UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549





FORM 10-Q/A


AMENDMENT NO. 1


(Mark One)


xQUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30,2009





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





For the transition period from
________________ to _______________





000-51429


(Commission file
number)





CHINA HOUSING & LAND DEVELOPMENT,
INC.


(Exact name of registrant as specifiedin its
charter)




Nevada
            
            20-1334845(State or other jurisdiction
      of
              incorporation or
      organization)
            
            (IRS Employer
      Identification
              No.)





6 Youyi Dong Lu, Han Yuan 4
Lou


Xi'An, Shaanxi
Province


China 710054


(Address of principal executive
offices)





86-029-8258-2632


(Issuer's telephone
number)





N/A


(Former name, former address and former
fiscal year, if changed since last report)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


YesxNo ̈





Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this
chapter) during the preceding 12 months(or for such shorter period that the
registrant was required to submit and post such files). Yes ̈No ̈





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




Large
      accelerated filer  ̈
            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 of Common Stock
outstanding on August 12, 2009 was 31,045,303 shares.





EXPLANATORY NOTE





This Amendment No. 1 to our Quarterly
Report on Form 10-Q initially filed with the Securities and Exchange Commission
(the “Commission”) on August 12, 2009 is being filed in
response to the Commission’s comment letter dated August 18, 2009.
In addition, this Amendment No. 1 to our Quarterly Report on Form 10-Q is being
filed to correct certain financial data and disclosure including Management's
Discussion and Analysis of Financial Condition and Results of Operations and to
restate our consolidated financial statements.












CHINA HOUSING & LAND DEVELOPMENT,
INC.


Index





.
              
              
              
              Page
                NumberPART I
              
              FINANCIAL
      INFORMATION
              
              3Item 1.
              
              Financial
      Statements
              
              3Consolidated Balance Sheets as of
      June 30, 2009 (unaudited) and December 31, 2008
              
              3Consolidated Statements of Income
      and Other Comprehensive Income for the three and six months ended June
      30, 2009 and 2008 (unaudited)
              
              4Consolidated Statements of Cash
      Flows for six months ended June 30, 2009 and 2008
      (unaudited)
              
              5Notes to Consolidated Financial
      Statements (unaudited)
              
              7Item 2.
              
              Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
              
              18Item 3.
              
              Quantitative and Qualitative
      Disclosures About Market Risk
              
              38Item 4T.
              
              Controls and
      Procedures
              
              39PART II.
              
              OTHER
      INFORMATION
              
              39Item 1.
              
              Legal
      Proceedings
              
              39Item 1A.
              
              Risk
Factors
              
              39Item 2.
              
              Unregistered Sales of Equity
      Securities and Use of Proceeds
              
              40Item 3.
              
              Defaults Upon Senior
      Securities
              
              40Item 4.
              
              Submission of Matters to a Vote of
      Security Holders
              
              40Item 5.
              
              Other
      Information
              
              40Item 6.
              
              Exhibits
              
              40SIGNATURES
              
              
              
              41EX-31.1
              
              (Certifications required under
      Section 302 of the
      Sarbanes-Oxley Act of 2002)EX-31.2
              
              (Certifications required under
      Section 302 of the Sarbanes-Oxley Act of 2002)EX-32.1
              
              (Certifications required under
      Section 906 of the Sarbanes-Oxley Act of 2002)EX-32.2
              
              (Certifications required under
      Section 906 of the Sarbanes-Oxley Act of 2002)




-2-







PART I. FINANCIAL
INFORMATION





Item 1. Financial
Statements





CHINA HOUSING & LAND DEVELOPMENT,
INC. AND SUBSIDIARIES





Interim Condensed Consolidated Balance
Sheets


As of June 30, 2009 and December 31,
2008


(unaudited)




June30,
                          
                          
                          December31,2009
                          
                          
                          2008Restated–Note2)
                          
                          
                          (Restated–Note2)ASSETSCash
                          
                          $
                          10,133,600
                          
                          
                          $
                          37,425,340Cash - restricted
                          
                          
                          751,173
                          
                          
                          
                          805,012Accounts receivable, net of
      allowance for doubtfulaccounts of $1,001,487 and
      $1,278,156, respectively
                          
                          
                          3,860,834
                          
                          
                          
                          813,122Other receivables and prepaid
      expenses, net
                          
                          
                          800,396
                          
                          
                          
                          446,497Notes receivable,
      net
                          
                          
                          684,959
                          
                          
                          
                          811,695Prepaid other
      taxes
                          
                          
                          2,286,955
                          
                          
                          
                          545,979Real estate held for development
      or sale
                          
                          
                          106,219,713
                          
                          
                          
                          60,650,011Property and equipment,
      net
                          
                          
                          12,975,105
                          
                          
                          
                          12,391,501Asset held for
      sale
                          
                          
                          14,292,560
                          
                          
                          
                          14,308,691Advance to
      suppliers
                          
                          
                          689,565
                          
                          
                          
                          704,275Deposits on land use
      rights
                          
                          
                          26,586,901
                          
                          
                          
                          47,333,287Intangible assets,
      net
                          
                          
                          41,630,027
                          
                          
                          
                          46,043,660Goodwill
                          
                          
                          815,955
                          
                          
                          
                          -Deferred financingcosts
                          
                          
                          544,726
                          
                          
                          
                          622,118Total
assets
                          
                          
                          222,272,469
                          
                          
                          
                          222,901,188LIABILITIESAccounts
      payable
                          
                          $
                          13,729,345
                          
                          
                          $
                          10,525,158Advances from
      customers
                          
                          
                          10,305,087
                          
                          
                          
                          9,264,385Accrued expenses
                          
                          
                          4,461,524
                          
                          
                          
                          3,539,842Accrued security registration
      expenses
                          
                          
                          1,820,225
                          
                          
                          
                          613,483Payable to acquisition of
      businesses
                          
                          
                          7,649,891
                          
                          
                          
                          8,429,889Income taxes
      payable
                          
                          
                          10,203,902
                          
                          
                          
                          8,078,709Other
    payables
                          
                          
                          3,145,809
                          
                          
                          
                          5,183,251Loans from
      employees
                          
                          
                          2,185,880
                          
                          
                          
                          1,517,039Loans
    payable
                          
                          
                          24,450,236
                          
                          
                          
                          35,617,442Deferred tax
      liability
                          
                          
                          11,497,938
                          
                          
                          
                          11,510,915Warrants
      liability
                          
                          
                          7,983,626
                          
                          
                          
                          1,117,143Fair value of embedded
      derivatives
                          
                          
                          6,472,976
                          
                          
                          
                          760,398Convertible
      Debt
                          
                          
                          14,199,920
                          
                          
                          
                          13,621,934Total
      liabilities
                          
                          
                          118,106,359
                          
                          
                          
                          109,779,588SHAREHOLDERS'
      EQUITYCommon stock: $.001 par value,
      authorized 100,000,000 sharesissued and outstanding 30,948,340
      and 30,893,757, respectively
                          
                          
                          30,948
                          
                          
                          
                          30,894Additional paid in
      capital
                          
                          
                          31,658,301
                          
                          
                          
                          31,390,750Common stock subscribed from
      warrants conversion
                          
                          
                          320,815
                          
                          
                          
                          -Statutory
    reserves
                          
                          
                          3,696,038
                          
                          
                          
                          3,541,226Retained
      earnings
                          
                          
                          29,457,311
                          
                          
                          
                          38,651,579Accumulated other comprehensive
      income
                          
                          
                          10,086,381
                          
                          
                          
                          10,397,801Total
      China Housing & Land Development, Inc. shareholders’
      equity
                          
                          
                          75,249,794
                          
                          
                          
                          84,012,250Noncontrolling
      interest
                          
                          
                          28,916,316
                          
                          
                          
                          29,109,350Total shareholders'
      equity
                          
                          
                          104,166,110
                          
                          
                          
                          113,121,600Total liabilities and
      shareholders' equity
                          
                          $
                          222,272,469
                          
                          
                          $
                          222,901,188





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




-3-




CHINA HOUSING & LAND DEVELOPMENT,
INC. AND SUBSIDIARIES





Interim Condensed Consolidated
Statements of Income and Other Comprehensive Income


For The Three and Six Months Ended June 30, 2009 and
2008


(Unaudited)




3Months
                  
                  
                  3Months
                  
                  
                  6Months
                  
                  
                  6MonthsJune30,2009
                  
                  
                  June30,2008
                  
                  
                  June30,
                    2009
                  
                  
                  June30,
                    2008(Restated-Note2)
                  
                  
                  
                  
                  
                  (Restated-Note2)REVENUESSale of
      properties
                  
                  $
                  21,180,940
                  
                  
                  $
                  13,055,230
                  
                  
                  $
                  34,106,809
                  
                  
                  $
                  17,579,175Other
income
                  
                  
                  1,420,979
                  
                  
                  
                  189,260
                  
                  
                  
                  2,339,793
                  
                  
                  
                  411,952Total
    revenues
                  
                  
                  22,601,919
                  
                  
                  
                  13,244,490
                  
                  
                  
                  36,446,602
                  
                  
                  
                  17,991,127COSTS AND
      EXPENSESCost of properties and
      land
                  
                  
                  15,394,470
                  
                  
                  
                  11,252,721
                  
                  
                  
                  24,892,685
                  
                  
                  
                  13,619,833Selling, general, and
      administrative
      expenses
                  
                  
                  1,942,946
                  
                  
                  
                  1,418,750
                  
                  
                  
                  3,351,770
                  
                  
                  
                  2,567,351Security registration
      expenses
                  
                  
                  606,742
                  
                  
                  
                  -
                  
                  
                  
                  1,206,742
                  
                  
                  
                  -Other
    expenses
                  
                  
                  150,327
                  
                  
                  
                  103,344
                  
                  
                  
                  190,123
                  
                  
                  
                  119,254Interest
      expense
                  
                  
                  446,899
                  
                  
                  
                  658,443
                  
                  
                  
                  784,977
                  
                  
                  
                  1,098,116Accretion expense onConvertible
      Debt
                  
                  
                  296,164
                  
                  
                  
                  253,558
                  
                  
                  
                  577,986
                  
                  
                  
                  425,241Change in fair value of embedded
      derivatives
                  
                  
                  5,836,616
                  
                  
                  
                  (738,999
                  )
                  
                  
                  5,712,578
                  
                  
                  
                  (454,488
                  )Change infair value of
      warrants
                  
                  
                  7,222,727
                  
                  
                  
                  (946,563
                  )
                  
                  
                  7,055,488
                  
                  
                  
                  (956,052
                  )Total costs and
      expenses
                  
                  
                  31,896,891
                  
                  
                  
                  12,001,254
                  
                  
                  
                  43,772,349
                  
                  
                  
                  16,419,255Income(loss)before provision for income
      taxes
                  
                  
                  (9,294,972
                  )
                  
                  
                  1,243,236
                  
                  
                  
                  (7,325,747
                  )
                  
                  
                  1,571,872Provision for income
      taxes
                  
                  
                  1,347,914
                  
                  
                  
                  107,357
                  
                  
                  
                  2,061,555
                  
                  
                  
                  388,308NET (LOSS) INCOME
                  
                  
                  (10,642,886
                  )
                  
                  
                  1,135,879
                  
                  
                  
                  (9,387,302
                  )
                  
                  
                  1,183,564Less: net loss attributable to
      noncontrolling interest
                  
                  
                  (145,899
                  )
                  
                  
                  -
                  
                  
                  
                  (193,034
                  )
                  
                  
                  -Net (loss) income attributable to China Housing &
      Land Development, Inc.
                  
                  
                  (10,496,987
                  )
                  
                  
                  1,135,879
                  
                  
                  
                  (9,194,268
                  )
                  
                  
                  1,183,564OTHER COMPREHENSIVE INCOME
      (LOSS)Gain (loss) in foreign
      exchange
                  
                  
                  51,713
                  
                  
                  
                  1,735,766
                  
                  
                  
                  (311,420
                  )
                  
                  
                  5,264,252COMPREHENSIVE (LOSS)
      INCOME
                  
                  $
                  (10,445,274
                  )
                  
                  $
                  2,871,645
                  
                  
                  $
                  (9,505,688
                  )
                  
                  $
                  6,447,816WEIGHTED AVERAGE SHARES
      OUTSTANDINGBasic
                  
                  
                  30,932,745
                  
                  
                  
                  30,143,757
                  
                  
                  
                  30,913,359
                  
                  
                  
                  30,143,161Diluted
                  
                  
                  30,938,070
                  
                  
                  
                  30,311,201
                  
                  
                  
                  30,916,036
                  
                  
                  
                  30,304,679NET (LOSS) INCOME PER
      SHAREBasic
                  
                  $
                  (0.34
                  )
                  
                  $
                  0.04
                  
                  
                  $
                  (0.30
                  )
                  
                  $
                  0.04Diluted
                  
                  $
                  (0.34
                  )
                  
                  $
                  0.03
                  
                  
                  $
                  (0.30
                  )
                  
                  $
                  0.02





The accompanying notes are an integral
part ofthese interim
condensed consolidated financial statements.




-4-





CHINA HOUSING & LAND DEVELOPMENT
INC. AND SUBSIDIARIES





Interim Condensed Consolidated
Statements of Cash Flows


For The Six Months Ended June 30, 2009
and 2008


(Unaudited)





June30,
                  
                  
                  June30,2009
                  
                  
                  2008(Restated-Note2)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net (loss)
      income
                  
                  $
                  (9,387,302
                  )
                  
                  $
                  1,183,564Adjustments to reconcile net
      income to cashprovided by (used in)operating
      activities:Bad debt
      recovery
                  
                  
                  (275,265
                  )
                  
                  
                  -Depreciation
                  
                  
                  315,026
                  
                  
                  
                  183,657Exchange
    loss
                  
                  
                  -
                  
                  
                  
                  103,344(Gain) loss on disposal of fixed
      assets and inventory
                  
                  
                  (16,200
                  )
                  
                  
                  14,844Amortization of deferred financing
      costs
                  
                  
                  77,391
                  
                  
                  
                  67,367Change in fair value of
      warrants
                  
                  
                  7,055,488
                  
                  
                  
                  (956,052
                  )Change in fair value of embedded
      derivatives
                  
                  
                  5,712,578
                  
                  
                  
                  (454,488
                  )Accretion expense onConvertible
      Debt
                  
                  
                  577,986
                  
                  
                  
                  425,241Non-cash proceeds from sale of
      properties
                  
                  
                  (23,804
                  )
                  
                  
                  (2,923,177
                  )(Increase) decrease in
      assets:Accounts
      receivable
                  
                  
                  (2,689,972
                  )
                  
                  
                  (1,871,161
                  )Prepaid other
      taxes
                  
                  
                  (1,790,793
                  )
                  
                  
                  -Real estate held for
      development or
      sale
                  
                  
                  (33,922,050
                  )
                  
                  
                  (14,440,226
                  )Advances to
      suppliers
                  
                  
                  13,738
                  
                  
                  
                  375,487Refund (deposit) on land use
      rights
                  
                  
                  13,363,368
                  
                  
                  
                  (1,594,144
                  )Other receivables prepaid
      expenses
                  
                  
                  952,254
                  
                  
                  
                  233,934Increase (decrease)in
      liabilities:Accounts
      payable
                  
                  
                  3,205,445
                  
                  
                  
                  5,654,551Advances from
      customers
                  
                  
                  922,457
                  
                  
                  
                  3,869,507Accrued
    expense
                  
                  
                  790,270
                  
                  
                  
                  902,519Other
    payable
                  
                  
                  (3,191,392
                  )
                  
                  
                  694,784Other taxes
      payable
                  
                  
                  -
                  
                  
                  
                  49,274Income taxes
      payable
                  
                  
                  2,031,450
                  
                  
                  
                  504,122Accrued security registration
      expenses
                  
                  
                  1,206,742
                  
                  
                  
                  -Net cash used in operating
      activities
                  
                  
                  (15,072,585
                  )
                  
                  
                  (7,977,053
                  )CASH FLOWS FROM INVESTING
      ACTIVITIES:Change in restricted
      cash
                  
                  
                  52,887
                  
                  
                  
                  (2,437,759
                  )Purchase of buildings, equipment
      and automobiles
                  
                  
                  (478,557
                  )
                  
                  
                  (123,516
                  )Notes receivable
      collected
                  
                  
                  149,549
                  
                  
                  
                  71,614Cash acquired in business
      combinations
                  
                  
                  519,309
                  
                  
                  
                  -Proceed from sale of property and
      equipment
                  
                  
                  194,006
                  
                  
                  
                  858,755Net cash provided by (used in)
      investing activities
                  
                  
                  437,194
                  
                  
                  
                  (1,630,906
                  )CASH FLOWS FROM FINANCING
      ACTIVITIES:Net proceeds from issuance ofConvertible
      Debt
                  
                  
                  -
                  
                  
                  
                  19,230,370Investment and advances from
      minority shareholder
                  
                  
                  267,605
                  
                  
                  
                  14,168,119Payments on loans
      payable
                  
                  
                  (11,127,389
                  )
                  
                  
                  -Loans from or repayment to
      employees, net
                  
                  
                  670,493
                  
                  
                  
                  (659,605
                  )Repayment of payables for
      acquisition of businesses
                  
                  
                  (2,533,242
                  )
                  
                  
                  (3,476,856
                  )Proceeds from exercise of
      warrants
                  
                  
                  320,815
                  
                  
                  
                  8,415Net cash provided by (used in)
      financing activities
                  
                  
                  (12,401,718
                  )
                  
                  
                  29,270,443(DECREASE)/INCREASE IN
      CASH
                  
                  
                  (27,037,109
                  )
                  
                  
                  19,662,484Effects on foreign currency
      exchange
                  
                  
                  (254,631
                  )
                  
                  
                  752,116CASH, beginning of
      period
                  
                  
                  37,425,340
                  
                  
                  
                  2,351,015CASH, end of
      period
                  
                  $
                  10,133,600
                  
                  
                  $
                  22,765,615





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




-5-







CHINA HOUSING & LAND DEVELOPMENT,
INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Shareholders'
Equity


As of June 30, 2009 and December 31,
2008


(Unaudited)





CommonStock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  AccumulatedShares
                  
                  
                  Par
                    Value
                  
                  
                  Common
                      Stocksubscribed
                  
                  
                  Additional
                      paidincapital
                  
                  
                  Statutoryreserves
                  
                  
                  Retainedearnings
                  
                  
                  other
                      comprehensiveincome
                  
                  
                  Noncontrollinginterest
                  
                  
                  Totals(Restated-Note
      2)
                  
                  
                  
                  
                  
                  
                  
                  
                  (Restated-Note
      2)BALANCE,
      December 31, 2008
                  
                  
                  30,893,757
                  
                  
                  $
                  30,894
                  
                  
                  $
                  -
                  
                  
                  
                  31,390,750
                  
                  
                  $
                  3,541,226
                  
                  
                  $
                  38,651,579
                  
                  
                  $
                  10,397,801
                  
                  
                  $
                  29,109,350
                  
                  
                  $
                  113,121,600Net
      Income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,302,719
                  
                  
                  
                  -
                  
                  
                  
                  -47,135
                  
                  
                  
                  1,255,584Adjustment
      to statutory reserves
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  154,812
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  154,812Foreign
      currency translation
adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -363,133
                  
                  
                  
                  -
                  
                  
                  
                  -363,133BALANCE,
      March 31, 2009
                  
                  
                  30,893,757
                  
                  
                  
                  30,894
                  
                  
                  
                  -
                  
                  
                  
                  31,390,750
                  
                  
                  
                  3,696,038
                  
                  
                  
                  39,954,298
                  
                  
                  
                  10,034,668
                  
                  
                  
                  29,062,215
                  
                  
                  
                  114,768,863Stock-based
      compensation
                  
                  
                  54,583
                  
                  
                  
                  54
                  
                  
                  
                  -
                  
                  
                  
                  78,546
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  78,600Fair
      value of warrants exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  189,005
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  189,005Common
      stock subscribed from warrants
      conversion
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  320,815
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  320,815Net
      Income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -10,496,987
                  
                  
                  
                  -
                  
                  
                  
                  -145,899
                  
                  
                  
                  -10,642,886Foreign
      currency translation
adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  51,713
                  
                  
                  
                  -
                  
                  
                  
                  51,713BALANCE,
      June 30, 2009
                  
                  
                  30,948,340
                  
                  
                  $
                  30,948
                  
                  
                  $
                  320,815
                  
                  
                  
                  31,658,301
                  
                  
                  $
                  3,696,038
                  
                  
                  $
                  29,457,311
                  
                  
                  $
                  10,086,381
                  
                  
                  $
                  28,916,316
                  
                  
                  $
                  104,166,110





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


-6-


CHINA HOUSING & LAND DEVELOPMENT,
INC. AND
SUBSIDIARIES


Notes To Interim Condensed Consolidated
Financial Statements


(Unaudited)




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 6, 2006, the Company changed
its name to China Housing & Land Development, Inc.





The accompanying unaudited interim
condensed consolidated financial statements include the accounts of the
Company and its
wholly owned subsidiaries, 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”) (see Note 2),
Puhua (Xi’an) Real Estate Development Co., Ltd
(75% interest)(“Puhua”) and Success Hill Investments Limited
(60% interest) (“Success
Hill”) (collectively, the
"Subsidiaries").All inter-company accounts and
transactions have been eliminated on consolidation. The accompanying unaudited
interim condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America (“GAAP”).





In the opinion of management, the
unaudited interim condensed consolidated financial statements reflect all
adjustments necessary for a fair statement of the Company's consolidated
financial position as at June 30, 2009 and results of operations and cash flows for the
periods ended June 30, 2009 and 2008. These adjustments consist of normal
recurring items. The results of operations for any interim period are not
necessarily indicative of results for the full year.





The unauditedinterim condensed consolidated financial
statements are based on accounting principles that are consistent in all
material respects with those applied in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 (“2008 Annual Report”);except as disclosed below. They do not
include certain footnote disclosures and financial information normally included
in annual consolidated financial statements prepared in accordance with GAAP
and, therefore, should be read in conjunction with the audited consolidated financial statements
and notes included in the Company's 2008 Annual Report.





Accounting Principles Recently
Adopted





In December 2007, the FASB issued SFAS
No. 141(R), "Business Combinations" ("SFAS No. 141(R)") which revised SFAS No.
141, "Business
Combinations". SFAS No. 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquirer and the goodwill acquired. SFAS No.
141(R) 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 condensed consolidated financial
statements.





In December 2007, the FASB issued SFAS
No. 160, "Noncontrolling Interests in Consolidated Financial Statements". SFAS
No. 160 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 noncontrollingequity investments when a subsidiary
is deconsolidated. SFAS No. 160 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.




-7-




In March 2008, the FASB issued SFAS No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No.
161"). SFAS No. 161 amends and expands the disclosure requirements of FASB
Statement 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") to require
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 condensed consolidated financial
position or results of operations and the required disclosures have been
includedin Note 12 and 14.





In April 2008, the FASB issued FSP SFAS
142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3").
This guidance is intended to improve the consistency between the useful life of
a recognized intangible asset under SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R 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 SFAS 142's entity-specific factors. The
adoption on January 1, 2009 of this standard did not have a materialimpact on the Company’s condensed consolidated financial
statements.





In May 2008, the FASB issued SFAS No.
162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS No. 162
identifies the sources of accounting principles and the framework forselecting the principles to
be used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with GAAP. The adoption on January 1, 2009 of
this standard did not have a material impact on the Company’s condensed consolidated financial
statements.





In May 2008, the FASB issued FASB FSP
APB 14-1, "Accounting forConvertible DebtInstruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)". FSP APB 14-1 requires the
issuer of certainConvertible Debtinstruments 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 Debtborrowing 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
nonConvertible
Debtborrowing rate. In
addition, the FSP 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 condensed consolidated financial
statements.





In September 2008, the FASB issued FSP EITF
03-6-1, "Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities." FSP EITF 03-6-1 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 pursuant to SFAS No. 128, "Earnings per
Share." This guidance establishes that unvested share-based payment awards that contain nonforfeitable
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 condensed consolidated financial
statements.




-8-




In April 2009, the FASB issued SFAS No.
115-2 and SFAS No. 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,”(“SFAS No.152-2 and SFAS
No.124-2”) which provides
operational guidance for determining other-than-temporary impairments
(“OTTI”) for debt securities. SFAS No.152-2 and
SFAS No.124-2 are effective for interim and annual periods ending after
June 15, 2009. The adoption on April
1, 2009 of this standard did not have a material impact on the
Company’s condensed consolidated financial
statements.





In April2009, the FASB issued SFAS No. 107-1 and
APB 28-1, “Interim
Disclosure about Fair Value of Financial Instruments”(“SFAS No. 107-1and APB 28-1”). SFAS No. 107-1 and APB 28-1 requires
interim disclosures regarding the fair values of financial instruments that are
within the scope of SFAS No. 107, “Disclosures about the Fair Value of
Financial Instruments.”(“SFAS No. 107”). Additionally, SFAS No. 107-1 and APB
28-1 require disclosure of the methods and significant assumptions used to
estimate the fair value of financial instruments on an interim basis as well as
changes of the methods and significantassumptions from prior periods. SFAS
No. 107-1 and APB 28-1 do not change the accounting treatment for these
financial instruments. The adoption on April 1, 2009 of these standards did not
have a material impact on the Company’s condensed consolidated financial statements.





In April2009, the FASB issued SFAS No. 157-4,
“Determining Fair Value
When Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”(“SFAS No. 157-4”). SFASNo. 157-4 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. SFAS No. 157-4
also provides guidance on identifying circumstances that indicate a transaction is not orderly. In
addition, SFAS No. 157-4 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 activitiy for the asset or
liability of the Company have not decreased and there are no identifying
transactions that are not orderly, the adoption on April 1, 2009 of this
standard did not have a material impact on the Company’s condensed consolidated financial
statements.





In May 2009, the FASB issued SFAS No.
165, “Subsequent
Events,”which establishes
general standards for the accounting for and the disclosures of events that
occur after the balance sheet date but before the financial statementsare issued or are available
to be issued. The pronouncement requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date,
whether that date represents the date the financial statements were
issuedor were available to be issued. We
adopted this pronouncement effective June 30, 2009, and the adoption of
this new standard did not have a material effect on our consolidated financial
position, results of operations or cash flows. We have evaluated
subsequent events throughOctober 28, 2009 the date the condensed
consolidated financial statements were available to be issued.The only subsequent event identified is
the settlement of security registration expense with 614,290 common stocks on
September 28, 2009(see
Note 13).





Recent accounting
pronouncement





In July 2009, the FASB issued SFAS No.
168, “FASB Accounting
Standards Codification”(“SFAS 168”), 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
andtherefore, is not expected to have any
impact on the Company’s condensed consolidated financial
statements.




-9-




Foreign exchange rates
used




June30,
                  2009
                
                
                December31,
                  2008
                
                
                June30,
                  2008Period end RMB/U.S. Dollar
      exchange rate
                
                
                6.8302
                
                
                
                6.8225
                
                
                
                6.8591Average RMB/U.S. Dollar exchange
      rate
                
                
                6.8293
                
                
                
                6.9483
                
                
                
                6.9572




New accounting policies related to
acquisition





On January 1, 2009, the Company acquired
Xinxing Property (See Note 2). Xinxing Property provides property management
services. The revenues of the property management services are recognized when
the services are provided.





Depreciation of Xinxing
Property’s income producing property’s improvements is computed using the
straight-line method over
the estimated useful lives of 10 years.





Reclassification





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’scondensed consolidated financial
statements.





Note 2—RestatementofSecurity Registration
Expenses





Pursuant to the agreement with theinvestorsof the 5% Senior SecuredConvertible Debt(Note13), the Companywasrequired to pay theinvestorscertainlate registration payments
(“Late
Payments”) iftheCompanyfailed to fileaRegistration Statement within 60 days
after the closing date of the 5% Senior SecuredConvertible Debt. The Companycommenced negotiationswith the holders of the 5% Senior
SecuredConvertible Debtto waive the Late Payments in December
2008, as both parties believedthat the registration statement would
become effectivewithina short period of time. However, as the
registration statement has not become effective as of September 2009, theinvestorsof the 5% Senior SecuredConvertible Debthave decided to claim the Late
Payments.Because the
Company failed to accrue the Late Payments, the Company has restated the 2008 year
end, 2009 quarter one and 2009 quarter two consolidated financial statements to accrue the
corresponding expenses.




The restatement had the following impact
on the Company’s previously reported results of
operations for the three months and six months ended June 30,
2009:




Three
Months
                  
                  Six MonthsEnded
                  
                  EndedJune 30,
                  
                  June 30,2009
                  
                  2009Security registration expenses as
      previously reported
                  $
                  -
                  
                  
                  $
                  -Adjustment to accrue security
      registration expenses
                  
                  606,742
                  
                  
                  
                  1,206,742Security registration expenses as
      restated
                  $
                  606,742
                  
                  
                  $
                  1,206,742Net loss as previously
      reported
                  $
                  (10,036,144
                  )
                  
                  $
                  (8,180,560
                  )Adjustment to accrue security
      registration expenses
                  
                  (606,742
                  )
                  
                  
                  (1,206,742
                  )Net loss as restated
                  $
                  (11,242,886
                  )
                  
                  $
                  (9,387,302
                  )Basicanddilutedlossper shareAs previously
      reported
                  $
                  (0.32
                  )
                  
                  $
                  (0.26
                  )As restated
                  $
                  (0.34
                  )
                  
                  $
                  (0.30
                  )





June 30,
                  
                  December
31,2009
                  
                  2008Accrued security registration
      expenses as previously reported
                  $
                  -
                  
                  
                  $
                  -Adjustment to accrue security
      registration expenses
                  
                  1,820,224
                  
                  
                  
                  613,483Accrued security registration
      expenses as restated
                  $
                  1,820,224
                  
                  
                  $
                  613,483Retained earnings as previously
      reported
                  
                  
                  
                  
                  $
                  39,265,062Cumulative effect of the
      adjustment to accrue security registration expenses
                  
                  
                  
                  
                  
                  (613,483
                  )Retained earnings as
      restated
                  
                  
                  
                  
                  $
                  38,651,579




Prior to the restatement, the Company did
not accrue the Late Payments. After the restatement, the Company has presented
the Late Payments as security registration expenses.





Note3–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 for a purchase
price of RMB 12 million (approximately $1.76 million). Xinxing Property
provides property management services to residential and commercial projects. 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 condensed consolidated
statementof 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.





The total purchase price included (1) an
initialcash payment of RMB
2.0 million (approximately $0.3 million) payable upon signing of the purchase
agreement, (2) a cash payment of RMB 3.6 million (approximately $0.5
million) payable on March 30, 2009, (3) an additional cash payment of RMB 3.6
million (approximately $0.5 million)
payable on June 30, 2009 and (4) a final cash payment of RMB 2.8
million (approximately $0.4 million) payable on September 30,
2009. If the Company does not make payments after 45 days of signing the
agreement, a 1% penalty per month will be calculated based on the
payable amount. If the payment is delayed for more than 3 months, the original
shareholders of Xinxing Property have the right to cancel the
transaction. As of June 30, 2009, the remaining balance under the agreement
amounted to $937,015 (see note
9).





The acquisition was accounted for using
the purchase method in accordance with SFAS No. 141(R). The purchase price was
allocated to the identifiable assets and liabilities assumed based on their
estimated fair values. The purchase price allocation is not
considered final as of the date of this report as the Company is still reviewing
all of the underlying assumptions and calculation used in the allocation.
However, The Company believes the final purchase price allocation will not be materially different than
presented below.




-10-




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
                  
                  
                  (921
                  )Goodwill as at June 30,
      2009
                  
                  $
                  815,955





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





Note4–Supplemental Disclosure of Cash Flow
Information





Income taxes paid for both the three and
six months ended June 30, 2009 amounted to $42,135 (2008 - $225,963). Interest
paid for the three months ended June 30,2009 and 2008 amounted to $917,073 and
$448,334, respectively. Interest paid for the six months ended June 30, 2009 and
2008 amounted to
$2,008,308 and $825,479, respectively.





Note5–Other Receivables and Prepaid
Expenses





Other receivables, prepaid
expenses and other assets
consisted of the following at June 30, 2009 and December 31,
2008:





June30,
                  2009
                
                
                December31,
                  2008Other
      receivable
                
                $
                1,021,160
                
                
                $
                916,886Allowance for bad
      debts
                
                
                (328,546
                )
                
                
                (473,058
                )Prepaid
    expenses
                
                
                107,782
                
                
                
                2,669Other receivables, prepaid expense
      other assets
                
                $
                800,396
                
                
                $
                446,497




-11-




Note6–Real Estate Held for Development or
Sale





The following summarizes the components
of real estateinventories
at June 30, 2009 and December 31, 2008:





June30,
                  2009
                
                
                December31,
                  2008Finished
      projects
                
                $
                9,132,754
                
                
                $
                10,181,827Construction in
      progress
                
                
                97,086,959
                
                
                
                50,468,184Total real estate held for development or
      sale
                
                $
                106,219,713
                
                
                $
                60,650,011





Interest on debt incurred by the Company
for the three months ended June 30, 2009 was $1,194,478 (June 30, 2008 -
$939,717), and for the six months ended June 30, 2009 was $2,392,335
(June 30, 2008 -
$1,733,748). Of this interest, the Company capitalized in real estate held for
development or sale during the three months ended June 30, 2009 $751,712 (June
30, 2008 - $393,310). Of this interest, the Company capitalized in real estate
heldfor development or sale during the six
months ended June 30, 2009 $1,611,491 (June 30, 2008 -
$764,285).





Note7–Property and
Equipment





Property and equipment consisted of the
following at June 30, 2009 and December 31,
2008:




June30,
                  2009
                
                
                December31,
                  2008Head office buildings and
      improvements
                
                $
                3,275,847
                
                
                $
                3,234,628Income producing properties and
      improvements
                
                
                10,710,953
                
                
                
                10,055,310Electronic
      equipment
                
                
                419,454
                
                
                
                228,422Vehicles
                
                
                253,957
                
                
                
                71,140Office
      furniture
                
                
                286,424
                
                
                
                183,399Computer
      software
                
                
                126,951
                
                
                
                91,272Totals
                
                
                15,073,586
                
                
                
                13,874,711Accumulated
      depreciation
                
                
                (2,098,481
                )
                
                
                (1,483,210
                )Property and equipment,
      net
                
                $
                12,975,105
                
                
                $
                12,391,501





Depreciation expense for the three
months ended June 30, 2009 and 2008 amounted to $160,177 and $89,839,
respectively. Depreciation expense for the six months ended June 30,
2009 and 2008 amounted to $315,026 and $183,657, respectively. The
depreciation expense was
included in the selling, general and administrative
expenses.




-12-




Note8–Intangible Assets





Intangible assets consists of the
following at June 30, 2009 and December 31, 2008:





June30,
                  2009
                
                
                December31,
                  2008Intangibles
      acquired
                
                $
                47,280,980
                
                
                $
                47,334,342Accumulated
      amortization
                
                
                (5,650,953
                )
                
                
                (1,290,682
                )Intangible assets,
      net
                
                $
                41,630,027
                
                
                $
                46,043,660





Amortization expense for the three
months ended June 30,2009 and 2008 amounted to $0.
Amortization expense for the six months ended June 30, 2009 and 2008 amounted to
$4,360,003 and $0, respectively. The amortization expense was capitalized in the
real estate construction in progress.





Note9–Accrued Expenses





June30,
                  2009
                
                
                December31,
                  2008Accrued
      expenses
                
                $
                1,500,266
                
                
                $
                855,270Accrued
      Interest
                
                
                2,961,258
                
                
                
                2,684,572Total
                
                $
                4,461,524
                
                
                $
                3,539,842





Note10–Payable to Acquisition of
Businesses





June 30,
                      2009
                    
                    
                    December 31,
                      2008Payable to original shareholders
      of New Land
                    
                    (i)
                    
                    $
                    6,712,876
                    
                    
                    $
                    8,429,889Payable to original shareholders
      of Xinxing Property
                    
                    (ii)
                    
                    
                    937,015
                    
                    
                    
                    -Total
                    
                    
                    
                    $
                    7,649,891
                    
                    
                    $
                    8,429,889





(i)
            The payable to the
      original shareholders
      of New Land bears 10% interest with an original maturity of January
      30, 2009. New Land’s original shareholders have
      agreed to extend the loan to December 31,
  2009.





(ii)
            On January 20, 2009, the
      Company completed the acquisition of Xinxing Property (See Note3). The total purchase price for
      the acquisition was RMB 12 million,(approximately $1.76 million). The
      total purchase price included 1) an initial cash payment of RMB 2.0
      million,(approximately $0.3 million), payable upon signing of
      the purchase
      agreement, 2) an additional cash payment of RMB 3.6 million
      (approximately $0.5 million), on March 30, 2009, 3) an additional cash
      payment of RMB 3.6 million (approximately $0.5 million), on June 30,
      2009, and 4) a final cash payment of RMB 2.8million (approximately $0.4
      million), on September 30, 2009. If the Company does not make
      payments after 45 days of signing the agreement, a 1% penalty per month
      will be calculated based on the payable amount. If the payment is delayed
      for more than 3 months, the original shareholders of
      Xinxing Property have the right to cancel the deal. As ofJune30, 2009, the remaining balance
      under the agreement amounted to $937,015.


-13-


Note11–Loans Payable





Loans payable represent amounts due tovarious banks. These loans
generally can be renewed with the banks when they expire. Loans payable as
of June 30, 2009 and December 31, 2008 consisted of
the following:


June30,
                          2009
                        
                        
                        December31,
                          2008Commercial Bank Weilai
      BranchDue December 25, 2009, annual
      interest is at 7.5 percent, secured by the Company's 24G
      projects
                        
                        $
                        3,660,215
                        
                        
                        $
                        5,130,084Commercial Bank Weilai
      BranchDue August 29, 2010, annual
      interest is at 10.21 percent, guaranteed by Tsining and secured by
      the Company's Tsining building and part of Junjing II
      properties
                        
                        
                        5,124,301
                        
                        
                        
                        5,130,084Xi'an Rural Credit union Zao Yuan
      Rd. BranchDue July 3, 2010, annual interest
      isat 8.83 percent,
      secured by the Company's Jun Jing Yuan I, Yuan I, Han Yuan and Xin Xing
      Tower projects
                        
                        
                        2,928,172
                        
                        
                        
                        3,371,198China Construction Bank, Xi'an
      BranchDue August 27, 2011, annual
      interest isat
      floating interest rate based on 110% of People’s Bank of China rate, secured by
      the Company's Jun Jing Yuan II
                        
                        
                        12,737,548
                        
                        
                        
                        21,986,076Total
                        
                        $
                        24,450,236
                        
                        
                        $
                        35,617,442





All loans are used to finance
construction projects. All
interest paid was capitalized and allocated to various construction
projects.





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 (approximately
US$147 million) 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 RMB 150
million loan, which willmature on August 27, 2011.
$21,986,075 (RMB 150 million) was received by the Company on December 31, 2008.
As of June 30, 2009, our current ratiowasapproximately179.3%,and our liabilities to assets ratio
wasapproximately 53.1%. The Company will
be able to draw down
approximately another $75 million before we reach the maximum liabilities to
assets ratio of 65%. If we are unable to meet all above covenants, we may not be
able to draw down new loans from China Construction Bank and this will cause the
delay of our projects under
construction.




-14-




Note12–Fair Value of Financial
Instruments





The following table summarizes the
financial assets and liabilities measured at fair value on a recurring basis as
of the measurement date, June 30, 2009,and the basis for that measurement, by
level within the fair value hierarchy:





FairValueMeasurementsUsing
                
                Assets/LiabilitiesLevel1
                
                
                Level2
                
                
                Level3
                
                
                AtFairValueWarrants
      liabilities
                
                
                -
                
                
                $
                7,983,626
                
                
                
                -
                
                
                $
                7,983,626Derivative
      liabilities
                
                
                -
                
                
                $
                6,472,976
                
                
                
                -
                
                
                $
                6,472,976Total
                
                
                -
                
                
                $
                14,456,602
                
                
                
                -
                
                
                $
                14,456,602





Note13–Convertible Debt





On January 28, 2008, the Company issued
Senior SecuredConvertible
Debtdue in 2013 (the
"Convertible Debt") and warrants to subscribe for common
shares for an aggregate purchase price of US$20 million. TheConvertible Debtbearsinterest at5% 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
ifcertain 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 theConvertible
Debtis reduced to
US$10millionor less as a result ofrepayment by the Company pursuant to theConvertible
Debtas a result of any
optional conversion by the Investors or mandatory conversion by the Company of
theConvertible
Debt, then each Investor
agrees to surrender to the Companywarrantsfor an aggregate number of shares ofcommonstockequal to such Investors’pro rata share of 107,810 shares. If
the aggregate principal amount of theConvertible Debtis reduced to$0as a result of repayment by the Company
pursuant to theConvertible
Debtas a result
ofany optional conversion
by the Investors or mandatory conversion by the Company of theConvertible Debt, then each Investor agrees to surrender
to the Companywarrantsin addition to the 107,810warrantssurrendered pursuant to the$10million reductionnotedabovefor an aggregate number of shares ofcommonstockequal 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 anywarrantssurrendered by the Investors. AsofOctober28, 2009, the Company did not repay any
principle ofConvertible
Debtand theInvestors did not deliver any optional
conversion request to the Company.





TheInvestorshave the right to convert up to 45% ($9
million) of the principal amount of theConvertible Debtinto 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 ofConvertible Debtat 100% of the principle amount,
plus any accrued and unpaid
interest. The warrants associated with theConvertible Debtgrant theInvestorsthe 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 atany time up to and
including February 28, 2013.





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





Both the warrants and the embedded
derivative associated withConvertible Debtmeet the definition of a
derivative instrumentaccording to FASB No. 133, “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
Renminbi, the exemption from derivative instrument accounting provided by FASB
No. 133, paragraph 11(a)(1)
is not available and therefore the warrant and embedded conversion
optionare recorded as derivative
instrument liabilities and periodically marked-to-market. The fair value of
the warrants and the embedded derivative on inception were
determined to be $3,419,653
and $3,927,375, respectively, using the Cox-Rubinstein-RossBinomial Lattice Model(the“CRRModel”)with the following
assumption: 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 derivative at June 30, 2009 were determined to be of
$5,698,403 (December 31, 2008 - $658,682) and $6,472,976 (December 31,2008–$760,398), respectively, using theCRRModel with the following
assumption: expected life3.58 - 3.66 years, expected volatility -105%, risk free interest rate -
1.90-1.94% and dividend rate - 0%. For the three months ended June 30, 2009 and
2008, the Company recorded a change in fair value for warrants and
embedded derivatives of $5,144,461(2008 - $(652,744)) and $5,836,616 (2008
- $(738,999)), respectively, in the condensed consolidated statements
of income and comprehensive income. For the six months
ended June 30, 2009 and 2008, the Company recorded a change in
fair value for warrants andembedded derivatives of
$5,039,721 (2008 - $(408,988)) and $5,712,578 (2008 -
$(454,488)), respectively, in the condensed consolidated statements of
income and comprehensive income.




-15-




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 ConvertibleDebt.The initial carrying value of the
Convertible Debtis accreted to itsstatedamountonmaturity using the effective interest method. The effective
interest rate was determined to be 15.42%. The carrying value ofConvertible Debtat June 30, 2009 was $14,199,920
(December 31,2008 - $13,621,934). Related interest
expense and accretion expense for the three months ended June 30, 2009 were
$266,311 (2008 - $257,826) and $296,164 (2008 - $253,558),
respectively. Related interest expense and accretion expense for
the six months ended June 30, 2009 were $529,674 (2008 -
$435,603) and $577,986 (2008 - $425,241), respectively.





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 theForm S-3 is not available at that time, then the Company will
file a Registration Statement on such form as is then available to effect a
registration of the registrable securities, subject to the consent of the
Investors, which consent will not be unreasonably withheld. TheCompany shall register an amount of
common stock for resale that equals at least 125% of the sum of shares issuable
upon conversion of theConvertible Debtand the exercise of the warrants. The
registration rights granted under the Registration Rights Agreement are subject to customary exceptions
and qualifications and compliance with certain registration procedures. The
Company is subject to the late registration penalty payment equal to the product
of (i) the Investor’s outstanding principal amount and
(ii) the quotient obtained by dividing 12%
by 360 (the “Late
Payments”).





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. However, as
the registration has not become effective as of September 2009, the Company has
accrued for the Late Payments (see Note 2). 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
stock. The 614,290 common stock 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 will waived any further Late Payments against the
Company under the Registration Rights Agreement.





Note14–Noncontrolling
Interest





Noncontrolling interest consists of the
interest of noncontrolling shareholders in the subsidiaries of the Company. As
of June 30,
2009 noncontrolling interest amounted to $28,916,316 (December 31,
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 US$ 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
bedeveloped, operated and
sold.




-16-






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, the claim for damages and the
reimbursement of expenses. Any amounts payable under the Guarantee by the
Company shall include an interest accrued at the rate of 10% per annum from
the due date of such payment.





During
the first six months of 2009, the Company owned a 75% interest in Puhua (Xi’an)
Real Estate Development Co., Ltd. (“Puhua”), a real estate development company.
Given the Company’s controlling ownership interest, the accounts of Puhua have
been consolidated with the accounts of the Company, and a noncontrolling
interest has been recorded for the noncontrolling investors’ interests in the
net assets and operations of Puhua in accordance with the noncontrolling
investor’s investments.





NoncontrollinginterestNoncontrolling
      Interest at December 31, 2008
                
                $
                29,109,350Noncontrolling
      interests’ share of loss for the six months ended June 30,
      2009
                
                
                (193,034
                )Noncontrolling
      Interest at June 30, 2009
                
                $
                28,916,316





Note
15 – Shareholders' Equity





Pursuant
to EITF 00-19, "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 Black-Scholes
valuation in certain circumstances. Therefore, under EITF 00-19 and SFAS No.
133, the Company recorded the warrants issued in 2006 and 2007 as a liability at
their fair value on the date of grant and then marked them to $2,285,223 at June
30, 2009 (2008 - $458,461) using the CRR Binomial Lattice Model with the
following assumptions: expected life ranges from 0.02 to 2.84 years; expected
volatility - 105%, risk fee interest rate ranges from 0.17% to 1.56% and
dividend rate - 0%. The change in fair value of warrants for the three months
ended June 30, 2009 was $2,078,266 (2008 - $(293,819)). The change in fair
value of warrants for the six months ended June 30, 2009 was
$2,015,767 (2008 - $(547,064)).





As of
December 31, 2008, the Company accrued as a liability $78,600 of stock based
compensation expense for 54,583 shares of common stocks granted by the Company
to various directors and executive in 2009. As of June 30, 2009, all of these
shares were issued.





Warrants





Following
is a summary of the warrant activity:





Numberof
                      Warrants
                      Outstanding
                    
                    
                    Weighted
                      Average
                      ExercisePriceDecember
      31, 2008
                    
                    
                    4,381,980
                    
                    
                    $
                    4.96Expired
                    
                    
                    15,693
                    
                    
                    
                    3.31Exercised
                    
                    
                    96,963
                    
                    
                    
                    3.31June
      30, 2009
                    
                    
                    4,269,364
                    
                    
                    $
                    5.00




-17-


Following
is a summary of the status of warrants outstanding at June 30,
2009:





Outstanding WarrantsExercise
                      Price
                    
                    Number
                    
                    Average Remaining
                      Contractual Life$3.31
                    
                    
                    100,515
                    
                    0.14
      years$4.50
                    
                    
                    2,731,382
                    
                    2.86
      years$6.07
                    
                    
                    1,437,467
                    
                    3.67
      years





Note
16 – Provision for Income Taxes





As the
change in fair value of embedded derivatives and change in fair value of
warrants is not tax deductable, the Company incurred a provision for taxes in
the three months and six months ended June 30, 2009 despite a net loss before
taxes.





Note
17 – Net (Loss) Income per Share





Earnings
per share for the six months ended June 30, 2009 and
2008 were determined by dividing the net (loss) income for the years by the
weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding.





3 Months
                            
                            
                            3 Months
                            
                            
                            6 Months
                            
                            
                            6 MonthsJune 30,
                            
                            
                            June 30,
                            
                            
                            June 30,
                            
                            
                            June 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Numerator(Loss)Income
      attributable to common shareholders - basic
                            
                            $
                            (10,496,987
                            )
                            
                            $
                            1,135,879
                            
                            
                            $
                            (9,194,268
                            )
                            
                            $
                            1,183,564Effect
      of dilutive securities:Warrants
                            
                            
                            
                            
                            (288,510
                            )
                            
                            
                            
                            
                            (547,064
                            )Income
      attributable to common shareholders - diluted
                            
                            $
                            (10,496,987
                            )
                            
                            $
                            847,369
                            
                            
                            $
                            (9,194,268
                            )
                            
                            $
                            636,500DenominatorWeighted
      average shares outstanding - basic
                            
                            
                            30,932,745
                            
                            
                            30,143,757
                            
                            
                            30,913,359
                            
                            
                            30,143,161Effect
      of dilutive securities:Warrants
                            
                            5,325
                            
                            
                            167,444
                            
                            
                            2,677
                            
                            
                            161,518Weighted
      average shares outstanding - diluted
                            
                            30,938,070
                            
                            
                            30,311,201
                            
                            
                            30,916,036
                            
                            
                            30,304,679Earnings
      per shareBasic
                            
                            $
                            (0.34
                            )
                            
                            $
                            0.04
                            
                            
                            $
                            (0.30
                            )
                            
                            $
                            0.04Diluted
                            
                            $
                            (0.34
                            )
                            
                            $
                            0.03
                            
                            
                            $
                            (0.30
                            )
                            
                            $
                            0.02





All of
the outstanding warrants and Convertible Debt have an anti-dilutive effect on
the earnings per share and are therefore excluded from the determination of
diluted earnings per share calculation.





Note
18 – Commitments and Contingencies





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.





The
Company entered into a contract with Xi’an Baqiao local government for a rubber
dam construction project. The Company is committed to expend approximately
$1,024,860 on this project.





As of
June 30, 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
                          
                          $
                          381,562
                          
                          
                          $
                          124,545
                          
                          
                          $
                          52,775
                          
                          
                          $
                          52,775
                          
                          
                          $
                          151,467Rubber
      dam construction
                          
                          
                          1,024,860
                          
                          
                          
                          1,024,860Land
      use right
                          
                          
                          2,591,432
                          
                          
                          
                          
                          
                          
                          
                          2,591,432Total
                          
                          $
                          3,997,854
                          
                          
                          $
                          1,149,405
                          
                          
                          $
                          2,644,207
                          
                          
                          $
                          52,775
                          
                          
                          $
                          151,467




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





FORWARD-LOOKING
STATEMENTS




Some of
the statements contained in this Form 10-Q that are not historical facts and are
forward-looking statements, which can be identified by the use of terminology
such as estimates, projects, plans, believes, expects, anticipates, intends, or
the negative or other variations, 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-Q 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 and conditions that 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-Q 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.


-18-




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, we determined that the Company will restate its financial
statements for the quarter ended June 30, 2009 as reported on Form 10-Q filed
August 12, 2009. Pursuant to a registration rights agreement entered into in
connection with the Company’s issuance of its 5.0% Senior Secured Convertible
Debt, the Company is required to pay the investors of the 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 5.0% Senior Secured Convertible Debt to waive the Late
Payments in December 2008. The investors of the 5.0% Senior Secured Convertible
Debt have thereafter decided to claim the Late Payments. Because the Company
failed to accrue the Late Payments, the Company has decided to restate its
financial statements for the quarter ended June 30, 2009 as reported on Form
10-Q to accrue the corresponding expenses. Prior to the restatement, the Company
did not accrue the Late Payments. After the restatement, the Company will
present the Late Payments as security registration expense.





Warrants
and derivative liability





As of
June 30, 2009, the Company has approximately $8.0 million of warrants liability
and $6.5 million of fair value of embedded derivatives on the balance sheet,
which is approximately 6.9% and 5.6% of the total liabilities,
respectively.





We are
using 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 warrant liability and embedded derivatives every
quarter and recognize the change of fair value as gain or loss in 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 three months ended June 30, 2009,
our common stock price experienced large fluctuations with the price increasing
from $1.20 on March 31, 2009 to $5.76 on June 30, 2009. The increase in stock
price and expected volatility caused an increase in fair value for warrants. As
a result, we recognized approximately $7.2 million as a change in fair value of
warrants and $5.8 million as a change in fair value of embedded derivatives,
which are all non-cash expenses.




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





(in million)
                
                2008
                
                
                20093rdQuarter
                
                
                4thQuarter
                
                
                1stQuarter
                
                
                2ndQuarterWarrants
      Liability
                
                $
                2.2
                
                
                $
                1.1
                
                
                $
                0.9
                
                
                $
                8.0Fair
      value of embedded derivatives
                
                $
                1.4
                
                
                $
                0.8
                
                
                $
                0.6
                
                
                $
                6.5




-19-


Real
estate held for development or sale, intangible asset and deposits on land use
rights





As of
October 27, 2009, our market capitalization is approximately
$115 million.





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 three and six
months ended June 30, 2009 and 2008.




The
following summarizes the components of real estate inventories as at June 30,
2009 and December 31, 2008:





June 30, 2009
                
                
                December 31, 2008Finished
      projects
                
                $
                9,132,754
                
                
                $
                10,181,827Construction
      in progress
                
                
                97,086,959
                
                
                
                50,468,184Total
      real estate held for development or sale
                
                $
                106,219,713
                
                
                $
                60,650,011




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,
somecertain 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 348 acres land undeveloped, and $41.6
million in intangible assets. If we are not able to achieve the extension of the
agreement withthe Baqiao District Government does not extend the agreement, we
will have to write off the intangible assets from our balance sheet, which will
affect our income statement in 2011.





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.





As of
June 30, 2009 and December 31, 2008, intangible asset consists of the
following:





June 30, 2009
                
                
                December 31, 2008Intangible
      acquired
                
                $
                47,280,980
                
                
                $
                47,334,342Accumulated
      amortization
                
                
                (5,650,953
                )
                
                
                (1,290,682
                )Intangible
      assets, net
                
                $
                41,630,027
                
                
                $
                46,043,660




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 three and six months ended June 30, 2009
and 2008, the Company has recorded $0 of impairment on the intangible
asset.


-20-


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 487
acre land in the Baqiao project. During fiscal 2007, the Company sold 18.5 acre
land and the related profit margin realized on that sale represents 2.4% of
total estimated profit margin on the whole 487 acre project, therefore the
Company amortized $1,157,758 (2.4% ) of 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 (2007 - $1,157,758)
of amortization on the intangible asset. Amortization expense for the three
months ended June 30, 2009 and 2008 amounted to $0. Amortization expense for the
six months ended June 30, 2009 and 2008 amounted to $4,360,003 and $0,
respectively. The amortization expense was capitalized in the real estate
construction in progress.





Management
re-evaluated the expected profit margin from the 487 acre land as at June 30,
2009 and recalculated the intangible amortization related to the 2008 land sales
based on the new estimate. As a result, management found the difference resulted
from change of estimate was not material. Therefore there was no adjustment made
in the three and six months ended June 30, 2009 due to the change of accounting
estimate of total profit margin in 487 acres land.




Deposits
on land use rights





June 30, 2009
                
                
                December 31, 2008Deposits
      on land use rights
                
                
                26,586,901
                
                
                
                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. The residential average sale price in Xi’an city was stable the
fiscal quarter ended June 30, 2009 and according to the Xi’an Bureau of
Statistics’ data, the average sale price increased to 4,642RMB per
square meter (approximately US$677 per square meter) from 4,496RMB in
the first quarter 2009, and representing about 5% 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 Xi’an Bureau of
Statistics, Xi’an city’s real estate transaction volume (in terms of sq. meter
signed) decreased about 30% in 2008 compared to 2007. As currently all our
projects are in Xi’an city, the downturn of the real estate market in Xi’an
caused the decline of our operating revenues in 2008. Since 2009, we
see the market sentiment has improved and the transaction volume has
increased compared to same period of 2008. During the second quarter of 2009,
our revenue increased approximately 70.7% over same period 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.


-21-


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.





As of
June 30, 2009, we had $10,133,600 of cash and cash equivalents, a decrease of
$27,291,740, compared with $37,425,340 of cash and cash equivalents as of
December 31, 2008.





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
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.


-22-


BUSINESS




China
Housing & Land Development, Inc. (the “Company” or “we”), is a leading
developer of residential and commercial properties in northwest China. The
Company is based in Xi’an, the capital city of China’s Shaanxi province. Since
1992, the Company has been engaged in the acquisition, development, management
and sales of residential and commercial real estate properties and land through
its subsidiaries in China.




The
Company is the first and only Chinese real estate development company traded on
NASDAQ.




By
leveraging its background and capabilities, the Company  has been
able to capitalize on the supply of available land to develop residential and
commercial properties, further increase Its brand recognition, and outperform
its competitors in the development of medium sized residential and commercial
real estate projects in greater Xi'an.





The
Company is the leading non-government middle-and-upper income residential real
estate development company in Xi'an.





Our
Property Projects





We
provide three fundamental types of real estate development
products:





▪
            High-rise
      apartment buildings, typically 19 to 33 stories high, usually constructed
      of steel-reinforced concrete, that are completed within approximately 24
      months of securing all required
permits.





▪
            Mid-rise
      apartment buildings, typically 7 to 18 stories high, usually constructed
      of steel-reinforced concrete, that are completed within 12 to 18 months of
      securing all required permits.





▪
            Low-rise
      apartment buildings and villas, typically 2 to 6 stories high, often
      constructed of steel-reinforced concrete, that are completed within
      approximately 12 months of securing all required
  permits.





Our
projects can be classified into one of four stages of development:





▪
            Projects
      in planning, where we have purchased the development and or land use
      rights for parcels of land as part of our project development pipeline.
      The completion of projects on these sites is subject to adequate
      financing, permits, licensing and certain market
    conditions;





▪
            Projects
      in process, which include developments where we have typically secured the
      development and land use rights, and where the site planning,
      architecture, engineering and infrastructure work is in
      progress;





▪
            Projects
      under construction, where the building construction has started but has
      not yet been completed; and





▪
            Completed
      projects, where the construction has been finished and most of the units
      in the buildings have been sold, leased or
  rented.


-23-


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 GFA
                                                (m2)
                                              
                                              
                                              Sold GFA by
                                                June 30, 2009
                                                (m2)JunJing
      II
                                                Phase
      One
                                              
                                              Multi-Family
                                                residential
      &
                                                Commercial
                                              
                                              Q3/2007
                                                -
      Q3/2009
                                              
                                              Q2/2008
                                              
                                              
                                              39,524
                                              
                                              
                                              
                                              136,012
                                              
                                              
                                              
                                              104,662JunJing
      II
                                                Phase
      Two
                                              
                                              Multi-Family
                                                residential
      &
                                                Commercial
                                              
                                              Q2/2009
                                                -
      Q2/2011
                                              
                                              Q2/2009
                                              
                                              
                                              29,800
                                              
                                              
                                              
                                              112,556
                                              
                                              
                                              
                                              2,456Puhua
      Project
                                              
                                              Multi-Family
                                                residential
      &
                                                Commercial
                                              
                                              Q2/2009
                                                -
      Q3/2014
                                              
                                              Q3/2009
                                              
                                              
                                              192,582
                                              
                                              
                                              
                                              610,000
                                              
                                              
                                              
                                              -





Project name
                              
                              Total
                                Number of
                                Units
                              
                              Number of
                                Units sold by
                                June 30, 2009
                              
                              Estimated
                                Revenue
                                ($ millions)
                              
                              Contracted
                                Revenue by
                                June 30,
                                2009
                                ($ millions)
                              
                              
                              Recognized
                                Revenue by
                                June 30,
                                2009
                                ($ millions)JunJing
      II
                                Phase
      One
                              
                              1,182
                              
                              
                              1,017
                              
                              95.6
                              
                              
                              63.7
                              
                              
                              
                              54.4JunJing
      II
                                Phase
      Two
                              
                              1,015
                              
                              
                              22
                              
                              94.1
                              
                              
                              1.9
                              
                              
                              
                              1.0Puhua
      Project
                              
                              5,000
                              
                              
                              -
                              
                              700.0
                              
                              
                              -
                              
                              
                              
                              -





JunJing II: JunJing II is
located at 38 East Hujiamiao, Xi’an, with a total gross floor area (“GFA”) of
approximately 248,568 square meters. It is the first Canadian style residential
community with “green and energy-saving” characteristics in Xi’an and has won
the “National Energy Saving Project” award. 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 pre-sale campaign in the second quarter of 2008.





As of
June 30, 2009, our customers have signed pre-sale purchase agreements for
apartments with purchase prices totaling $63.7 million, of which we have
recognized $54.4 million in revenues, based on the percentage of completion
method of accounting. Approximately $10 million of pre-sale payments were
booked as advances from customers and will be recognized as revenues as
construction advances.





The
construction of Phase Two commenced in the second quarter of 2009 and pre-sales
started within the same quarter. As of June 30, 2009, the contract revenue for
Phase Two is $ 1.9 million, of which we have recognized $ 1.0 million in
revenues. Revenue will continue to be recognized as construction
advances.




Puhua:   The Puhua
project, the Company’s 79 acre joint venture located in the Baqiao project, has
a total land area of 192,582 square meters and an expected gross floor area
of approximately 610,000 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, subject to
certain conditions and approvals, which have been satisfied. Prax Capital Real
Estate Holdings Limited invested US$29.3 million in cash in the joint
venture, the joint venture acquired the land use rights early in the first
quarter of 2009, and the joint venture is proceeding with the
project.


-24-


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. We will begin accepting pre-sale
purchase agreements during the third quarter of 2009. Revenue from the pre-sales
will begin to be recognized upon the completion of the
foundation.





Projects
under planning and in process




Project
                                    name
                                  
                                  Type of
                                    Projects
                                  Estimated
                                    Construction
                                    Period
                                  
                                  Estimated Pre-
                                    sale
                                    Commencement
                                    Date
                                  
                                  
                                  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
                                  Q3/2009
                                    - Q3/2011
                                  
                                  
                                  Q3/2009
                                  
                                  
                                  
                                  8,094
                                  
                                  
                                  
                                  51,470
                                  
                                  
                                  
                                  570Park
      Plaza
                                  
                                  Multi-Family
                                    residential
      &
                                    Commercial
                                  Q4/2009
                                    - Q4/2013
                                  
                                  
                                  Q1/2010
                                  
                                  
                                  
                                  44,250
                                  
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  2,000Golden
      Bay
                                  
                                  Multi-Family
                                    residential
      &
                                    Commercial
                                  Q4/2010
                                    - Q4/2014
                                  
                                  
                                  Q1/2011
                                  
                                  
                                  
                                  160,665
                                  
                                  
                                  
                                  351,812
                                  
                                  
                                  
                                  N/A





Baqiao New Development
Zone:  On March 9, 2007, we entered into a Share 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 the
eastern part of Xi’an city. We believe this represents a major growth
opportunity for the Company.





Xi’an has
designated the Baqiao District as a major resettlement zone where the city
expects an middle – to upper – income population of 900,000 to settle. The Xi’an
government intends to create a successful development comparable to the
development of Pudong in Shanghai, which has resulted in new economic
opportunities and provided housing for Shanghai’s growing
population.





The Xi’an
municipal government plans to invest 50 billion RMB (over $6 billion) in
infrastructure for 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 our Baqiao project.


-25-




Through its New Land subsidiary,
      the Company sold approximately 18 acres to another developer in 2007
      and generated approximately $24.41 million in
      revenue.
                    
                    In 2008, we initiated a joint
      venture with Prax Capital Real Estate Holdings Limited (Prax Capital) to
      develop 79 acres within the Baqiao project, which represents the first
      phase of the Baqiao project’s development. Prax Capital invested $29.3
      million in cash in the joint venture. The project is further described in
      the Puhua section.
                    
                    After selling approximately18
      acres, placing 79 acres into the joint venture with Prax Capital, and
      setting aside approximately 42acres for the newly planned
      Golden Bay project, approximately 348 acres remain for the Company to
      develop in the Baqiao project.
                    
                    JunJing
      III: JunJing III is
      near our JunJing II project and the city expressway. It has an
      expected total gross floor areaof approximately 51,470 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 with convenient transportation
      tothe city center. We plan to start
      construction during the third quarter of 2009 and expect pre-sales to
      begin during the same quarter. The total estimated revenue from this
      project is approximately $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 200,000 square meters. The four-year
construction of Park Plaza is expected to begin in the fourth quarter 2009. We
anticipate accepting pre-sale purchase agreements in the second quarter of 2010,
and revenues from pre-sale agreements will be begin to be recognized upon the
completion of the foundation. The total revenue from Park Plaza is estimated to
be $206 million.





Golden Bay: The Golden Bay
project is located within the Baqiao project, with a total gross floor area of
351,812 square meters. The Golden Bay project will consist of a hotel, office
buildings, 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 second quarter of 2011. Revenue
will be recognized upon the completion of the foundation.





Completed
Projects




Project name
                                    
                                    Type of
                                      Projects
                                    
                                    Completion
                                      Date
                                    
                                    
                                    Total Site
                                      Area
                                      (m2)
                                    
                                    
                                    Total GFA
                                      (m2)
                                    
                                    
                                    Total
                                      Number of
                                      Units
                                    
                                    
                                    Number of
                                      Units sold by
                                      June 30,
                                      2009Tsining
      Mingyuan
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q2/2000
                                    
                                    
                                    
                                    17,526
                                    
                                    
                                    
                                    53,055
                                    
                                    
                                    
                                    303
                                    
                                    
                                    
                                    303Lidu
      Mingyuan
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q4/2001
                                    
                                    
                                    
                                    5,289
                                    
                                    
                                    
                                    8,284
                                    
                                    
                                    
                                    56
                                    
                                    
                                    
                                    56Tsining
      Hanyuan
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q4/2003
                                    
                                    
                                    
                                    3,026
                                    
                                    
                                    
                                    32,229
                                    
                                    
                                    
                                    238
                                    
                                    
                                    
                                    238Tsining
      Home IN
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q4/2003
                                    
                                    
                                    
                                    8,483
                                    
                                    
                                    
                                    30,072
                                    
                                    
                                    
                                    215
                                    
                                    
                                    
                                    213Tsining
      Gangwan
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q4/2004
                                    
                                    
                                    
                                    12,184
                                    
                                    
                                    
                                    41,803
                                    
                                    
                                    
                                    466
                                    
                                    
                                    
                                    466Tsining-24G
                                    
                                    Hotel,
                                      Commercial
                                    
                                    
                                    Q2/2006
                                    
                                    
                                    
                                    8,227
                                    
                                    
                                    
                                    43,563
                                    
                                    
                                    
                                    773
                                    
                                    
                                    
                                    707JunJing
      I
                                    
                                    Multi-Family
                                      residential
      &
                                      Commercial
                                    
                                    
                                    Q3/2006
                                    
                                    
                                    
                                    55,588
                                    
                                    
                                    
                                    167,931
                                    
                                    
                                    
                                    1,671
                                    
                                    
                                    
                                    1,567




-26-





Tsining Mingyuan: 8 East
Youyi Road, Xi’an. The construction area was 53,055 square meters. Mingyuan is a
residential complex consisting of 303 two to four bedroom apartments.
Construction commenced in March 1998 and was completed in April 2000. The
project generated total sales of $19.98 million.





Lidu Mingyuan: 25 East Mutoushi,
Xi’an. Located in a prime location near the historic Xi’an Bell Tower, the
project covers 1.3 acres with a building area of 8,284 square meters, and has 56
apartments ranging from two to four bedrooms. The project began in October 2000
and was completed in November 2001. Total sales were $4.32 million.





Tsining Hanyuan: 6 East Youyi
Road, Xi’an. Located in the south of Xi’an, the area is noted for its schools
and universities. The project was started in February 2002 and was completed in
December 2003. It is comprises of 238 two to three bedroom apartments and
covers a total construction area of 32,229 square meters. The project generated
total sales of $14.05 million.





Tsining Home IN: 88 North
Xingqing Road, Xi’an. Located near the city center, the Home IN project consists
of 215 two to three bedroom western-style apartments. The total
construction area is 30,072 square meters. The project, completed in December
2003, generated total sales of $12.79 million.




Tsining GangWan: 123 Laodong
Road, Xi’an. Less than one mile from the western hi-tech industrial zone,
GangWan spans three acres and is comprises 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. The total sales were US$ 18.44 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 developed commercial belt of the city. This upscale
development includes secure 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. Target Customers were white-collar workers, small business owners and
traders as well as entrepreneurs. Total area available for residential use was
43,563 square meters, covering 372 one to three bedroom service apartments. The
project started construction in June 2005 and was completed in June 2006 with
total sales of $40.10 million.




Tsining JunJing Garden I: 369
North Jinhua Road, Xi’an.JunJing Garden I was 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 1,230 one to five
bedroom apartments. The Garden features secure 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 the surrounding
residential communities. The project was completed in September 2006 and
generated total revenue of $50.46 million.


-27-


CONSOLIDATED
OPERATING RESULTS





Three
Months Ended June 30, 2009 Compared With Three Months Ended June 30,
2008





Revenues





Our
revenues are mainly derived from the sale of residential and commercial units
and buildings, infrastructure work we perform for the local government and land
development projects in the Baqiao area.





In the
second quarter of 2009, most of our revenues came from Tsining JunJing II phase
one, which consists of 13 residential buildings and 3 auxiliary buildings,
including one kindergarten, with a gross floor area of about 136,012 square
meters. This project is currently under construction and collecting funds under
pre-sale agreements.





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





Three months
                  
                  
                  Three monthsended
                  
                  
                  endedRevenues by project:
                  
                  June 30, 2009
                  
                  
                  June 30, 2008US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One
                  
                  $
                  20,020,967
                  
                  
                  $
                  12,073,781Tsining
      JunJing II Phase Two
                  
                  
                  960,096
                  
                  
                  
                  -Puhua
      Project
                  
                  
                  -
                  
                  
                  
                  -Projects
      CompletedTsining
      JunJing I
                  
                  
                  (1,018,606
                  )
                  
                  
                  309,154Tsining-24G
                  
                  
                  1,018,023
                  
                  
                  
                  183,351Additional
      Project
                  
                  
                  200,460
                  
                  
                  
                  128,941Infrastructure
      ProjectBaqiao
      infrastructure construction
                  
                  
                  -
                  
                  
                  
                  360,003Project
      In ProcessBaqiao
                  
                  
                  -
                  
                  
                  
                  -Revenues
      from the sale of properties
                  
                  $
                  21,180,940
                  
                  
                  $
                  13,055,230





The
revenues from the sale of properties in the three months ended June 30, 2009
increased 62.2% to $21,180,940 from $13,055,230 in the same period of 2008. The
increase was primarily due to the increased revenue from Tsining JunJing II
Phase One.





The
revenue from completed projects totaled $199,877 in the three months ended June
30, 2009 compared with $492,505 in the same period of 2008. The 59.4% decrease
was due mainly to the returned units of JunJing I from one of our customers in
the second quarter.





The
return of units is a special case for the company as the customer is one of our
major vendors and has expressed the intention to purchase units from our other
projects in the future. The returned units were sold during 2007 at the
relatively higher price, and since then the average price in our projects has
been steadily increased. We believe, the return and re-purchase of units will
best benefit the company.





However,
the return of sold units is a rare case as customers do not have the ability to
return units unless it is due to non-delivery or major defect. We agreed on this
particular return of units as we want to foster our relationship with our long
time vendor and also we believe benefit this will benefit both parties. Other
than this particular case, we do not see other units have return
risk.





During
the fiscal years 2006 and 2007, we recognized the revenue in accordance to the
criteria for full accrual method: (1) the parties are bound by the terms of a
contract, (2) all consideration has been exchanged, (3) any permanent financing
of which the seller is responsible has been arranged, (4) all conditions
precedent to closing have been performed, (5) the seller does not have
substantial continuing involvement with the property, and (6) the usual risks
and rewards of ownership have been transferred to the buyer.





Once the
purchase agreement is signed by both parties, customers do not have the ability
to return units unless it is due to non-delivery or major defect. And once the
purchase price was settled, we do not have substantial continuing involvement
with the property. Therefore, the usual risks and rewards of ownership have been
transferred to the buyer.


-28-




As a result of the utilization of the
full accrual method of accounting for infrastructure projects, we have not recognized revenues from
the infrastructure project in the Baqiao area. We expect to finish the river dam in
the third quarter of 2009 and recognize the
associated 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. In 2007, we acquired the development rightsand recognized $24,405,717 inrevenue as a result of a an
approximately 18 acre land sale to an unrelated developer. Near the end of 2008, we initiated a joint
venture with Prax Capital 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 plannedGoldenBayproject, approximately 348 acres remain
available for development in the Baqiao project.
 
 Revenues by
      project:
                            
                            2009 Q2
                            
                            
                            2008 Q2US$Project Under
      ConstructionTsining JunJing II Phase Two
      contract sales
                            
                            
                            1,924,972Revenue
                            
                            $
                            960,096Total gross floor area (GFA)
      available for sale
                            
                            
                            112,556GFA sold during the
      period
                            
                            
                            2,456Remaining GFA available for
      sale
                            
                            
                            110,100Percentage of
      completion
                            
                            
                            38.09
                            %Percentage GFA sold during the
      period
                            
                            
                            2
                            %Percentage GFA sold to
      date
                            
                            
                            2
                            %Average sales price per
      GFA
                            
                            
                            784Tsining JunJing II Phase one
      contract sales
                            
                            
                            18,081,735
                            
                            
                            
                            22,783,873Revenue
                            
                            $
                            20,020,967
                            
                            
                            $
                            12,073,781Total gross floor area (GFA)
      available for sale
                            
                            
                            136,012
                            
                            
                            
                            136,012GFA sold during the
      period
                            
                            
                            28,367
                            
                            
                            
                            41,168Remaining GFA available for
      sale
                            
                            
                            31,350
                            
                            
                            
                            94,844Percentage of
      completion
                            
                            
                            80.93
                            %
                            
                            
                            47.97
                            %Percentage GFA sold during the
      period
                            
                            
                            20.86
                            %
                            
                            
                            30.27
                            %Percentage GFA sold to
      date
                            
                            
                            76.95
                            %
                            
                            
                            30.27
                            %Average sales price per
      GFA
                            
                            
                            637
                            
                            
                            
                            553ProjectsCompletedTsining JunJing
      I
                            
                            $
                            -1,018,606
                            
                            
                            $
                            309,154Total gross floor area (GFA)
      available for sale
                            
                            
                            167,931
                            
                            
                            
                            167,931GFA sold during the
      period
                            
                            
                            -789
                            
                            
                            
                            407Remaining GFA available for
      sale
                            
                            
                            9,656
                            
                            
                            
                            10,736Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            -0.47
                            %
                            
                            
                            0.24
                            %Percentage GFA sold to
      date
                            
                            
                            94.25
                            %
                            
                            
                            93.61
                            %Average sales price per
      GFA
                            
                            
                            1,291
                            
                            
                            
                            760Tsining-24G
                            
                            $
                            1,018,023
                            
                            
                            $
                            183,351Total gross floor area (GFA)
      available for sale
                            
                            
                            43,563
                            
                            
                            
                            43,563GFA sold during the
      period
                            
                            
                            1,538
                            
                            
                            
                            -100Remaining GFA available for
      sale
                            
                            
                            3,773
                            
                            
                            
                            5,954Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            3.53
                            %
                            
                            
                            -0.23
                            %Percentage GFA sold to
      date
                            
                            
                            91.34
                            %
                            
                            
                            86.33
                            %Average sales price per
      GFA
                            
                            
                            662
                            
                            
                            
                            **Tsining
    Gangwan
                            
                            $
                            38,877
                            
                            
                            $
                            -Total gross floor area (GFA)
      available for sale
                            
                            
                            41,803
                            
                            
                            
                            41,803GFA sold during the
      period
                            
                            
                            217
                            
                            
                            
                            -Remaining GFA available for
      sale
                            
                            
                            945
                            
                            
                            
                            1,447Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            0.52
                            %
                            
                            
                            0.00
                            %Percentage GFA sold to
      date
                            
                            
                            97.74
                            %
                            
                            
                            96.54
                            %Average sales price per
      GFA
                            
                            
                            179
                            
                            
                            
                            -Tsining
    Hanyuan
                            
                            $
                            -
                            
                            
                            $
                            -Total gross floor area (GFA)
      available for sale
                            
                            
                            32,229
                            
                            
                            
                            32,229GFA sold during the
      period
                            
                            
                            -
                            
                            
                            
                            -Remaining GFA available for
      sale
                            
                            
                            -
                            
                            
                            
                            -Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            0
                            %
                            
                            
                            0
                            %Percentage GFA sold to
      date
                            
                            
                            100
                            %
                            
                            
                            100
                            %Average sales price per
      GFA
                            
                            
                            N/A
                            
                            
                            
                            N/ATsining Home
    In
                            
                            $
                            161,583
                            
                            
                            $
                            -Total gross floor area (GFA)
      available for sale
                            
                            
                            30,072
                            
                            
                            
                            30,072GFA sold during the
      period
                            
                            
                            394
                            
                            
                            
                            -Remaining GFA available for
      sale
                            
                            
                            2,409
                            
                            
                            
                            3,048Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            1.31
                            %
                            
                            
                            0.00
                            %Percentage GFA sold to
      date
                            
                            
                            91.99
                            %
                            
                            
                            89.87
                            %Average sales price per
      GFA
                            
                            
                            410
                            
                            
                            
                            -Tsining
      Mingyuan
                            
                            $
                            -
                            
                            
                            $
                            -Total gross floor area (GFA)
      available for sale
                            
                            
                            53,055
                            
                            
                            
                            53,055GFA sold during the
      period
                            
                            
                            -
                            
                            
                            
                            -Remaining GFA available for
      sale
                            
                            
                            -
                            
                            
                            
                            -Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            0
                            %
                            
                            
                            0
                            %Percentage GFA sold to
      date
                            
                            
                            100
                            %
                            
                            
                            100
                            %Average sales price per
      GFA
                            
                            
                            N/A
                            
                            
                            
                            N/ALidu
    Mingyuan
                            
                            $
                            -
                            
                            
                            $
                            -Total gross floor area (GFA)
      available for sale
                            
                            
                            8,284
                            
                            
                            
                            8,284GFA sold during the
      period
                            
                            
                            -
                            
                            
                            
                            -Remaining GFA available for
      sale
                            
                            
                            -
                            
                            
                            
                            -Percentage of
      completion
                            
                            
                            100
                            %
                            
                            
                            100
                            %Percentage GFA sold during the
      period
                            
                            
                            0
                            %
                            
                            
                            0
                            %Percentage GFA sold to
      date
                            
                            
                            100
                            %
                            
                            
                            100
                            %Average sales price per
      GFA
                            
                            
                            N/A
                            
                            
                            
                            N/AAdditional Projects
                            
                            
                            
                            
                            $
                            128,941Infrastructure
      ProjectBaqiao infrastructure
      construction
                            
                            $
                            -
                            
                            
                            $
                            360,003Project In
      ProcessBaqiao
                            
                            $
                            -
                            
                            
                            $
                            -Revenues from the sales of
      properties
                            
                            $
                            21,180,940
                            
                            
                            $
                            13,055,230
 
 ** The figure is unavailable due to
return of unitsduring this period.
  Revenues from projectsunder construction
 
 Tsining JunJing II Phase
One
 
 Tsining JunJing II Phase One was our major
revenue generating construction project in the three months ended June 30, 2009,
contributing $20,020,967
inrevenues. By June 30,
2009, we had pre-sold
approximately 1,017 unitsin the project, totaling approximately
104,662 square meters.
 
 JunJing II Phase One consistsof 13 middle-rise and high-rise
residential buildings and 3 auxiliary buildings, including a kindergarten, with
a grossfloor area of
approximately 136,012 square meters. Estimated total revenues for Phase One are
approximately $95.6 million. The Company expectsto complete the construction of Phase
One in the third quarter of 2009.
 
 Tsining JunJing II Phase
Two
 
 Tsining JunJing II Phase Two consistsof 12 middle and high-rise buildings
with total expected revenues of approximately $94.1 million. We officially
started pre-sales in the second quarter of 2009 and were able to secure $1.9
million in sales contractsfor 22 unitsof which we recognized approximately
$1.0 million in the second quarter.
 
 Please note that the method of
percentage of completion has being utilized to recognize revenue from Jan. 1,
2008. Therefore, only revenue recognition of Tsining JunJing II is
under this method. The
percentages of completion of the construction for each building as at June 30,
2009 are shown below:
  Tsining JunJing II Phase one
      Buildings
                            
                            
                            Percentage of Completion1#
                            
                            
                            81.37
                            %2#
                            
                            
                            88.87
                            %3#
                            
                            
                            89.11
                            %4#
                            
                            
                            82.32
                            %5#
                            
                            
                            97.66
                            %6#
                            
                            
                            79.34
                            %7#
                            
                            
                            94.87
                            %8#
                            
                            
                            88.16
                            %9#
                            
                            
                            80.65
                            %14#
                            
                            
                            92.25
                            %15#
                            
                            
                            84.19
                            %20#
                            
                            
                            85.60
                            %21#
                            
                            
                            73.54
                            %26#
                            
                            
                            90.78
                            %27#
                            
                            
                            50.07
                            %28#
                            
                            
                            75.71
                            %
 
 Tsining JunJing II Phase two
      Buildings
                              
                              
                              Percentage of Completion10#
                              
                              
                              37.76
                              %11#
                              
                              
                              36.35
                              %12#
                              
                              
                              36.18
                              %13#
                              
                              
                              49.88
                              %16#
                              
                              
                              37.71
                              %17#
                              
                              
                              38.25
                              %18#
                              
                              
                              37.12
                              %19#
                              
                              
                              60.52
                              %22#
                              
                              
                              37.90
                              %23#
                              
                              
                              35.97
                              %24#
                              
                              
                              36.34
                              %25#
                              
                              
                              35.13
                              %
 
 The above
are all the buildings under pre-sale in JunJing II Phase One and Phase
Two.
 
 Revenues from projectscompleted
 
 Revenues in the three months ended June
30, 2009 for completed projectsdecreased 59.4 percent to $199,877
compared with $492,505
inthesame period of 2008. The decrease in
revenues for the three months ended June 30, 2009 was primarily due to the
completion of Tsining-24Gand JunJing I.
 
 Other income
 
 Other income includes property
management fees, rental income, revenues from the disposal of fixed
assetsas well as government’s allowance for the equivalent cost of
interest on the Company’s investmentsrequired to support infrastructure
construction, continued river management and suburban planning for the
entire Baqiao high-technology industrial
park. We recognized $1,420,979 inother income for the three months ended
June 30, 2009 compared with $189,260 inthesame period of 2008. The 650.8% increase is
mainly due to the acquisition of Xinxing Property
Management, which contributed approximately $588,558 to our consolidated
revenues, and the increased rental income from existing commercial
units.
 
 Cost of properties and
land
 
 The cost of properties and land in the
three months ended June 30, 2009 increased 36.8 percent to $15,394,470 compared
with $11,252,721
inthesame period of 2008. The increase was primarily a result of the
increased sales volume in our JunJing II Phase One and Phase Two
projects.
 
 The percentage of completion method of
accounting is based on estimated costsincurred, and is preferable as it
accurately reflectsthe business activity of the Company and matches
revenues with the costsincurred in the pursuit of such
revenue. 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 of completion method on a
prospective basis beginning on January 1, 2008.




-29-


Gross
profit and profit margin





Gross
profit for the three months ended June 30, 2009 was
$7,207,449, representing an increase of 261.9 percent from $1,991,769 in
the same period of 2008. The gross profit margin for the three months ended June
30, 2009 was 31.9 percent compared with 15.0 percent in the same period of 2008.
The relatively low gross margin in the second quarter of 2008 is primarily
due to the fact that residential units sold in that quarter were subject to a
marketing campaign that utilized favorable prices to attract market interest and
encourage future sales. With the improvement in market conditions, we began
providing higher margin products to the market in 2009, which effectively
increased our average sales price and gross margin.





Selling,
general and administrative expenses





Selling,
general and administrative expenses for the three months ended June 30, 2009
increased 36.9 percent to $ 1,942,946 from $ 1,418,750 in the same period of
2008. The increase in selling, general and administrative expenses was due
primarily to marketing expenses associated with Tsining JunJing II Phase One
and Phase Two as well as administrative and marketing expenses related
to the Puhua project.





Stock-based
compensation





We did
not incur stock-based compensation expenses in the three months ended June 30,
2009 or during the same period of 2008.





Other
expenses





Other
expenses mainly consist of late delivery settlements and maintenance
costs.  Other expenses in the three months ended June 30, 2009
increased 45.5 percent to $150,327 compared with $103,344 in the same period of
2008.





Operating
profit and operating profit margin





Operating
profit is defined as gross profit minus selling, general and administrative
expenses, stock-based compensation, and other expenses.  Operating
profit in the three months ended June 30, 2009 was $5,114,176 compared with
$469,675 in the same period of 2008, representing an increase of 988.9
percent, primarily due to the higher revenues generated by Tsining JunJing II
Phase One and Phase Two. As a result, the operating profit margin was 22.6
percent for the second quarter of 2009 compared with 3.5 percent for the same
period of 2008.





Interest
expense





Interest
expense in the three months ended June 30, 2009 decreased 32.1 percent to
$446,899 from $658,443 in the same period of 2008. This is primarily due to the
capitalization and repayment of a $9.9 million RMB bank loan to Xi’an Tsining
Housing Development Co., Ltd. In 2008, the Company signed a RMB 1 billion (about
$147 million) construction credit line agreement with China Construction Bank.
During 2008, we drew down approximately $22 million of the credit line.
During the three months ended June 30, 2009, the company has repaid $8.8
million. 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 derivative





The
embedded derivative is 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 the Cox-Ross-Rubinstein Binomial Lattice valuation
model (CRR model).


-30-


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. During the second
quarter of 2009, our common stock price experienced large fluctuations with the
price increasing from $1.20 on March 31, 2009 to $5.76 on June 30, 2009. The
price increase and higher than usual volatility caused an increase in fair value
for both the derivative and warrants.





The
company recorded $5,836,616 in the change in fair value of embedded
derivatives in the three months ended June 30, 2009 compared with $(738,999) in
the same period of 2008.




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.





A
shareholder typically only exercises a warrant to buy common shares when the
stock price is higher than the warrant exercise price. In the three months ended
June 30, 2009, 96,923 warrants were exercised. 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.





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 $7,222,727 in the three months ended June
30, 2009, compared to $(946,563) 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 the second quarter of 2009, our common stock price experienced
large fluctuations with the price increasing from $1.20 on March 31, 2009 to
$5.76 on June 30, 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.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible
Debt (Note 13), 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 5% Senior
Secured Convertible Debt have decided to claim the Late Payments. The Company
has decided to present the Late Payments as security registration
expenses.





The
security registration expenses were $606,742 for the three months ended June 30,
2009, compared with $0 in the same period of 2008 and $600,000 in the three
month ended March 31, 2009.





Provision
for income taxes




The
company booked a provision for income tax of $1,347,914 in the three months
ended June 30, 2009, compared with $107,357 in the same period of 2008. The
increase of the tax provision is mainly due to the increase of sales revenue and
the improvement of profit margin during the second quarter of 2009. As the
change in fair value of embedded derivatives and change in fair value of
warrants, totaled to a loss of $13,059,343, is not tax deductable, the Company
incurred a provision for taxes based on the 25% statutory rate despite a net
loss before taxes.




Since the
change in fair value of embedded derivative and warrants could not be deducted
from the income before taxes, we recognized tax provision based on 25% statutory
rate.





Non-controlling
Interest





We
recorded $(145,899) loss attributable to non-controlling shareholder of Puhua
and Success Hill, which is related to the formation of Puhua in the second
quarter of 2009. We did not have any loss attributable to non-controlling
shareholder in the same period of 2008.





Net
income





Net
income in the three months ended June 30, 2009 decreased 1037 percent to
$(10,642,886) from $1,135,879 in the same period of 2008.





The
decrease in net income was due primarily to the changes in fair value of
embedded derivatives and warrants. Together, these two items represented
expenses of approximately $13.0 million for the three months ended June 30,
2009.


-31-


Basic
and diluted earnings per share




Basic
earnings per share was $(0.34) in the three months ended June 30, 2009, compared
to $0.04 in the same period of 2008. Diluted earnings per share was $(0.34) in
the three months ended June 30, 2009, compared to $0.03 in the same period of
2008. The decrease is mainly due to the non-cash expenses related to our
Convertible Debt and warrants. These two items together represented
approximately $13.0 million. Without these two non-cash expenses, basic earnings
per share and diluted earnings per share would be $0.10 and $0.10, respectively,
in the three months ended June, 2009.





Common shares used to calculate basic
and diluted EPS





The
weighted average shares outstanding used to calculate basic earnings per
share was 30,932,745 shares in the three months ended June 30, 2009 and
30,143,757 shares in the same period of 2008. The weighted average shares
outstanding used to calculate the diluted earnings per share was 30,938,070
shares in the three months ended June 30, 2009 and 30,311,201 shares in the same
period of 2008.





Foreign
exchange





The
company operates in China and accounts in the Chinese Renminbi (RMB) but reports
its financial results in U.S. dollars, based on the exchange rate of the two
currencies. The fluctuation of exchange rates during the three months ended June
30, 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 gain on foreign exchange in the three months
ended June 30, 2009 was $51,713, compared with $1,735,766 in the same period of
2008.





Six
Months Ended June 30, 2009 Compared With Six Months Ended June 30,
2008





Revenues





Total
revenues for the six months ended June 30, 2009 increased 100.1 percent to
$36,446,602 from $17,991,127 for the six months ended June 30,
2008.





Effective
January 1, 2008, the Company adopted the percentage of completion method of
accounting for revenue recognition for all building construction projects in
progress, which currently includes the Tsining JunJing II.





Six months
                      
                      
                      Six monthsended
                      
                      
                      endedRevenues by project:
                      
                      June30,2009
                      
                      
                      June30,2008US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One
                      
                      $
                      30,326,229
                      
                      
                      $
                      12,073,781Tsining
      JunJing II Phase Two
                      
                      
                      960,096
                      
                      
                      
                      -Puhua
      Project
                      
                      
                      -
                      
                      
                      
                      -Projects
      CompletedTsining
      JunJing I
                      
                      
                      561,959
                      
                      
                      
                      4,529,727Tsining-24G
                      
                      
                      1,880,616
                      
                      
                      
                      37,420Additional
      Project
                      
                      
                      377,909
                      
                      
                      
                      250,063Infrastructure
      ProjectBaqiao
      infrastructure construction
                      
                      
                      -
                      
                      
                      
                      688,184Project
      In ProcessBaqiao
                      
                      
                      -
                      
                      
                      
                      -Revenues
      from the sale of properties
                      
                      $
                      34,106,809
                      
                      
                      $
                      17,579,175


-32-


The
revenues from the sale of properties in the six months ended June 30, 2009
increased 82.3% to $34,106,809 from $17,579,175 in the same period of 2008. The
increase was primarily due to the increased revenue from Tsining JunJing II
Phase One, our current project under construction.





As a
result of the utilization of the full accrual method of accounting for
infrastructure projects, we have not recognized revenues from the infrastructure
project in the Baqiao area. We expect to recognize the revenues associated with
the construction of the river dam in the third quarter 2009 when the project is
delivered to the local government.




Revenues by
      project:
                                    
                                    6 months ended
                                      June 30,
    2009
                                    
                                    
                                    6 months ended
                                      June 30,
    2008US$Project Under
      ConstructionTsining JunJing II Phase Two
      contract sales
                                    
                                    $
                                    1,924,972Revenue
                                    
                                    $
                                    960,096Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    112,556GFA sold during the
      period
                                    
                                    
                                    2,456Remaining GFA available for
      sale
                                    
                                    
                                    110,100Percentage of
      completion
                                    
                                    
                                    38.09
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    2
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    2
                                    %Average sales price per
      GFA
                                    
                                    
                                    784Tsining JunJing II Phase one
      contract sales
                                    
                                    $
                                    30,093,124
                                    
                                    
                                    $
                                    22,783,873Revenue
                                    
                                    $
                                    30,326,229
                                    
                                    
                                    $
                                    12,073,781Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    136,012
                                    
                                    
                                    
                                    136,012GFA sold during the
      period
                                    
                                    
                                    47,656
                                    
                                    
                                    
                                    41,168Remaining GFA available for
      sale
                                    
                                    
                                    31,350
                                    
                                    
                                    
                                    94,844Percentage of
      completion
                                    
                                    
                                    80.93
                                    %
                                    
                                    
                                    47.97
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    35.04
                                    %
                                    
                                    
                                    30.27
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    76.95
                                    %
                                    
                                    
                                    30.27
                                    %Average sales price per
      GFA
                                    
                                    
                                    631
                                    
                                    
                                    
                                    553ProjectsCompletedTsining JunJing
      I
                                    
                                    $
                                    561,959
                                    
                                    
                                    $
                                    4,529,727Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    167,931
                                    
                                    
                                    
                                    167,931GFA sold during the
      period
                                    
                                    
                                    -151
                                    
                                    
                                    
                                    5,739Remaining GFA available for
      sale
                                    
                                    
                                    9,656
                                    
                                    
                                    
                                    10,736Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    -0.09
                                    %
                                    
                                    
                                    3.42
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    94.25
                                    %
                                    
                                    
                                    93.61
                                    %Average sales price per
      GFA
                                    
                                    
                                    **
                                    
                                    
                                    
                                    789Tsining-24G
                                    
                                    $
                                    1,880,616
                                    
                                    
                                    $
                                    37,420Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    43,563
                                    
                                    
                                    
                                    43,563GFA sold during the
      period
                                    
                                    
                                    2,287
                                    
                                    
                                    
                                    -275Remaining GFA available for
      sale
                                    
                                    
                                    3,773
                                    
                                    
                                    
                                    5,954Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    5.25
                                    %
                                    
                                    
                                    -0.63
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    91.34
                                    %
                                    
                                    
                                    86.33
                                    %Average sales price per
      GFA
                                    
                                    
                                    822
                                    
                                    
                                    
                                    **Tsining
    Gangwan
                                    
                                    $
                                    197,600
                                    
                                    
                                    $
                                    23,336Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    41,803
                                    
                                    
                                    
                                    41,803GFA sold during the
      period
                                    
                                    
                                    439
                                    
                                    
                                    
                                    38Remaining GFA available for
      sale
                                    
                                    
                                    945
                                    
                                    
                                    
                                    1,447Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    1.05
                                    %
                                    
                                    
                                    0.09
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    97.74
                                    %
                                    
                                    
                                    96.54
                                    %Average sales price per
      GFA
                                    
                                    
                                    450
                                    
                                    
                                    
                                    622Tsining
    Hanyuan
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Total gross floor area
      (GFA) available for
      sale
                                    
                                    
                                    32,229
                                    
                                    
                                    
                                    32,229GFA sold during the
      period
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Remaining GFA available for
      sale
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Percentage of completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    0
                                    %
                                    
                                    
                                    0
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Average sales price per
      GFA
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/ATsining Home
    In
                                    
                                    $
                                    180,309
                                    
                                    
                                    $
                                    53,220Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    30,072
                                    
                                    
                                    
                                    30,072GFA sold during the
      period
                                    
                                    
                                    442
                                    
                                    
                                    
                                    148Remaining GFA available for
      sale
                                    
                                    
                                    2,409
                                    
                                    
                                    
                                    3,048Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    1.47
                                    %
                                    
                                    
                                    0.49
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    91.99
                                    %
                                    
                                    
                                    89.87
                                    %Average sales price per
      GFA
                                    
                                    
                                    408
                                    
                                    
                                    
                                    361Tsining Mingyuan
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    44,567Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    53,055
                                    
                                    
                                    
                                    53,055GFA sold during the
      period
                                    
                                    
                                    -
                                    
                                    
                                    
                                    78Remaining GFA availablefor
      sale
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    0
                                    %
                                    
                                    
                                    0.15
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    
                                    
                                    
                                    100
                                    %Average sales price per
      GFA
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    570Lidu
    Mingyuan
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Total gross floor area (GFA)
      available for sale
                                    
                                    
                                    8,284
                                    
                                    
                                    
                                    8,284GFA sold during the
      period
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Remaining GFA available for
      sale
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Percentage of
      completion
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Percentage GFA sold during the
      period
                                    
                                    
                                    0
                                    %
                                    
                                    
                                    0
                                    %Percentage GFA sold to
      date
                                    
                                    
                                    100
                                    %
                                    
                                    
                                    100
                                    %Average sales price per
      GFA
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    N/AAdditional Projects
                                    
                                    
                                    
                                    
                                    $
                                    128,941Infrastructure
      ProjectBaqiao infrastructure
      construction
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    688,184Project In
      ProcessBaqiao
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Revenues from the sales of
      properties
                                    
                                    $
                                    34,106,809
                                    
                                    
                                    $
                                    17,579,175
 
 ** The figure is unavailable due to
return of unitsduring this
period.




Revenues
from projects under construction





Tsining
JunJing II Phase One





Tsining
JunJing II Phase One was our major revenue generating construction project in
the six months ended June 30, 2009, contributing $30,326,229 in revenues. By
June 30, 2009, we had pre-sold approximately 1,017 units in the project,
totaling approximately 104,662 square meters.





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 $1.9 million
in sales contracts for 22 units of which we recognized approximately $1.0
million in the first six months of 2009.





Revenues
from projects completed





Revenues
in the six months ended June 30, 2009 for completed projects decreased 43.1
percent to $2,820,484 compared with $4,817,210 in the same period of 2008. The
decrease in revenues for the six months ended June 30, 2009 was primarily due to
units returned by one of our customers.





Other
income





Other
income includes property management fees, rental income, revenues from
the 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, continued river management, and suburban planning
for the entire Baqiao high-technology industrial park. We recognized $2,339,793
in other income for the six months ended June 30, 2009 compared with
$411,952 in the same period of 2008. The 468.0% increase is mainly due to the
acquisition of Xinxing Property Management during the first quarter of 2009,
which contributed approximately $1,141,303 to our consolidated
revenues.





Cost
of properties and land





The cost
of properties and land in the six months ended June 30, 2009 increased 82.7
percent to $24,892,685 compared with $13,619,833 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.


-33-


Gross
profit and profit margin





Gross
profit for the six months ended June 30, 2009 was $11,533,917, representing
an increase of 163.9 percent from $4,371,294 in the same period of
2008. The gross profit margin for the six months ended June 30, 2009 was
31.6 percent compared with 24.3 percent in the same period of 2008. The increase
in the gross profit margin was mainly due to our different product mix
and our marketing strategy. The residential units we sold during the six
months ended June 30, 2009 generally had higher profit margins than the
units sold in the same period of 2008. We began the marketing campaign for
our JunJing II project during the second quarter of 2008 and used favorable
prices to attract market interest and encourage future sales.





Selling,
general and administrative expenses





Selling,
general and administrative expenses for the six months ended June 30, 2009
increased 30.6 percent to $3,351,770 from $2,567,351 in the same period of 2008.
The increase in selling, general, and administrative expenses was due primarily
to 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.





Stock-based
compensation





We did
not incur stock-based compensation expenses in the six months ended June 30,
2009 or during the same period of 2008.





Other
expenses





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





Other
expenses in the six months ended June 30, 2009 increased 59.4 percent to
$190,123 compared with $119,254 in the same period of 2008.





Operating
profit and operating profit margin





Operating
profit in the six months ended June 30, 2009 was $8,012,024 compared with
$1,684,689 in the same period of 2008, representing an increase of 375.6
percent, primarily due to the higher revenue generated by Tsining JunJing II
Phase One and Phase Two. As a result, the operating profit margin was 22.0
percent for the six months ended June 30, 2009 compared with 9.4
percent for the same period of 2008.





Interest
expense





Interest
expense in the six months ended June 30, 2009 decreased 28.5 percent to $784,977
from $1,098,116 in the same period of 2008. This is primarily due to the
capitalization and repayment of a 11.1 million RMB bank loan to Xi’an
Tsining Housing Development Co., Ltd. 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 approximately $22 million of the
credit line. The company repaid $9.2 million during the six months ended
June 30, 2009. 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 derivative





The
Company recorded $5,712,578 in the change in fair value of embedded
derivatives in the six months ended June 30, 2009 compared with $(454,488) in
the same period of 2008.





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.





During the
six months ended June 30, 2009, 96,923 warrants were exercised. 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.


-34-


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 $7,055,488 in the six months ended June 30,
2009, compared to $(956,052) 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 the of 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 the first six months of 2009, our common stock price
experienced large fluctuations with the price increasing from $1.29 on December
31, 2008 to $5.76 on June 30, 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.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible
Debt (Note 13), 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 5% Senior
Secured Convertible Debt have decided to claim the Late Payments. The Company
has decided to present the Late Payments as security registration
expenses.





The
security registration expenses were $1,206,472 for the six months ended June 30,
2009, compared with $0 in the same period of 2008.





Provision
for income taxes




The
company booked a provision for income tax of $2,061,555 compared
with $388,308 recorded in the same period of 2008. The increase of the tax
provision is mainly due to the increase of sales revenue and the improvement of
profit margin during the first six months of 2009. As the change in fair value
of embedded derivatives and change in fair value of warrants, totaled to a loss
of $12,768,066, is not tax deductable, the Company incurred a provision for
taxes based on the 25% statutory rate despite a net loss before
taxes.





Since the
change in fair value of embedded derivative and warrants could not be deducted
from the income before taxes, we recognized tax provision based on the 25%
statutory rate.





Non-controlling
Interest





We
recorded $(193,034) loss attributable to non-controlling shareholder of Puhua
and Success Hill, which is related to the formation of Puhua in 2009. We did not
have any loss attributable to non-controlling shareholder in the same period of
2008.





Net
income





Net
income in the six months ended June 30, 2009 decreased 893.1 percent to
$(9,387,302) from $1,183,564 in the same period of 2008.





The
decrease in net income was due primarily to the change in fair value of embedded
derivatives and warrants and partly caused by the higher selling, general,
and administrative expenses in the second quarter of 2009.





Basic
and diluted earnings per share




Basic
earnings per share was $(0.30) in the six months ended June 30, 2009, compared
to $0.04 in the same period of 2008. Diluted earnings per share was $(0.30) in
the six months ended June 30, 2009, compared to $0.02 in the same period of
2008. The decrease is mainly due to the non-cash expenses related to our
Convertible Debt and warrants. These two items together represented
approximately $12.8 million. Without these two non-cash expenses, basic earnings
per share and diluted earnings per share would be $0.15 and $0.15, respectively,
in the six months ended June, 2009.





Common shares used to calculate basic
and diluted EPS





The
weighted average shares outstanding used to calculate basic earnings per
share was 30,913,359 shares in the six months ended June 30, 2009 and 30,143,161
shares in the same period of 2008. The weighted average shares outstanding used
to calculate the diluted earnings per share was 30,916,036 shares in the six
months ended June 30, 2009 and 30,304,679 shares in the same period of
2008.





Foreign
exchange





The
company operates in China and accounts in the Chinese Renminbi (RMB) but reports
its financial results in U.S. dollars, based on the exchange rates of the two
currencies. The fluctuation of exchange rate during the six months ended June
30, 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 in the six months ended June
30, 2009 was $(311,420), compared with a gain of $5,264,252 in the same period
of 2008.


-35-


Cash
flow discussion





The
decrease in cash for the six months ended June 30, 2009 was $(27,037,109)
compared with $19,662,484 increase in cash during the same period of
2008.





Cash flow
from operating activities in the six months ended June 30, 2009 decreased 89.4
percent to $(15,072,585) from $(7,977,053) in the same period of 2008. This was
primarily due to the operating cash outflow associated with the development of
Tsining JunJing II Phase One and Phase Two.





Cash from
investing activities in the six months ended June 30, 2009 was $437,194,
compared with $(1,630,906) for the same period of 2008. The increase was
primarily due to a change in restricted cash.





Cash flow
from financing activities in the six months ended June 30, 2009 was
$(12,401,718) compared with $29,270,443 in 2008. The difference is primarily
attributable to the fact that the Company issued the $20 million Convertible
Debt and warrants in the second quarter of 2008.





In 2008,
the Company signed a RMB 1 billion (approximately $147 million) construction
credit line agreement with China Construction Bank to support the Company’s
development projects. As of June 30, 2009, the Company has been granted a RMB
12.7 million loan for the JunJing II Phase One project and expects another RMB
22 million loan for JunJing II Phase Two project in the third quarter of
2009.





Debt
leverage





Total
debt consists of the sum of the balance sheet lines titled Payables for
acquisition of businesses, Loans from employees, Loans payable and Convertible
Debt.





Total
debt outstanding as of June 30, 2009 was $48,485,927 compared with $59,186,304
on December 31, 2008.





Net debt
outstanding (total debt less cash) as of June 30, 2009 was $37,601,154
compared with $20,955,952 on December 31, 2008. The company's net debt as a
percent of total capital (net debt plus shareholders' equity) was
26.5 percent on June 30, 2009 and 15.6 percent on December 31, 2008. The
increase in net debt as a percent of total capital was primarily due to the
payment for land use rights in 2009, which decreased our cash to $10.1 million
at June 30, 2009 from $37.4 million on December 31, 2008.





Liquidity
and capital resources





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





As of
June 30, 2009, we had $10,133,600 of cash and cash equivalents, a decrease of
$27,291,740, compared with $37,425,340 of cash and cash equivalents as of
December 31, 2008 and $10,598,200 as of March 31, 2009. Our cash flow from
operating activities provided over $10.7 million during the three months
ended June 30, 2009 compared with an outflow of $25.7 million
in the first quarter ended March 31, 2009. Along with progress in
projects, we started seeing positive cash flow from operations and we can use
this internal 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.  The Company entered into a
contract with Xi’an Baqiao local government for a rubber dam construction
project. The Company is committed to expend approximately $1,024,860 on this
project.  As of June 30, 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.




PaymentduebyperiodCommitments and Contingencies
                                              
                                              Total
                                              
                                              
                                              Lessthan
                                                1year
                                              
                                              
                                              1-3years
                                              
                                              
                                              3-5years
                                              
                                              
                                              Over5yearsRental
      lease
                                              
                                              $
                                              381,562
                                              
                                              
                                              $
                                              124,545
                                              
                                              
                                              $
                                              52,775
                                              
                                              
                                              $
                                              52,775
                                              
                                              
                                              $
                                              151,467Rubber
      dam construction
                                              
                                              
                                              1,024,860
                                              
                                              
                                              
                                              1,024,860Land
      use right
                                              
                                              
                                              2,591,432
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,591,432Total
                                              
                                              $
                                              3,997,854
                                              
                                              
                                              $
                                              1,149,405
                                              
                                              
                                              $
                                              2,644,207
                                              
                                              
                                              $
                                              52,775
                                              
                                              
                                              $
                                              151,467





Financial
obligations





As of
June 30, 2009, we had total bank loans of $24,450,236 with a weighted average
interest rate of 8.98 percent. Future scheduled maturities of loans payable were
as follows:


-36-





DueDate
                  
                  OutstandingAmount12-25-2009
                  
                  $
                  3,660,21507-03-2010
                  
                  $
                  2,928,17208-29-2010
                  
                  $
                  5,124,30108-27-2011
                  
                  $
                  12,737,548





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 one year. 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 loan
agreement with China Construction Bank Xi’an Branch to draw down the first RMB
150 million loan, which will mature on August 27, 2011. $12,737,548 was the
balance on June 30, 2009.





As of
December 31, 2008 and June 30, 2009, our current ratios were approximately
336.2% and 362.7%, respectively, and our liabilities to assets ratios were
approximately 49.0% and 52.3%, respectively. The Company will be able to draw
down approximately another $81 million before we reach the maximum liabilities
to assets ratio of 65%. If we are unable to meet all above covenants, we may not
be able to draw down new loans from China Construction Bank and this will cause
the delay of our projects under construction.





The
following table summarizes the company's loans payable that were outstanding as
of June 30, 2009:





(Millions of dollars)
                  
                  Balance
                  
                  
                  Interestrate
                  
                  DuedateXi'an
      Rural Credit Union
                  
                  $
                  2.93
                  
                  
                  
                  8.83
                  %
                  03-Jul-2010Commercial
      Bank Weilai
                  
                  $
                  3.66
                  
                  
                  
                  7.5
                  %
                  25-Dec-2009Commercial
      Bank Weilai
                  
                  $
                  5.12
                  
                  
                  
                  10.21
                  %
                  29-Aug-2010China
      Construction Bank
                  
                  $
                  12.70
                  
                  
                  
                  8.94
                  %
                  27-Aug-2011





The
currently indicated annual interest requirement on these loans totals about $3.2
million. The loan from China Construction Bank has an interest rate that floats
at 110 percent of the People’s Bank of China reference rate.





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 June 30, 2009:


-37-





ObligationsDuebyPeriod
                
                1year
                
                
                1-3years
                
                
                3-5years(Millions
      of dollars)Current
      liabilities:Accounts
      payable
                
                $
                13.73Income
      taxes payable
                
                
                
                
                
                $
                10.20Other
      payables
                
                
                
                
                
                $
                3.15Advances
      (deposits) from customers
                
                
                
                
                
                $
                10.31Accrued
      expenses
                
                $
                4.46Accrued
      security registration expenses
                
                $
                1.82Long-term
      liabilities:Warranties
      liabilities
                
                
                
                
                
                
                
                
                
                $
                7.98Deferred
      tax
                
                
                
                
                
                $
                11.50Fair
      value of embedded derivatives
                
                
                
                
                
                
                
                
                
                $
                6.47Convertible
      Debt
                
                
                
                
                
                
                
                
                
                $
                14.20Long-term
      debt:Loans
      payable
                
                $
                3.6
                
                
                $
                20.8Payable
      for acquisition of businesses
                
                $
                7.65Loans
      from employees
                
                
                
                
                
                $
                2.19





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.





As part
of our funding plan, on March 9, 2007, we entered into a Share Transfer
Agreement with the shareholders of New Land, under which we have acquired
32,000,000 shares of the New Land, constituting 100 percent equity ownership of
New Land.





New Land
is now in cooperation with the Baqiao District Government of Xi'an City to
develop the Baqiao Science & Technology Industrial Park, a provincial
development zone in Shaanxi Province. With this acquisition, the company gained
the right to develop and sell 487 acres of property that has been targeted for
new residential developments.





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.





Item
3. Quantitative and Qualitative Disclosures 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 $13 million at
the end of September 2007, may change due to market fluctuations. Currently, it
is valued at its cost which is significantly below the market
value.


-38-


Risk
Relating to Property Sales




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




Foreign
Currency Exchange Rate Risk




The
Company is doing all of its business in the People’s Republic of China. All
revenue and profit are denominated in RMB. When the RMB depreciates, it may
adversely affect the Company’s financial performance. Specifically, since the
Company’s recent $20 million senior Convertible Debt interest payment is
denominated in U.S. dollars, the depreciation of the RMB may incur additional
cost to its financial cost.




Item
4T. 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 due to the identified
significant deficiencies in our internal control over financial reporting
described in our Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2008. The Company has engaged Ernest & Young to aid in the
compliance with SOX 404.




(c) 
   Changes in Internal Control over Financial Reporting.





During
the quarter ended June 30, 2009, there was no change 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.





Part
II. OTHER INFORMATION





Item
1. Legal Proceedings





None.





Item
1A. Risk Factors.




We have
no material changes to the risk factors previously disclosed in our Form 10-K,
as amended, for the year ended December 31, 2008.


-39-


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





None.





Item
3. Defaults Upon Senior Securities





None.





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





None.





Item
5. Other Information





None.





Item
6. Exhibits





(a)
Exhibits





ExhibitNumber
            
            Description of Exhibit31.1
            
            Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
            
            Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)32.2
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer)


-40-


SIGNATURES





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





China
      Housing & Land Development, Inc.October
      30, 2009
            By:
            /s/
            Xiaohong FengXiaohong
      FengChief
      Executive Officer(Principal
      Executive Officer)





October
      30, 2009
            By:
            /s/
            Cangsang
      HuangCangsang
      HuangChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


-41-