a criminal
      proceeding or named subject to a pending criminal proceeding (excluding
      traffic violations and other minor
  offenses);





(3)
            Was subject to any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining,
      barring, suspending or otherwise limiting his involvement in any type of
      business, securities or banking activities;
  or





(4)
            Was found by a court of competent
      jurisdiction (in a civil action), the SEC or the Commodity Futures Trading
      Commission to have violated a federal or state securities or commodities
      law, and the judgment has not been reversed, suspended or
      vacated.





SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
requires our executive officers, directors and persons who own more than 10
percent of our common stock to file initial reports of ownership on Form 3 and
changes in ownership on Forms 4 or 5 with the SEC. Such executive officers,
directors and over 10 percent stockholders are also required by SEC rules to
furnish us with copies of all such forms they file.





Based
solely on our review of the copies of such forms we have received, or written
representations from certain reporting persons, we believe that, during the year
ended December 31, 2009, all executive officers, directors and over 10 percent
stockholders filed on a timely basis all reports required to be filed by them
under Section 16(a) with respect to our common stock.




CODE OF
ETHICS





On
November 8, 2007, the Company’s Board of Directors adopted a Code of Ethics that
applies to the Company’s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. A copy of this Code of Ethics is available on the Company’s
website, www.chldinc.com, in the section titled officers & directors, which
can be found on our home page. The website and information contained on it or
incorporated in it are not intended to be incorporated in this Annual Report on
Form 10-K or other filings with the U.S. Securities and Exchange
Commission.




BOARD
COMPOSITION AND COMMITTEES





The
following table sets forth all our independent directors of the Board of
Directors and their positions at the Compensation, Nominating and Audit
Committees:




Independent Directors
                      
                      Title
                      
                      Service in committeeMr.
      Michael Marks
                      
                      Independent
      Director
                      
                      Chairman
      of Compensation Committee; Member of Audit CommitteeMs.
      Carolina Woo
                      
                      Independent
      Director
                      
                      Member
      of Audit Committee; Member of Nominating and Governance
      CommitteeMr.
      Albert McLelland
                      
                      Independent
      Director
                      
                      Chairman
      of Audit Committee; Member of Compensation CommitteeMr.
      Suiyi Gao
                      
                      Independent
      Director
                      
                      Chairman
      of Nominating and Governance Committee; Member of Compensation
      Committee





The Board
of Directors held four meetings for year 2009 and the attendance rates for all
Board members are over 75 %





The
Compensation Committee held two meetings for year 2009 and the attendance rates
for all committee members are over 75%.





The
Nominating and Governance Committee held one meeting for year 2009 and the
attendance rates for all committee members are over 50%. Ms. Carolina Woo was
absent due to personal reasons.





AUDIT
COMMITTEE




The
members of the Audit Committee are Mr. Albert McLelland, Mr. Michael Marks, and
Ms. Caroline Woo, with Mr. McLelland serving as chairman of the audit committee.
All members of the Audit Committee are independent directors. The Company’s
Board of Directors has determined that Mr. McLelland possesses accounting or
related financial management expertise and that he qualifies as an “audit
committee financial expert” as defined in Item 407 of Regulation
S-K.





The Audit
Committee held five meetings for year 2009 and the attendance rates for all
committee members are over 75 %.





70





ITEM
11. EXECUTIVE COMPENSATION





SUMMARY
COMPENSATION TABLE








The
following table sets forth all compensation paid in respect of our Chief
Executive Officer, Chief Financial Officer and all other executive officers for
services rendered during the preceding three fiscal years. The compensation
comprises base salary and bonus.





Non-Equity
                                  
                                  
                                  Non-qualifiedBase
                                  
                                  
                                  Bonus (2)
                                  
                                  
                                  Stock
                                  
                                  
                                  Option
                                  
                                  
                                  Incentive plan
                                  
                                  
                                  Deferred
                                  
                                  
                                  All otherName and
                                    Principal Position
                                  
                                  Year
                                  
                                  Salary
                                    ($) (1)
                                  
                                  
                                  Cash
                                    ($)
                                  
                                  
                                  Stock ($)
                                  
                                  
                                  Awards
                                    ($) (3)
                                  
                                  
                                  Awards
                                    ($)
                                  
                                  
                                  Compensation
                                    ($)
                                  
                                  
                                  Compensation
                                    ($)
                                  
                                  
                                  Compensation
                                    ($)
                                  
                                  
                                  Total
                                    ($)Pingji Lu
                                  
                                  2009
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  200,000Chairman of the
                                  
                                  2008
                                  
                                  
                                  3,868
                                  
                                  
                                  
                                  30,066
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  33,934Board of Directors
                                  
                                  2007
                                  
                                  
                                  2,174
                                  
                                  
                                  
                                  17,111
                                  
                                  
                                  
                                  1,641,626
                                  
                                  
                                  
                                  1,641,626
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  1,660,911Xiaohong Feng
                                  
                                  2009
                                  
                                  
                                  160,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  160,000CEO &
                                  
                                  2008
                                  
                                  
                                  3,516
                                  
                                  
                                  
                                  21,928
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  25,444Managing Director
                                  
                                  2007
                                  
                                  
                                  2,174
                                  
                                  
                                  
                                  16,647
                                  
                                  
                                  
                                  427,006
                                  
                                  
                                  
                                  427,006
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  445,827Cangsang Huang
                                  
                                  2009
                                  
                                  
                                  100,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  100,000CFO &
                                  
                                  2008
                                  
                                  
                                  5,180
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  5,180Managing Director
                                  
                                  2007
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/AJing Lu
                                  
                                  2009
                                  
                                  
                                  100,000
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  100,000COO &
                                  
                                  2008
                                  
                                  
                                  2,813
                                  
                                  
                                  
                                  8,626
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  11,439Board Secretary
                                  
                                  2007
                                  
                                  
                                  6,957
                                  
                                  
                                  
                                  6,957
                                  
                                  
                                  
                                  312,082
                                  
                                  
                                  
                                  312,082
                                  
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  325,996





1.
            The
      Company pays salaries in RMB to all executive officers every month. The
      actual RMB amount paid is translated from US$. The exchange rates used
      were the average rates of 2009, 2008 and 2007. They were 0.1464, 0.1439,
      and 0.1315 respectively. The stock awards were valued based on the closing
      price of our common stock on the NASDAQ on July 2,
  2008.





2.
            The
      Company’s bonus has been mostly in cash. Whether the bonus can be issued
      in stock is discretionary with the Compensation Committee. Other than the
      stocks issued under the 2007 Stock Incentive Plan, we have not issued any
      stock bonus. The dollar value of stock is based on the stock price of
      $3.99 per share.





3.
            The
      stock awards column shows all stocks paid to our executives, which
      includes the stocks paid in 2008 for their 2007 performance. The stock
      awards amount is based on the stock price of grant date on July 2, 2008 at
      $3.99.





4.
            On
      June 3, 2009, Mr. Cangsang Huang has been named Acting Chief Financial
      Officer of the Company.  He succeeded Mr. William Xin, the
      former CFO. Mr. Huang most recently served as Assistant CFO of China
      Housing, a position he has held since October 2008 where he was
      responsible for oversight of the Company’s financial
      department.





5.
            On
      January 12, 2009, Mr. Xiaohong Feng was appointed as the new Chief
      Executive Officer of the Company. Mr. Feng does not have an employment
      agreement with the Company
currently.




Summary
of Employment Agreement with Chairman
  The
total annual compensation for Mr. Lu under agreement is US$200,000. The
agreement provides for a monthly base salary of RMB 2,200 (or USD$301,
determined based on the minimum base salary requirements by the Employment Law
of the PRC), and a monthly bonus of RMB 22,000 (or USD$3,010), which for 12
months, constitutes 20% to 40% of the annual compensation based on the
Guidelines. The performance or bonus payment is given pursuant to the
Guidelines in accordance with relevant laws. The Company has the right to
adjust Mr. Lu’s salary according to his production operations, alteration of his
post and distribution methods for labor remuneration established under the law.
Mr. Lu is entitled to pension insurance, unemployment insurance, medical
insurance, overall-planned medical care for serious illnesses, housing fund and
other social insurance of the Company pursuant to relevant regulations of the
province and Xi’an city. In the event the Company terminates Mr. Lu’s employment
in violation of the agreement, the Company shall be required to pay Mr. Lu, in
addition to paying the salaries for the remaining months of the term in
full, economic compensation equal to 25% of the corresponding salaries. The
Company has set up both monthly and annual personal performance target for Mr.
Pingji Lu. The monthly bonus is measured in accordance with his contribution to
the Company and reviewed and is subject to adjustment in his total annual
compensation by the Compensation Committee periodically.




DIRECTOR
COMPENSATION




The table
below sets forth the salary our independent director received for the services
performed in the last three years. Our directors’ salary comprises of both cash
and stock. For 2008, the stock value is based on the stock price of $1.29. The
cash salary is paid to all directors in US$ every quarter. During 2009, no stock
based compensation was paid to directors.





71





Name and
                                                                                          
                                                                                          
                                                                                          
                                                                                          Salary
                                                                                          
                                                                                          
                                                                                          Option
                                                                                          
                                                                                          
                                                                                          Non-Equity
                                                                                            Incentive Plan
                                                                                          
                                                                                          
                                                                                          Change in
                                                                                            Pension Value
                                                                                            and
                                                                                            Nonqualified
                                                                                            Deferred
                                                                                          
                                                                                          
                                                                                          All OtherPrincipal
                                                                                            Position
                                                                                          
                                                                                          Year
                                                                                          
                                                                                          Cash
                                                                                            ($)
                                                                                          
                                                                                          
                                                                                          Stock
      (1)
                                                                                            ($)
                                                                                          
                                                                                          
                                                                                          Awards
                                                                                            ($)
                                                                                          
                                                                                          
                                                                                          Compensation
                                                                                            ($)
                                                                                          
                                                                                          
                                                                                          Compensation
                                                                                            Earnings ($)
                                                                                          
                                                                                          
                                                                                          Compensation
                                                                                            ($)
                                                                                          
                                                                                          
                                                                                          Total
                                                                                            ($)Carolina Woo
                                                                                          
                                                                                          2009
                                                                                          
                                                                                          $
                                                                                          20,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          30,975
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          50,975Independent director
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          $
                                                                                          20,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          9,675
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          29,675of the Board
                                                                                          
                                                                                          2007
                                                                                          
                                                                                          $
                                                                                          3,333
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,333Albert McLelland(2)
                                                                                          
                                                                                          2009
                                                                                          
                                                                                          $
                                                                                          47,584
                                                                                          
                                                                                          
                                                                                          
                                                                                          15,488
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          63,072Independent director
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          $
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/Aof the Board
                                                                                          
                                                                                          2007
                                                                                          
                                                                                          $
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/AMichael Marks
                                                                                          
                                                                                          2009
                                                                                          
                                                                                          $
                                                                                          22,500
                                                                                          
                                                                                          
                                                                                          
                                                                                          28,394
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          50,894Independent director
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          $
                                                                                          15,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,450
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          21,450of the Board
                                                                                          
                                                                                          2007
                                                                                          
                                                                                          $
                                                                                          2,500
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,500Suiyin Gao
                                                                                          
                                                                                          2009
                                                                                          
                                                                                          $
                                                                                          15,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          20,650
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          35,650Independent director
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          $
                                                                                          15,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,450
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          21,450of the Board
                                                                                          
                                                                                          2007
                                                                                          
                                                                                          $
                                                                                          2,500
                                                                                          
                                                                                          
                                                                                          
                                                                                          N/A
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,500




1.
              The
      stock awards of 2008 and 2009 were valued based on the closing price of
      our common stock on the NASDAQ on July 2, 2008, which was $3.99 and
      December 31, 2009, which was $4.13
respectively


2.
            Albert
      McLelland Joined as independent director on February 10,
    2009




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





The Board
of Directors and the majority shareholders have adopted the 2007 Stock Incentive
Plan (“2007 Plan”). Since the adoption of the 2007 Plan, we have paid out the
first round of incentive compensation based on restricted common shares of the
Company, which was disclosed on Form 8K dated July 14, 2008. The restricted
shares were paid in 2008 in consideration of the performance of the employees in
2007 and were vested immediately upon payment. No other payment was made under
the Plan.




There was
no equity compensation during fiscal year 2009.





COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION





We do not have any member of our compensation committee who is, or was an
officer or employee, or had any relationship with the Company requiring
disclosure under Item 404 of Regulation S-K. We also do not have any executive
officer who served as a member of the compensation committee of another entity
or a director of another entity, whose executive officers served on our
compensation committee or served as a director of our board.





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AN RELATED
STOCKHOLDER MATTERS.





The
following table sets forth certain information, as of March 12, 2010, with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5 percent) percent; (ii) each of the Company’s
executive officers and directors; and (iii) the Company’s directors and
executive officers as a group. Except as otherwise indicated, each of the
stockholders listed below has sole voting and investment power over the shares
beneficially owned.





Name (1)
                    
                    Title
                    
                    Shares
                      Ownership (2)
                    
                    
                    Percentage
                      of OwnedMr. Pingji Lu
                    
                    Chairman
                    
                    
                    3,599,499 (3)
                    
                    
                    
                    10.89
                    %Mr. Xiaohong Feng
                    
                    CEO & Managing Director
                    
                    
                    645,856
                    
                    
                    
                    1.95
                    %Ms. Jing Lu
                    
                    COO & Board Secretary
                    
                    
                    528,570
                    
                    
                    
                    1.60
                    %Mr. Michael Marks
                    
                    Independent Director
                    
                    
                    5,000
                    
                    
                    
                    0.02
                    %Ms. Carolina Woo
                    
                    Independent Director
                    
                    
                    7,500
                    
                    
                    
                    0.02
                    %Mr. Suiyi Gao
                    
                    Independent Director
                    
                    
                    5,000
                    
                    
                    
                    0.02
                    %Mr. Albert McLelland
                    
                    Independent Director
                    
                    
                    0
                    
                    
                    
                    0
                    %Mr. Cangsang Huang
                    
                    CFO & Director
                    
                    
                    0
                    
                    
                    
                    0
                    %Director and Officers as a Group with Total 8 Persons
                    
                    
                    
                    
                    4,791,425
                    
                    
                    
                    14.49
                    %




(1)
            Except
      as otherwise indicated, the address of each beneficial owner is c/o Xi’an
      Tsining Housing Development CO., Ltd., 6 Youyi Dong Lu, Han Yuan 4 Lou,
      Xi’an, Shaanxi Province, China
710054.





72





(2)
            Applicable
      percentage ownership is based on 33,065,386 shares of common stock
      outstanding as of March 12, 2010. Beneficial ownership is determined
      in accordance with the rules of the Securities and Exchange Commission and
      generally includes voting or investment power with respect to
      securities.


(3)
              There
      are 12,231,292 shares held by employees of the Company. All voting power
      for such shares had been transferred to Mr. Pingji Lu by the employees who
      hold such shares pursuant to voting agreements as we indicated in our Form
      S-1 Registration No. 333-149746, declared effective on January 7, 2010
      .  These voting agreements expired on March 1,
      2010.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS





We have
four directors that are independent under the independence standards of S-K Item
407(a)(1). They are: Mr. Michael Marks, Mr. Albert McLelland, Mr. Suiyin Gao,
and Ms. Carolina Woo.


The
Company has borrowed money from certain employees to fund the Company's
construction projects. The loans bear interest ranging between 7% to 12% and the
principal matures within one to three years. As of December 31, 2009, loan from
employees amounted to $2,864,824. The following table sets forth the largest
aggregate amount of principal outstanding during fiscal year 2009 and
2008:




Fiscal year 2009
                
                
                Fiscal year 2008Item
                
                RMB
                
                
                USD
                
                
                RMB
                
                
                USDThe
      largest aggregate amount of principal outstanding
                
                
                3,830,000
                
                
                
                561,098
                
                
                
                12,770,236
                
                
                
                1,880,769Principal
      paid
                
                
                7,037,000
                
                
                
                1,030,926
                
                
                
                2,645,236
                
                
                
                389,584Interest
      Paid
                
                
                546,577
                
                
                
                80,074
                
                
                
                215,350
                
                
                
                31,716Total
      Amount of Loans Outstanding
                
                
                19,555,000
                
                
                
                2,864,824
                
                
                
                10,350,000
                
                
                
                1,517,039




The
Company does not allow borrowing by the employees from the Company. There are no
buying/selling transactions between the employees and the Company. The employee
loans were made at a time when the Company needed working capital to expand
operation and the employees helped the Company by giving their loans. The loans
were made at or below the then current market rate. Although we have the overall
policy of not allowing related party transaction unless the Company benefits, we
have no written policies and procedures for the review, approval, ratification
of any related party transaction. All our directors and officers understand that
they should not engage in any related party transactions and we have announced
the rule to the employees of the Company a few times at different employee
meetings. The Company will work with the audit committee to set up such written
policies and procedures for the review, approval, ratification of any related
party transaction.




The
following table sets forth all loans the Company and New Land, its subsidiary,
have made with their employees during the period for which this report is
provided.




Tsining (As of December 31, 2009)First
                            
                            Last
                            
                            
                            
                            
                            Ex rate: 6.8259Name
                            
                            Name
                            
                            Amount (RMB)
                            
                            
                            Amount (USD)Weiping
                            
                            Fu
                            
                            
                            395,000
                            
                            
                            
                            57,868Fang
                            
                            Nie
                            
                            
                            30,000
                            
                            
                            
                            4,395Li
                            
                            Qi
                            
                            
                            100,000
                            
                            
                            
                            14,650Yuewu
                            
                            Bian
                            
                            
                            460,000
                            
                            
                            
                            67,390Shaoming
                            
                            Liu
                            
                            
                            100,000
                            
                            
                            
                            14,650Zhiyong
                            
                            Shi
                            
                            
                            160,000
                            
                            
                            
                            23,440Qiang
                            
                            Tong
                            
                            
                            75,000
                            
                            
                            
                            10,988Fengrong
                            
                            Jiao
                            
                            
                            3,830,000
                            
                            
                            
                            561,098Liexiang
                            
                            Zhao
                            
                            
                            1,000,000
                            
                            
                            
                            146,501Yongan
                            
                            Chang
                            
                            
                            200,000
                            
                            
                            
                            29,300Fang
                            
                            Shen
                            
                            
                            165,000
                            
                            
                            
                            24,173Zhongbiao
                            
                            Wang
                            
                            
                            200,000
                            
                            
                            
                            29,300Zhongquan
                            
                            Yang
                            
                            
                            570,000
                            
                            
                            
                            83,505Guangzhe
                            
                            Zhang
                            
                            
                            300,000
                            
                            
                            
                            43,950Aiguo
                            
                            Fu
                            
                            
                            3,200,000
                            
                            
                            
                            468,803Total
                            
                            
                            
                            
                            10,785,000
                            
                            
                            
                            1,580,011




73





New Land (As of December 31, 2009)First
                            
                            Last
                            
                            
                            
                            
                            Ex rate: 6.8259Name
                            
                            Name
                            
                            Amount (RMB)
                            
                            
                            Amount (USD)Wen
                            
                            Liu
                            
                            
                            20,000
                            
                            
                            
                            2,930Yuan
                            
                            Jiao
                            
                            
                            70,000
                            
                            
                            
                            10,255Jiaqun
                            
                            Zhou
                            
                            
                            100,000
                            
                            
                            
                            14,650Ganming
                            
                            Yi
                            
                            
                            200,000
                            
                            
                            
                            29,300Yuewu
                            
                            Bian
                            
                            
                            190,000
                            
                            
                            
                            27,835Pengfei
                            
                            Liu
                            
                            
                            10,000
                            
                            
                            
                            1,465Meng
                            
                            Luo
                            
                            
                            200,000
                            
                            
                            
                            29,300Qiang
                            
                            Tong
                            
                            
                            10,000
                            
                            
                            
                            1,465Qian
                            
                            Xue
                            
                            
                            150,000
                            
                            
                            
                            21,975Xiuqin
                            
                            Wang
                            
                            
                            110,000
                            
                            
                            
                            16,115Xijing
                            
                            Tao
                            
                            
                            330,000
                            
                            
                            
                            48,345Jine
                            
                            Li
                            
                            
                            200,000
                            
                            
                            
                            29,300Chenyang
                            
                            Zhang
                            
                            
                            200,000
                            
                            
                            
                            29,300Lanqiu
                            
                            Kang
                            
                            
                            400,000
                            
                            
                            
                            58,600Yan
                            
                            Tao
                            
                            
                            210,000
                            
                            
                            
                            30,765Fengrong
                            
                            Jiao
                            
                            
                            2,000,000
                            
                            
                            
                            293,002Delin
                            
                            Chen
                            
                            
                            250,000
                            
                            
                            
                            36,625Wei
                            
                            Wang
                            
                            
                            1,000,000
                            
                            
                            
                            146,501Yanmin
                            
                            Li
                            
                            
                            500,000
                            
                            
                            
                            73,250Qi
                            
                            Yao
                            
                            
                            150,000
                            
                            
                            
                            21,975Bangxian
                            
                            Yin
                            
                            
                            250,000
                            
                            
                            
                            36,625Ying
                            
                            Chen
                            
                            
                            350,000
                            
                            
                            
                            51,275Jing
                            
                            Ning
                            
                            
                            400,000
                            
                            
                            
                            58,600Ke
                            
                            Ning
                            
                            
                            100,000
                            
                            
                            
                            14,650Hua
                            
                            Zhao
                            
                            
                            100,000
                            
                            
                            
                            14,650Xiaoqin
                            
                            Li
                            
                            
                            100,000
                            
                            
                            
                            14,650Bo
                            
                            Wan
                            
                            
                            500,000
                            
                            
                            
                            73,250Xuesong
                            
                            Li
                            
                            
                            670,000
                            
                            
                            
                            98,156Total
                            
                            
                            
                            
                            8,770,000
                            
                            
                            
                            1,284,812





ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES





MSCM LLP
performed the audits for the years ended December 31, 2008 and
2009.





The
following are the services provided and the amount billed:





(a)           AUDIT
FEES





The
aggregate fees billed or to be billed for professional services rendered by our
principal accountants for the audit of our annual financial statements for the
ended December 31, 2009 and 2008 were $184,210 and $190,000, respectively. The
reviews for the financial statements included in our quarterly reports on Form
10-Q during the fiscal years ended December 31, 2009 and 2008 were $157,540 and
$120,000.





(b)           AUDIT-RELATED
FEES





We
incurred $71,930 fees for the fiscal years ended December 31, 2009 and $86,070
fees for the fiscal years ended December 31, 2008 for assurance and related
services by our principal accountant that were reasonably related to the
performance of the audit or review of our financial statements, and not reported
under Audit fees above.





(c)           TAX
FEES





The
aggregate fees billed for professional services rendered by our principal
accountant for tax compliance, tax advice, preparation and filing of tax returns
and tax planning for the fiscal years ended December 31, 2009 and 2008 were
$5,700 and $5,250.





(d)           ALL
OTHER FEES





All other
fees billed for the fiscal years ended December 31, 2009 and 2008 were $169,777
and $30,660. All other fees mainly include providing consent on registration
statements and out of pocket expenses.





Our audit
committee consists of three independent directors. Our audit committee is the
body to recommend public accounting firms as our independent auditor to the full
board for approval.





74





ITEM
15. EXHIBITS AND REPORTS ON FORM 10-K.




EXHIBIT
                      NO.
                    
                    DESCRIPTION
      OF EXHIBIT3.1
                    
                    Articles
      of Incorporation (incorporated by reference to the exhibits to Registrants
      Form SB-2 filed on October 27, 2004)3.2
                    
                    Registrant's
      By-Laws (incorporated by reference to the exhibits to Registrants Form
      SB-2 filed on October 27, 2004)10.1
                    
                    Securities
      Purchase Agreement (incorporated by reference to the exhibits to
      Registrant's Form 8-K filed on January 30, 2008).10.2
                    
                    Form
      of Convertible debt (incorporated by reference to the exhibits to
      Registrant's Form 8-K filed on January 30, 2008).10.3
                    
                    Form
      of Warrant (incorporated by reference to the exhibits to Registrant's Form
      8-K filed on January 30, 2008).10.4
                    
                    Form
      of Pledge Agreement (incorporated by reference to the exhibits to
      Registrant's Form 8-K filed on January 30, 2008).10.5
                    
                    Form
      of Registration Rights Agreement (incorporated by reference to the
      exhibits to Registrant's Form 8-K filed on January 30,
    2008).10.6
                    
                    Framework
      Agreement, dated November 5, 2008, by and between the Registrant and Prax
      Capital China Real Estate Fund I, Ltd. (incorporated by reference to the
      exhibits to the Registrant’s Form 10-K filed on March 25,
      2009).10.7
                    
                    Deed
      of Guarantee, dated November 5, 2008, made by the Registrant in favor of
      Success Hill Investments Limited and Prax Capital Real Estate Holding
      Limited (incorporated by reference to the exhibit to Registrant's Form 8-K
      filed on January 28, 2009).10.8
                    
                    Employment
      agreement with Pingji Lu (incorporated by reference to the exhibits to
      Registrant’s Form S-1 Amendment No 2 filed on July 14,
    2008)10.9
                    
                    2007
      Stock Incentive Plan (incorporated by reference to the exhibits to
      Registrant’s Form S-1 Amendment No 8 filed on November 5,
      2009)10.10
                    
                    Translation
      of Strategic Cooperation Agreement between China Construction Bank Shaanxi
      Branch and the Company Dated June 18, 2008 (incorporated by reference to
      the exhibits to Registrant’s Form S-1 Amendment No 9 filed on December 9,
      2009)21.1
                    
                    List
      of subsidiaries*23.1
                    
                    Consent
      of MSCM LLP*31.1
                    
                    Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act.*31.2
                    
                    Certification
      of Principal Financial and Accounting Officer Pursuant to Section 302 of
      the Sarbanes-Oxley Act.*32.1
                    
                    Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.*32.2
                    
                    Certification
      of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.*
 
 * Filed
herewith





75








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 our behalf by
the undersigned, thereunto duly authorized.





CHINA
      HOUSING AND LAND DEVELOPMENT,
                    INC.March
      15, 2010
                  By:
                  /s/
      Feng XiaohongName:
      Feng Xiaohong
                    Title:
      Chief Executive OfficerMarch
      15, 2010
                  By:
                  /s/
      Cangsang HuangName:
      Cangsang Huang
                    Title:
      Chief Financial Officer
                    (Principal
      Financial and Accounting
Officer)





Pursuant
to the requirements of the Securities Act of 1933, this Form 10-K has been
signed by the following persons in the capacities and on the dates
indicated.





SIGNATURE
              
              TITLE
              
              DATE/s/
      Lu Pingji
              
              Chairman
      of the Board
              
              March
      15, 2010Lu
      Pingji/s/
      Feng Xiaohong
              
              Chief Executive Officer & Managing Director
              
              March
      15, 2010Feng
      Xiaohong/s/
      Cangsang Huang
              
              Chief
      Financial Officer
              
              March
      15, 2010Cangsang
      Huang/s/
      Albert S. McLelland
              
              Independent
      Director
              
              March
      15, 2010Albert
      S. McLelland/s/
      Mr. Michael Marks
              
              Independent
      Director
              
              March
      15, 2010Michael
      Marks/s/
      Mr. Carolina Woo
              
              Independent
      Director
              
              March
      15, 2010Carolina
      Woo/s/
      Mr. Gao Suiyi
              
              Independent
      Director
              
              March
      15, 2010Gao
      Suiyi




76