UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
      One)


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





For
      the quarterly period ended March 31,
2010





 ̈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 specified in 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.


Yes x  No
       ̈





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





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





The
      number of shares of Common Stock outstanding on May 14, 2010 was
      33,065,386 shares.





CHINA
      HOUSING & LAND DEVELOPMENT,
INC.


Index





.
                  
                  
                  
                  Page
                    NumberPART
      I
                  
                  FINANCIAL
      INFORMATION
                  
                  3Item
      1.
                  
                  Financial
      Statements
                  
                  3Interim
      Condensed Consolidated Balance Sheets as of March 31, 2010 (unaudited) and
      December 31, 2009
                  
                  3Interim
      Condensed Consolidated Statements of (Loss) Income for the three months
      ended March 31, 2010 and 2009 (unaudited)
                  
                  4Interim
      Condensed Consolidated Statements of Comprehensive (Loss) Income for the
      three months ended March 31, 2010 and 2009 (unaudited)
                  
                  5Interim
      Condensed Consolidated Statements of Cash Flows for the three months ended
      March 31, 2010 and 2009 (unaudited)
                  
                  6Interim
      Condensed Consolidated Statements of Shareholders’
      Equity
                  
                  7Notes
      to Interim Condensed Consolidated Financial Statements
      (unaudited)
                  
                  8Item
      2.
                  
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  17Item
      3.
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  32Item
      4T.
                  
                  Controls
      and Procedures
                  
                  32PART
      II.
                  
                  OTHER
      INFORMATIONItem
      1.
                  
                  Legal
      Proceedings
                  
                  33Item
      1A.
                  
                  Risk
      Factors
                  
                  33Item
      2.
                  
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  34Item
      3.
                  
                  Defaults
      Upon Senior Securities
                  
                  34Item
      4.
                  
                  (Removed
      and Reserved)
                  
                  34Item
      5.
                  
                  Other
      Information
                  
                  34Item
      6.
                  
                  Exhibits
                  
                  34SIGNATURES
                  
                  
                  
                  35EX-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
March 31, 2010 and December 31, 2010
 (Unaudited)
 March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009ASSETSCash
      & cash equivalents
                      
                      $
                      66,323,400
                      
                      
                      $
                      36,863,216Cash
      –restricted
                      
                      
                      701,259
                      
                      
                      
                      701,017Accounts
      receivable, net of allowance for doubtful accounts of $390,002 and
      $389,996, respectively
                      
                      
                      9,267,167
                      
                      
                      
                      6,088,482Other
      receivables, prepaid expenses and other assets, net
                      
                      
                      4,696,509
                      
                      
                      
                      2,484,221Real
      estate held for development or sale
                      
                      
                      105,763,268
                      
                      
                      
                      103,003,529Property
      and equipment, net
                      
                      
                      15,715,656
                      
                      
                      
                      15,307,478Asset
      held for sale
                      
                      
                      14,301,774
                      
                      
                      
                      14,301,564Advance
      to suppliers
                      
                      
                      580,863
                      
                      
                      
                      10,368,386Deposits
      on land use rights
                      
                      
                      50,939,221
                      
                      
                      
                      28,084,346Intangible
      asset, net
                      
                      
                      41,355,740
                      
                      
                      
                      41,355,134Goodwill
                      
                      
                      816,481
                      
                      
                      
                      816,469Deferred
      financing costs
                      
                      
                      372,975
                      
                      
                      
                      411,457Total
      assets
                      
                      
                      310,834,313
                      
                      
                      
                      259,785,299LIABILITIESAccounts
      payable
                      
                      $
                      18,127,903
                      
                      
                      $
                      20,706,263Advances
      from customers
                      
                      
                      30,453,151
                      
                      
                      
                      21,301,876Accrued
      expenses
                      
                      
                      2,296,023
                      
                      
                      
                      5,587,837Payable
      for acquisition of businesses
                      
                      
                      8,555,780
                      
                      
                      
                      5,916,354Income
      and other taxes payable
                      
                      
                      9,478,550
                      
                      
                      
                      8,194,659Other
      payables
                      
                      
                      4,608,268
                      
                      
                      
                      4,524,288Loans
      from employees
                      
                      
                      4,715,931
                      
                      
                      
                      2,864,824Loans
      payable
                      
                      
                      64,461,309
                      
                      
                      
                      36,185,705Deferred
      tax liability
                      
                      
                      13,656,266
                      
                      
                      
                      11,505,181Warrants
      liability
                      
                      
                      4,519,590
                      
                      
                      
                      5,074,191Fair
      value of embedded derivatives
                      
                      
                      3,424,841
                      
                      
                      
                      3,991,047Convertible
      debt
                      
                      
                      15,164,169
                      
                      
                      
                      14,834,987Mandatory
      redeemable noncontrolling interest in subsidiaries
                      
                      
                      46,751,893
                      
                      
                      
                      -Total
      liabilities
                      
                      
                      226,213,674
                      
                      
                      
                      140,687,212SHAREHOLDERS'
      EQUITYCommon
      stock: $.001 par value, authorized 100,000,000 shares issued and
      outstanding 33,065,386 and 31,884,969, respectively
                      
                      
                      33,065
                      
                      
                      
                      31,885Additional
      paid in capital
                      
                      
                      40,745,457
                      
                      
                      
                      35,461,706Common
      stock subscribed
                      
                      
                      -
                      
                      
                      
                      252,118Statutory
      reserves
                      
                      
                      4,922,248
                      
                      
                      
                      4,922,248Retained
      earnings
                      
                      
                      28,784,070
                      
                      
                      
                      39,895,179Accumulated
      other comprehensive income
                      
                      
                      10,135,799
                      
                      
                      
                      10,163,483Total
      China Housing & Land Development, Inc. shareholders’
      equity
                      
                      
                      84,620,639
                      
                      
                      
                      90,726,619Noncontrolling
      interests
                      
                      
                      -
                      
                      
                      
                      28,371,468Total
      shareholders' equity
                      
                      
                      84,620,639
                      
                      
                      
                      119,098,087Total
      liabilities and shareholders' equity
                      
                      $
                      310,834,313
                      
                      
                      $
                      259,785,299
 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 (Loss) Income
 For The
Three Months Ended March 31, 2010 and 2009
 (Unaudited)
  3 Months
                          
                          
                          3 MonthsMarch31,
                            2010
                          
                          
                          March31,
                            2009REVENUESSale
      of properties
                          
                          $
                          32,391,061
                          
                          
                          $
                          12,925,869Other
      income
                          
                          
                          1,181,853
                          
                          
                          
                          1,002,058Total
      revenues
                          
                          
                          33,572,914
                          
                          
                          
                          13,927,927Cost
      of sales
                          
                          
                          27,098,660
                          
                          
                          
                          9,581,459Gross
      margin
                          
                          
                          6,474,254
                          
                          
                          
                          4,346,468OPERATING
      EXPENSESSelling,
      general and administrative expenses
                          
                          
                          2,537,884
                          
                          
                          
                          1,408,824Security
      registration expenses
                          
                          
                          -
                          
                          
                          
                          600,000Other
      expenses
                          
                          
                          122,651
                          
                          
                          
                          39,796Interest
      expense
                          
                          
                          507,025
                          
                          
                          
                          338,078Accretion
      expense on convertible debt
                          
                          
                          329,182
                          
                          
                          
                          281,822Total
      operating expenses
                          
                          
                          3,496,742
                          
                          
                          
                          2,668,520NET
      INCOME (LOSS) FROM BUSINESS OPERATIONS
                          
                          
                          2,977,512
                          
                          
                          
                          1,677,948CHANGE
      IN FAIR VALUE OF DERIVATIVESChange
      in fair value of embedded derivatives
                          
                          
                          566,206
                          
                          
                          
                          124,038Change
      in fair value of warrants
                          
                          
                          554,601
                          
                          
                          
                          167,239Total
      change in fair value of derivatives
                          
                          
                          1,120,807
                          
                          
                          
                          291,277Income
      before provision for income taxes and noncontrolling
      interest
                          
                          
                          4,098,319
                          
                          
                          
                          1,969,225Provision
      for income taxes
                          
                          
                          1,009,531
                          
                          
                          
                          713,641Recovery
      of deferred income taxes
                          
                          
                          (29,146
                          )
                          
                          
                          -NET INCOME
                          
                          
                          3,117,934
                          
                          
                          
                          1,255,584Charge
      to noncontrolling interest
                          
                          
                          (14,229,043
                          )
                          
                          
                          47,135Net
      (loss) income attributable to China Housing & Land Development,
      Inc.
                          
                          
                          (11,111,109
                          )
                          
                          
                          1,302,719WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
                          
                          
                          32,580,769
                          
                          
                          
                          30,893,757Diluted
                          
                          
                          32,580,769
                          
                          
                          
                          30,922,261NET
      INCOME PER SHAREBasic
                          
                          $
                          (0.34
                          )
                          
                          $
                          0.04Diluted
                          
                          $
                          (0.34
                          )
                          
                          $
                          0.04
 
 The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
  4
 
 CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES
 Interim
Condensed Consolidated Statements of Comprehensive (Loss) Income
 For The
Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 
 3 Months
                            
                            
                            3 MonthsMarch 31,
                            
                            
                            March 31,2010
                            
                            
                            2009NET
      INCOME
                            
                            $
                            3,117,934
                            
                            
                            $
                            1,255,584OTHER
      COMPREHENSIVE LOSSLoss
      on foreign exchange
                            
                            
                            (27,684
                            )
                            
                            
                            (363,133
                            )COMPREHENSIVE
      INCOME
                            
                            
                            3,090,250
                            
                            
                            
                            892,451Loss
      attributable to noncontrolling interests
                            
                            
                            -
                            
                            
                            
                            47,135Charge
      to noncontrolling interests
                            
                            
                            (14,229,043
                            )
                            
                            
                            -Comprehensive
      (loss) income attributable to China Housing & Land Development,
      Inc.
                            
                            $
                            (11,138,793
                            )
                            
                            $
                            939,586
 
 The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
  5
 
 CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
 
 Interim
Condensed Consolidated Statements of Cash Flows
 For The
Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 
 March 31,
                  
                  
                  March 31,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  3,117,934
                  
                  
                  $
                  1,255,584Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Depreciation
                  
                  
                  293,134
                  
                  
                  
                  154,088Gain
      on disposal of fixed assets
                  
                  
                  -
                  
                  
                  
                  (16,945)Amortization
      of deferred financing costs
                  
                  
                  38,482
                  
                  
                  
                  38,482Recovery
      of future income taxes
                  
                  
                  (29,146)
                  
                  
                  
                  -Change
      in fair value of warrants
                  
                  
                  (554,601)
                  
                  
                  
                  (167,239
                  )Change
      in fair value of embedded derivatives
                  
                  
                  (566,206)
                  
                  
                  
                  (124,038
                  )Accretion
      expense on convertible debt
                  
                  
                  329,182
                  
                  
                  
                  281,822Non-cash
      proceeds from sales
                  
                  
                  -
                  
                  
                  
                  (15,835
                  )(Increase)
      decrease in assets:Accounts
      receivable
                  
                  
                  (3,177,943)
                  
                  
                  
                  (3,107,443
                  )Other
      receivables, prepaid expenses and other assets
                  
                  
                  (2,211,864)
                  
                  
                  
                  643,186Real
      estate held for development or sale
                  
                  
                  7,485,899
                  
                  
                  
                  (36,452,495)Advance
      to suppliers
                  
                  
                  9,492,722
                  
                  
                  
                  227,051Refund
      (deposit) on land use rights
                  
                  
                  (22,849,777)
                  
                  
                  
                  11,372,462Increase
      (decrease) in liabilities:Accounts
      payable
                  
                  
                  (2,578,136)
                  
                  
                  
                  (892,860)Advances
      from customers
                  
                  
                  9,149,087
                  
                  
                  
                  1,182,958Accrued
      expenses
                  
                  
                  858,829
                  
                  
                  
                  198,281Other
      payables
                  
                  
                  82,578
                  
                  
                  
                  (2,127,062)Income
      and other taxes payable
                  
                  
                  1,283,577
                  
                  
                  
                  1,148,392Accrued
      security registration expenses
                  
                  
                  -
                  
                  
                  
                  600,000Net
      cash provided by (used in) operating activities
                  
                  
                  163,751
                  
                  
                  
                  (25,801,611
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Change
      in restricted cash
                  
                  
                  (231)
                  
                  
                  
                  53,002Purchase
      of property and equipment
                  
                  
                  (701,004)
                  
                  
                  
                  (63,224
                  )Notes
      receivable collected
                  
                  
                  -
                  
                  
                  
                  111,737Cash
      acquired from acquisition of business
                  
                  
                  2,179
                  
                  
                  
                  519,309Proceeds
      from sale of property and equipment
                  
                  
                  -
                  
                  
                  
                  193,098Net
      cash (used in) provided by investing activities
                  
                  
                  (699,056)
                  
                  
                  
                  813,922CASH
      FLOWS FROM FINANCING ACTIVITIES:Loans
      payable from bank
                  
                  
                  31,491,680
                  
                  
                  
                  -Payments
      of loans payable
                  
                  
                  (3,222,404)
                  
                  
                  
                  (1,170,292)Loans
      from employees
                  
                  
                  1,850,685
                  
                  
                  
                  151,407Repayment
      of payables for acquisition of businesses
                  
                  
                  (117,334)
                  
                  
                  
                  (753,416)Net
      cash provided by (used in) financing activities
                  
                  
                  30,002,627
                  
                  
                  
                  (1,772,301)INCREASE
      (DECREASE) IN CASH
                  
                  
                  29,467,322
                  
                  
                  
                  (26,759,990)Effects
      on foreign currency exchange
                  
                  
                  (7,138)
                  
                  
                  
                  (67,150)CASH
      & CASH EQUIVALENTS, beginning of period
                  
                  
                  36,863,216
                  
                  
                  
                  37,425,340CASH
      & CASH EQUIVALENTS, end of period
                  
                  $
                  66,323,400
                  
                  
                  $
                  10,598,200
 
 The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
  6
 
 CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES
 
 Condensed
Consolidated Statements of Shareholders' Equity
 As of
March 31, 2010 and December 31, 2009
 (Unaudited)
 
 Additional
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        AccumulatedCommon
      Stock
                                                                        
                                                                        
                                                                        Common
      stock
                                                                        
                                                                        
                                                                        paid
      in
                                                                        
                                                                        
                                                                        Statutory
                                                                        
                                                                        
                                                                        Retained
                                                                        
                                                                        
                                                                        comprehensive
                                                                        
                                                                        
                                                                        NoncontrollingShares
                                                                        
                                                                        Par
      Value
                                                                        
                                                                        
                                                                        subscribed
                                                                        
                                                                        
                                                                        capital
                                                                        
                                                                        
                                                                        reserves
                                                                        
                                                                        
                                                                        earnings
                                                                        
                                                                        
                                                                        income
                                                                        
                                                                        
                                                                        Interest
                                                                        
                                                                        
                                                                        
                                                                        TotalsBALANCE,
      December 31, 2009
                                                                        
                                                                        
                                                                        31,884,969
                                                                        
                                                                        $
                                                                        31,885
                                                                        
                                                                        
                                                                        $
                                                                        252,118
                                                                        
                                                                        
                                                                        $
                                                                        35,461,706
                                                                        
                                                                        
                                                                        $
                                                                        4,922,248
                                                                        
                                                                        
                                                                        $
                                                                        39,895,179
                                                                        
                                                                        
                                                                        $
                                                                        10,163,483
                                                                        
                                                                        
                                                                        $
                                                                        28,371,468
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        119,098,087Common
      stock issued for stock based   compensation
                                                                        
                                                                        
                                                                        62,014
                                                                        
                                                                        
                                                                        62
                                                                        
                                                                        
                                                                        
                                                                        (252,118
                                                                        )
                                                                        
                                                                        
                                                                        252,056
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        -Common
      stock issued for acquisition of Suodi
                                                                        
                                                                        
                                                                        1,118,403
                                                                        
                                                                        
                                                                        1,118
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,031,695
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        5,032,813Noncontrolling
      interest reclassified to  mandatorily redeemable noncontrolling
      interest in subsidiaries
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (28,371,468
                                                                        )
                                                                        
                                                                        
                                                                        
                                                                        (28,371,468
                                                                        )Net
      income
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        3,117,934
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        3,117,934Change
      to non-controlling interest
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (14,229,043
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (14,229,043
                                                                        )Foreign
      currency translation adjustment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (27,684
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (27,684
                                                                        )BALANCE,
      March 31, 2010
                                                                        
                                                                        
                                                                        33,065,386
                                                                        
                                                                        $
                                                                        33,065
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        40,745,457
                                                                        
                                                                        
                                                                        $
                                                                        4,922,248
                                                                        
                                                                        
                                                                        $
                                                                        28,784,070
                                                                        
                                                                        
                                                                        $
                                                                        10,135,799
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        84,620,639
 
 The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
  7
 
 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 5, 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 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”), Puhua (Xi’an) Real Estate Development
Co., Ltd (“Puhua”), Success Hill Investments Limited (“Success Hill”), Wayfast
Holdings Limited (“Wayfast”), Clever Advance Limited (“Clever Advance”),
Gracemind Holdings Limited (“Gracemind”), Treasure Asia Holdings Limited
(Treasure Asia”), Suodi Co., Ltd. (“Suodi”) (see Note 2) and XinXing
FangZhou Housing Development Co., Ltd. (“FangZhou”) (collectively, the
"Subsidiaries"). FangZhou was incorporated on March 31, 2010 for future real
estate development projects. 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 March 31, 2010 and results of
operations and cash flows for the periods ended March 31, 2010 and 2009. 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
unaudited interim 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, 2009 (“2009 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 2009 Annual Report.
 
 Accounting
Principles Recently Adopted
 
 In
June 2009, the FASB issued FASB Accounting Standard Update (“ASU”) No.
2009-17, Consolidations (Topic 810): Improvement to Financial Reporting by
Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 eliminates
certain scope exceptions previously permitted, provides additional guidance for
determining whether an entity is a variable interest entity, and requires
companies to more frequently reassess whether they must consolidate variable
interest entities. The changes also replace the previously required quantitative
approach to determining the primary beneficiary of a variable interest entity
with a requirement for an enterprise to perform a qualitative analysis to
determine whether the enterprise’s variable interest or interests give it a
controlling financial interest in a variable interest entity. The adoption on
January 1, 2009 of this standard did not have a material effect on its
consolidated financial statements, as the Company does not currently have any
variable interest or interests that give it a controlling financial interest in
a variable interest entity.
 
 In
January 2010, the FASB issued FASB Accounting Standards Update (“ASU”) No.
2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements. ASU No. 2010-06 amends existing
disclosure requirements about fair value measurement and clarifies and provides
additional disclosure requirements related to recurring and non-recurring fair
value measurements. ASU No. 2010-06 becomes effective for the Company on January
1, 2010. The adoption of this ASU did not have a material impact on the
Company‘s interim condensed consolidated financial statements.
 
 Foreign
exchange rates used:
 
 March31,
                    2010
                  
                  
                  December31,
                    2009
                  
                  
                  March31,
                    2009Period end
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.8258
                  
                  
                  
                  6.8259
                  
                  
                  
                  6.8329Average
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.8272
                  
                  
                  
                  6.8307
                  
                  
                  
                  6.8359
  8
  Note
1 – Organization and Basis of Presentation
 
 Reclassifications
 
 Certain
reclassifications have been made to the prior year’s financial statements to
conform to the 2010 presentation. The effects of the reclassifications were not
material to the Company’s condensed consolidated financial
statements.
 
 Note
2 – Acquisition
 
 On
January 15, 2010, Tsining signed a share purchase agreement with the
shareholders of Suodi and acquired 100% ownership of Suodi for a purchase price
of $7,954,478 (approximately RMB 54.36 million). Suodi is engaged in land
development in Xian’s rural area and Suodi’s only significant asset is a land
use right to land located in the rural area of Xian. The Company intends to
develop the land held by Suodi.
 
 Since the
only significant asset acquired is the land use right for the land and the
Company did not retain any employees of Suodi, the acquired assets do not
constitute a business and the acquisition is not a business combination.
Therefore, the acquisition was accounted for as an asset acquisition and the
purchase price was allocated to the identifiable assets and liabilities assumed
based on their estimated fair values.
 
 Purchase
      Price
                    
                    $
                    7,954,478Value
      assigned to assets and liabilities:Assets:Cash
                    
                    
                    2,176Land
      use right
                    
                    
                    10,232,932Liabilities:Due
      to original shareholders
                    
                    
                    103,083Deferred
      tax liability related to the land use right acquired
                    
                    
                    2,177,547Total
      net assets
                    
                    $
                    7,954,478
 
 According
to the purchase agreement, the operational control of Suodi passed to the
Company effective January 15, 2010, and, accordingly, the results of Suodi’s
operations have been included in the Company’s condensed consolidated statement
of income and other comprehensive income from that date.
 
 The total
purchase price included (1) an initial cash payment of $0.73 million (RMB 5
million) payable on January 20, 2010, (2) an issuance of 1,118,403 of the
Company’s common stock which is valued at $5.03 million (RMB 34.36 million)
based on a price per share of $4.50, the closing price of the Company’s common
stock on Nasdaq on January 15, 2010, the day the acquisition agreement of Suodi
was signed and closed, (3) an additional cash payment of $0.73 million (RMB 5
million) payable on March 30, 2010 and (4) a final cash payment of $1.46
million (RMB 10 million) payable on June 30, 2010. As of March 31,
2010, the remaining balance under the agreement amounted to $2,637,054 (RMB
18 million) and $1,172,024 (RMB 8 million) is in arrear of the payment schedule
(see Note 10). The Company is arranging the payments with the original
shareholders of Suodi.
 
 Note
3 – Mandatorily Redeemable Noncontrolling Interest in
Subsidiaries
 
 On
November 5, 2008, the Company and Prax Capital (“Prax”) entered into a joint
venture agreement to develop 79 acres within China Housing’s Baqiao project
located in Xi’an. Prax invested $29.3 million for a 25% interest in Puhua
through obtaining 1,000 Class A shares of Success Hill (“Class A Shares”) with
various distribution rights. Prax’s initial investments were recorded as
noncontrolling interests in the consolidated financial statements.
 
 During
the first quarter of 2010, the Company proposed to redeem Prax’s 1000 Class A
shares in Success Hill in order to fix the maximum return on Prax’s initial
investment. Both parties then entered into an Amended and Restated
Shareholders’ Agreement on May 10, 2010, under the terms of which,
effective January 1, 2010, the Company will redeem all Prax’s Class A
Shares within three years for consideration of the USD equivalent of $84.39
million (RMB 576 million).
 
 As Prax’s
interest in the consolidated subsidiaries meets the definition of a mandatorily
redeemable financial instrument, it is reported within liabilities as
mandatorily redeemable noncontrolling interests in subsidiaries on the Company’s
consolidated balance sheet and initally measured at the fair value of cash that
would be due and payable to Prax under the Amended and Restated Shareholder
agreement.
  9
  Note
3 – Mandatorily Redeemable Noncontrolling Interest in
Subsidairies
 
 As at
January 1, 2010, the Company recorded a liability of $42,600,511 reflecting the
fair value of the redemption amount of Prax’s interest under the Amended and
Restated Shareholder Agreement and eliminated the original noncontrolling
interest in the equity on the consolidated balance sheet. The difference of
$14,229,043 between the carrying value of the original noncontrolling interest
and the fair value of redemption amount has been reflected as a charge to
noncontrolling interest. Subsequently, the Company recorded accretion cost on
the redeemable noncontrolling interest using the effective interest method based
on the effective interest rate if 45%. The related accretion cost incurred for
the three months ended March 31, 2010 was $4,151,382 (2009 - $Nil) which was
capitalized to real estate construction in progress.
 
 Noncontrolling InterestNoncontrolling
      interest at December 31, 2009
                    
                    $
                    28,371,468Reclassify
      to mandatorily redeemable noncontrolling interest in
      subsidiaries
                    
                    
                    (28,371,468
                    )Noncontrolling
      interests at March 31, 2010
                    
                    $
                    -
 
 Mandatory Redeemable
                      Noncontrolling Interest in
                      SubsidiairiesMandatory
      redeemable noncontrolling interest in subsidiaries at December 31,
      2009
                    
                    $
                    -Initial
      fair value of mandatorily redeemable noncontrolling interest in
      subsidiaries
                    
                    
                    42,600,511Capitalized
      accretion cost on mandatorily redeemable noncontrolling interest in
      subsidiaries
                    
                    
                    4,151,382Mandatory redeemable noncontrolling interest in
      subsidiaries at March 31, 2010
                    
                    $
                    46,751,893
 
 The
scheduled mandatory redemption payments are as follow:
 
 DateDecember
      31, 2010
                            
                            $
                            29,300,595December
      31, 2011
                            
                            
                            29,300,595December
      25, 2012
                            
                            
                            25,784,523Total
                            
                            $
                            84,385,713
  Note
4 – Supplemental Disclosure of Cash Flow Information
  Income
taxes paid amounted to $0 for both three month periods ended March 31, 2010 and
2009. Interest paid for the three month periods ended March 31, 2010 and 2009
amounted to $4,277,046 and $1,091,235 respectively.
  The
following non-cash investing and financing activities are included in the
accompanying interim condensed consolidated financial statements:
 (1)
                an
      issuance of 1,118,403 of the Company’s common stock which is valued at
      $5,032,813 in connection of the acquisition of Suodi (See Note
      2).
 (2)
                In
      accordance with Amended and Restated Shareholders’Agreement with Prax, the
      Company reclassified Prax’s interest in the consolidated subsidiaries from
      noncontrolling interest in equity to liability and recorded $14,229,043,
      the difference between the carrying value of the original noncontrolling
      interest and the fair value of redemption amount, as a charge to the
      noncontrolling interest.
  Note
5 – Other Receivables, Prepaid Expenses and Other
Assets
 
 Other
receivables, prepaid expenses and other assets consisted of the following at
March 31, 2010 and December 31, 2009:
 
 March31,
                      2010
                    
                    
                    December31,
                      2009Other
      receivables
                    
                    $
                    2,057,510
                    
                    
                    $
                    1,222,028Allowance
      for bad debts
                    
                    
                    (206,548
                    )
                    
                    
                    (206,545
                    )Prepaid
      expenses
                    
                    
                    260,050
                    
                    
                    
                    261,836Prepaid
      other tax
                    
                    
                    2,585,497
                    
                    
                    
                    1,206,902Other
      receivables, prepaid expenses and other assets
                    
                    $
                    4,696,509
                    
                    
                    $
                    2,484,221
  10
  Note
6 – Real Estate Held for Development or Sale
 
 The
following summarizes the components of real estate inventories at March 31,
2010 and December 31, 2009:
 
 March31,
                    2010
                  
                  
                  December31,
                    2009Finished
      projects
                  
                  $
                  15,761,645
                  
                  
                  $
                  20,417,820Construction
      in progress
                  
                  
                  90,001,623
                  
                  
                  
                  82,585,709Total
      real estate held for development or sale
                  
                  $
                  105,763,268
                  
                  
                  $
                  103,003,529
 
 Interest
on debt and accretion costs on mandatorily redeemable noncontrolling interest in
subsidiaries incurred by the Company for the three months ended March 31,
2010 was $5,996,787 (March 31, 2009 - $1,197,857). The Company capitalized
$5,528,289 in construction in progress during the three months ended March 31,
2010 (March 31, 2009 -$859,779).
 
 Note
7 – Property and Equipment
 
 Property
and equipment consisted of the following at March 31, 2010 and
December 31, 2009:
  March31,
                    2010
                  
                  
                  December31,
                    2009Buildings
      and improvements
                  
                  $
                  5,951,399
                  
                  
                  $
                  5,286,461Income
      producing properties and improvements
                  
                  
                  11,096,030
                  
                  
                  
                  11,095,868Electronic
      equipment
                  
                  
                  363,074
                  
                  
                  
                  330,218Vehicles
                  
                  
                  425,106
                  
                  
                  
                  425,099Office
      furniture
                  
                  
                  185,748
                  
                  
                  
                  182,309Computer
      software
                  
                  
                  174,998
                  
                  
                  
                  174,995Totals
                  
                  
                  18,196,355
                  
                  
                  
                  17,494,950Accumulated
      depreciation
                  
                  
                  (2,480,699
                  )
                  
                  
                  (2,187,472
                  )Property
      and equipment, net
                  
                  $
                  15,715,656
                  
                  
                  $
                  15,307,478
 
 Depreciation
expense for the three months ended March 31, 2010 and 2009 amounted to
$293,134 and $154,088, respectively. The depreciation expense was included in
the selling, general and administrative expenses.
 
 Note
8 – Intangible Asset
 
 Intangible
assets consist of the following at March 31, 2010 and December
31, 2009:
 
 March31,
                      2010
                    
                    
                    December31,
                      2009Intangibles
      acquired
                    
                    $
                    47,311,458
                    
                    
                    
                    47,310,765Accumulated
      amortization
                    
                    
                    (5,955,718
                    )
                    
                    
                    (5,955,631
                    )Intangible
      assets, net
                    
                    $
                    41,355,740
                    
                    
                    
                    41,355,134
 
 Amortization
expense for the three months ended March 31, 2010 and 2009 amounted to $Nil
and $4,360,003, respectively. The amortization expense was capitalized in the
real estate construction in progress.
 
 Note
9 – Accrued Expenses
 
 March 31,
                    2010
                  
                  
                  December 31,
                    2009Accrued
      expenses
                  
                  $
                  1,391,886
                  
                  
                  $
                  2,252,903Accrued
      interest
                  
                  
                  904,137
                  
                  
                  
                  3,334,934Total
                  
                  $
                  2,296,023
                  
                  
                  $
                  5,587,837
 Note
10 – Payable for Acquisition of Businesses
 March 31,
                    2010
                  
                  
                  December 31,
                    2009Payable
      to original shareholders of New Land
                  (i)
                  
                  $
                  5,816,842
                  
                  
                  $
                  5,916,354Payable
      to original shareholders of Suodi
                  (ii)
                  
                  
                  2,738,937
                  
                  
                  
                  -Total
                  
                  
                  $
                  8,555,780
                  
                  
                  $
                  5,916,354
 
  11
  (i)
              The
      Company has unsecured loans payable to previous shareholders of New Land
      totaling to $5,816,842 at March 31, 2010. The remaining balance pertains
      to additional loans made to these shareholders which was also due in
      December 2009. The loans bear interest at 10% per annum. Until such
      time as final payments are arranged, the loans remain outstanding and the
      Company continues to pay interest at 10% per
  annum.
 
 (ii)
              On
      January 15, 2010, the Company completed the acquisition of Suodi (See
      Note 2). The payable to original shareholders of Suodi represents (1) the
      remaining balance under the acquisition agreement of $2,637,054 (RMB
      18 million), and (2) $101,883 (RMB 695,439) due to original shareholders
      of Suodi assumed by the Company when acquiring
  Suodi.
 
 Note
11 – Loans from Employees
 
 The
Company has borrowed monies from certain employees to fund the Company’s
construction projects. These unsecured loans bear interest at rates ranging
between 8% and 10% per annum and are available to all employees.
 
 Included
in these loans is a $659,263 loan from the Company’s President as at March 31,
2010 (December 31, 2009 - $Nil).
 
 Note
12 – Loans Payable
 
 Loans
payable represent amounts due to various banks. These loans generally can be
renewed with the banks when they expire. Loans payable as of March 31,
2010 and December 31, 2009 consisted of
the following:
 March31,
                                                    2010
                                                  
                                                  
                                                  December31,
                                                    2009Xi'an
      Rural Credit Union Zao Yuan Rd. BranchDue
      July 3, 2010, annual interest is at 8.496 percent, secured by the
      Company's Jun Jing Yuan I, Han Yuan and Xin Xing Tower
      projects
                                                  
                                                  $
                                                  2,930,059
                                                  
                                                  
                                                  $
                                                  2,930,017China
      Construction Bank, Xi'an BranchDue
      August 27, 2011, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  3,223,018Due
      September 8, 2012, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                                                  
                                                  
                                                  12,452,753
                                                  
                                                  
                                                  
                                                  12,452,571Xinhua
      Trust Investments Ltd.Due
      January 28, 2012, annual interest is at 10 percent, secured by the 24G
      project
                                                  
                                                  
                                                  21,975,446
                                                  
                                                  
                                                  
                                                  -Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21 percent, secured by the
      Company's Jun Jing Yuan I and XinXing Tower projects
                                                  
                                                  
                                                  5,127,605
                                                  
                                                  
                                                  
                                                  5,127,528Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012, annual interest is at the bank’s prime rate, secured by
      the PuHua project with a minimum repayment of $7.3 million required in
      2011.
                                                  
                                                  
                                                  21,975,446
                                                  
                                                  
                                                  
                                                  12,452,571Total
                                                  
                                                  $
                                                  64,461,309
                                                  
                                                  
                                                  $
                                                  36,185,705
 
 All loans
are used to finance construction projects. All interest on loans payable
was capitalized and allocated to various real estate construction
projects.
  12
  Note
12 – Loans Payable
 
 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. On August 28, 2008, the Company
entered a first loan agreement with China Construction Bank Xi’an Branch to draw
down the first RMB 150 million loan. The first loan was fully repaid as at
December 31, 2009. On August 30, 2009, the Company entered a second loan
agreement with China Construction Bank Xi’an Branch to draw down another RMB 85
million loan, which will mature on September 8, 2012. $12,452,753 (RMB 85
million) was received by the Company.
 
 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%.
Due to the change of corporate structure of the Company, China Construction Bank
Xi’an Branch has clarified that the current ratio and liabilities to assets
ratio calculations only include the financial information of Tsining and New
Land. As of March 31, 2010, the current ratio was
approximately 138.4%, and the liabilities to assets ratio was
approximately 58.7%.
 
 Note
13 – 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, March 31, 2010, and the
basis for that measurement, by level within the fair value
hierarchy:
 
 Fair Value Measurements Using
                  
                  Assets/LiabilitiesLevel1
                  
                  
                  Level2
                  
                  
                  Level3
                  
                  
                  AtFairValueWarrants
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  4,519,590
                  
                  
                  $
                  -
                  
                  
                  $
                  4,519,590Derivative
      liabilities
                  
                  
                  -
                  
                  
                  
                  3,424,841
                  
                  
                  
                  -
                  
                  
                  
                  3,424,841Total
                  
                  $
                  -
                  
                  
                  $
                  7,944,431
                  
                  
                  $
                  -
                  
                  
                  $
                  7,944,431
 
 The
following table summarizes the financial assets and liabilities measured at fair
value on a recurring basis as of the measurement date, December 31, 2009, and
the basis for that measurement, by level within the fair value
hierarchy:
 
 Fair Value Measurements Using
                  
                  Assets/LiabilitiesLevel1
                  
                  
                  Level2
                  
                  
                  Level3
                  
                  
                  AtFairValueCash
      equivalents
                  
                  $
                  4,395,025
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4,395,025Warrants
      liabilities
                  
                  
                  -
                  
                  
                  
                  5,074,191
                  
                  
                  
                  -
                  
                  
                  
                  5,074,191Derivative
      liabilities
                  
                  
                  -
                  
                  
                  
                  3,991,047
                  
                  
                  
                  -
                  
                  
                  
                  3,991,047Total
                  
                  $
                  4,395,025
                  
                  
                  $
                  9,065,238
                  
                  
                  $
                  -
                  
                  
                  $
                  13,460,263
 
 Note
14 – Convertible Debt
 
 On
January 28, 2008, the Company issued Senior Secured Convertible Debt due in 2013
(the "Convertible Debt") and warrants to subscribe for common shares for an
aggregate purchase price of $20 million. The Convertible Debt bears interest at
5% per annum (computed based on the actual days elapsed in a period of 360 days)
of the RMB notional principle amount, payable quarterly in arrears in U.S.
Dollars on the first business day of each calendar quarter and on the
maturity date. In addition, 1,437,467 five-year warrants were granted with a
strike price of $6.07 per common share, which are callable if certain stock
price thresholds are met. Approximately 215,620 warrants are also available as a
management incentive if certain milestones are met. If the aggregate principal
amount of the Convertible Debt is reduced to $10 million or less as a
result of repayment by the Company or as a result of any optional conversion by
the Investors or mandatory conversion by the Company of the Convertible
Debt, then each Investor agrees to surrender to the Company warrants for an
aggregate number of shares of common stock equal to such Investors’ pro rata
share of 107,810 shares. If the aggregate principal amount of the
Convertible Debt is reduced to $Nil as a result of repayment by the Company or
as a result of any optional conversion by the Investors or mandatory conversion
by the Company of the Convertible Debt, then each Investor agrees to surrender
to the Company warrants in addition to the 107,810 warrants surrendered pursuant
to the $10 million reduction noted above for an aggregate number of shares
of common stock equal to such Investor’s pro rata share of 107,810 shares. The
Company may hold in treasury and reissue to the officers and directors of the
Company any warrants surrendered by the Investors. As of March 31, 2010, the
Company did not repay any principle of Convertible Debt and the Investors
did not deliver any optional conversion requests to the
Company.
  13
  Note
14 – Convertible Debt
 
 The
Investors have the right to convert up to 45% ($9 million) of the
principal amount of the Convertible Debt into common shares at an initial
conversion price of $5.57, subject to an upward adjustment. The Company, at
its discretion, may redeem the remaining $11 million of Convertible Debt at
100% of the principle amount, plus any accrued and unpaid interest. The
warrants associated with the Convertible Debt grant the Investors the right
to acquire shares of common stock at $6.07 per share, subject to customary
anti-dilution adjustments. The warrants may be exercised to purchase common
stock at any time up to and including February 28, 2013.
 
 The
Convertible Debt is secured by a first priority, perfected security
interest in certain shares of common stock of Lu Pingji, the
Chairman of the Company. The Convertible Debt is subject to events of
default customary for convertible securities and for a secured
financing.
 
 Both the
warrant and embedded conversion option associated with the Convertible Debt meet
the definition of a derivative instrument according to the standard, ”Accounting
for Derivative Instruments and Hedging Activities”.  Because the
warrant and the convertible debt are denominated in U.S. dollars but the
Company’s functional currency is the Chinese RMB, the exemption from
derivative instrument accounting provided by the standard is not available and
therefore the warrant and embedded conversion option are recorded as a
derivative instrument liability and periodically marked-to-market. The fair
value of the warrants and embedded conversion option on inception were
determined to be $3,419,653 and $3,927,375, respectively, using the
Cox-Ross-Rubinstein Binomial Lattice Model (the “CRR Model”) with the
following assumptions: expected life 4.32 years, expected volatility -
75%, risk free interest rate - 2.46% and dividend rate - 0%. The fair value of
the warrants and embedded conversion option at March 31, 2010 were determined to
be of $2,999,167 and $3,424,841 respectively (December 31, 2009 -
$3,507,000 and $3,991,047), using the CRR Model with the following assumption:
expected life 2.83 ~ 2.92 years, expected volatility - 105%, risk free interest
rate - 1.50% - 1.55% and dividend rate - 0%. For three months ended March
31, 2010, the Company recorded a decrease in fair value for the warrants and
embedded derivatives of $507,932 and $566,206 respectively (March
31, 2009 – decrease of $104,740 and $124,038), in the consolidated
statement of income and comprehensive income.
 
 After
allocating the gross proceeds to the fair value of the warrants and the embedded
derivative instrument, the remaining proceeds were allocated as the initial
carrying value of the Convertible Debt. The initial carrying value of the
Convertible Debt is accreted to its stated amount on maturity using the
effective interest method. The effective interest rate was determined to be
15.42%. The carrying value of Convertible Debt on March 31, 2010 was
$15,164,169 (December 31, 2009 - $14,834,987). Related interest expense and
accretion expense for the three months ended March 31, 2010 were $263,428 and
$329,182, respectively (March 31, 2009 - $263,363 and $281,822).
 
 Note
15 – Shareholders' Equity
 
 Common
stock
 
 1.
              As
      at December 31, 2009, the Company had accrued $252,118 of stock-based
      compensation to the former CFO and directors as common stock subscribed. A
      total of 62,014 common shares were issued on January 19,
    2010.
 
 2.
              The
      company issued 1,118,403 common shares for the acquisition of Suodi (See
      Note 2). The shares were valued at $5.03 million (RMB 34.36 million)
      based on a price per share of $4.50, the closing price of the Company’s
      common stock on Nasdaq on January 15, 2010, the day the acquisition
      agreement of Suodi was signed and
closed.
 
 Warrants
 
 Pursuant
to accounting guidance, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settle in a Company's Own Stock", the warrants issued
contain a provision permitting the holder to demand payment based on a valuation
in certain circumstances. Therefore, the Company recorded the warrants issued
through private placements in 2007 as a liability at their fair value on the
date of grant and then revalued them to $1,520,423 at March 31,
2010 (December 31, 2009 - $1,567,191) using the CRR Binomial Lattice Model
with the following assumptions: expected life of 2.11 years; expected volatility
- 105%, risk fee interest rate of 1.08% and dividend rate - 0%. The gain from
the change in fair value of warrants for the three months ended March 31, 2010
was $46,669 (March 31, 2009 – gain of $62,499).
  14
  Note
15 – Shareholders' Equity
 
 Including
the fair value of warrants associated with the convertible debenture (see Note
14), the total warrant liability as at March 31, 2010 was $4,519,590 (December
31, 2009 - $5,074,191). The total gain from the change in fair value of warrants
for the three months ended March 31, 2010 was $554,601 (March 31, 2009 – gain of
$167,239).
 
 The
following is a summary of the warrant activity:
 
 Number of
                          Warrants
                          Outstanding
                        
                        
                        Weighted Average
                          Exercise
                          PriceDecember
      31, 2009
                        
                        
                        3,976,883
                        
                        
                        $
                        5.07Exercised
                        
                        
                        -
                        
                        
                        
                        -Expired
                        
                        
                        -
                        
                        
                        
                        -March
      31, 2010
                        
                        
                        3,976,883
                        
                        
                        $
                        5.07
 
 The
following summarizes the weighted-average information about the outstanding
warrants as at March 31, 2010:
  Outstanding WarrantsExercise
                                    Price
                                  
                                  
                                  Number
                                  
                                  Average Remaining
                                    Contractual Life$
                                  4.50
                                  
                                  
                                  
                                  2,539,416
                                  
                                  2.11
      years6.07
                                  
                                  
                                  
                                  1,437,467
                                  
                                  2.92years$
                                  5.07
                                  
                                  
                                  
                                  3,976,883
                                  
                                  2.40years
 
 Note
16 – Other Income
 
 For the three months endedMarch 31,
                      
                      
                      March 31,2010
                      
                      
                      2009Interest
      income
                      
                      $
                      116,546
                      
                      
                      $
                      3,796Government
      reimbursement of infrastructure cost
                      
                      
                      -
                      
                      
                      
                      316,266Rental
      income, net
                      
                      
                      310,910
                      
                      
                      
                      84,656Income
      from property management services
                      
                      
                      754,407
                      
                      
                      
                      580,394Gain
      on disposal of fixed assets and inventory
                      
                      
                      -
                      
                      
                      
                      16,945Total
                      
                      $
                      1,181,853
                      
                      
                      $
                      1,002,058
 
 Note
17 – (Loss) Earnings per Share
 
 Earnings
per share for the three months ended March 31, 2010, and 2009 were determined by
dividing net (loss) income attributable to China Housing & Land Development,
Inc. for the periods by the weighted average number of both basic and diluted
shares of common stock and common stock equivalents
outstanding.
  15
  Note
17 – Earnings per Share
 
 March 31,
                      
                      
                      March 31,2010
                      
                      
                      2009NumeratorNet
      (loss) income attributable to China Housing & Land Development, Inc.
      – basic
                      
                      $
                      (11,111,109
                      )
                      
                      $
                      1,302,719Effect
      of dilutive securitiesWarrants
                      
                      
                      -
                      
                      
                      
                      -(Loss)
      income attributable to China Housing & Land Development, Inc. –
      diluted
                      
                      $
                      (11,111,109
                      )
                      
                      $
                      1,302,719DenominatorWeighted
      average shares outstanding – basic
                      
                      
                      32,580,769
                      
                      
                      
                      30,893,757Effect
      of dilutive securitiesWarrants
                      
                      
                      -
                      
                      
                      
                      -Shares
      to be issued to directors
                      
                      
                      -
                      
                      
                      
                      28,504Weighted
      average shares outstanding – diluted
                      
                      
                      32,580,769
                      
                      
                      
                      30,922,261(Loss)
      earnings per shareBasic
      earnings per share
                      
                      $
                      (0.34
                      )
                      
                      $
                      0.04Diluted
      earnings per share
                      
                      $
                      (0.34
                      )
                      
                      $
                      0.04
 
 All
outstanding warrants and conversion options for the convertible debt have an
anti-dilutive effect on the earnings per share and are therefore excluded from
the determination of the first quarter of fiscal 2010 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 with expiring dates between year 2010 and 2011.
 
 The
Company entered into a consulting service contract with a third party. The
contract has a set payment schedule which will be realized in less than a
year.
 
 The
Company also has two committed payments on land use rights with unpaid balances
of approximately $1.8 million and $2.6 million. The balances are not due until
the vendors remove the existing buildings on the land and changes the zoning
status of the land use right certificates. The committed payments will become
the liabilities of the Company once the vendors fulfill their
obligations.
 
 All
future payments required under the various agreements are summarized
below.
 
 PaymentduebyperiodCommitments and Contingencies
                                  Total
                                  
                                  Lessthan
                                    1year
                                  
                                  1-2yearsOperating
      lease
                                  
                                  $
                                  160,469
                                  
                                  
                                  $
                                  94,007
                                  
                                  
                                  $
                                  66,462Consulting
      contract
                                  
                                  
                                  274,693
                                  
                                  
                                  
                                  274,693
                                  
                                  
                                  
                                  -Land
      use right
                                  
                                  
                                  4,424,390
                                  
                                  
                                  
                                  1,831,287
                                  
                                  
                                  
                                  2,593,103Total
                                  
                                  $
                                  4,859,552
                                  
                                  
                                  $
                                  2,199,987
                                  
                                  
                                  $
                                  2,659,565
 
 Note
19 – Subsequent Events
 
 On May
10, 2010, the Company entered into Amended and Restated Shareholders’ Agreement
with Prax Capital. The Amended and Restated Shareholders’ Agreement
retroactively applies to January 1, 2010 (See Note 3).
  16


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 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 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.
 
 Critical
Accounting Policies and Estimates
 
 We
prepare our interim condensed 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 interim condensed consolidated 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.
  The
unaudited interim 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, 2009 (“2009 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 2009 Annual
Report.
 
 Warrants
and derivative liability
 
 As of
March 31, 2010, the Company has approximately $4.5 million of warrants liability
and $3.4 million of fair value of embedded derivatives on the balance sheet,
representing approximately 2.0% and 1.5% of the total liabilities,
respectively.
 
 We
utilize the Cox-Rubinstein-Ross (“CRR”) Binomial Lattice Model to estimate the
fair values of warrants liability and embedded derivatives. The CRR
model depends on the following assumptions: the Company’s common stock
price underlying the warrants; strike price; conversion price; expected life;
expected volatility; risk free interest rate; and dividend rate. We used the CRR
Binomial Lattice Model for the past 3 years and we do not expect any significant
changes to assumptions except for the common share price and the expected
volatility.
 
 We
estimate the fair value of warrants liability and embedded derivatives every
quarter and recognize the change of fair value as gain or loss on our
current quarter consolidated statement of income. The fair values of warrants
liability and embedded derivatives have changed during the past few years
according to the valuation models and the fair values are positively
related to the market share price movement and the volatility.
 
 During
the three months ended March 31, 2010, our common stock price experienced
fluctuations with the price decreasing from $4.13 on January 1, 2010 to $3.80 on
March 31, 2010. The decrease in stock price caused a decrease in fair value for
warrants liability and embedded derivatives. As a result, we recognized
approximately $0.55 million as a change in fair value of warrants and $0.57
million as a change in fair value of embedded derivatives, which are all
non-cash gains.
  17
  The
following table summarizes the fair value of warrant liability and embedded
derivative as at various periods.
  March 31,
                      2010
                    
                    
                    December 31,
                      2009Fair
      value of warrants liability
                    
                    $
                    4,519,590
                    
                    
                    $
                    5,074,191Fair
      value of embedded derivatives
                    
                    $
                    3,424,841
                    
                    
                    $
                    3,991,047
  The
following tables summarize all the warrants and conversion option outstanding
and the assumptions used for their valuations as of March 31, 2010 and December
31, 2009.
  Investor Warrants:
                    
                    3/31/2010
                    
                    
                    12/31/2009Strike
      price
                    
                    
                    6.07
                    
                    
                    
                    6.07Market
      price
                    
                    
                    3.80
                    
                    
                    
                    4.13Valuation
      date
                    
                    3/31/2010
                    
                    
                    12/31/2009Expiry
      date
                    
                    2/28/2013
                    
                    
                    2/28/2013Volatility
                    
                    
                    105.00
                    %
                    
                    
                    105.00
                    %Risk
      free rate
                    
                    
                    1.55
                    %
                    
                    
                    1.78
                    %Option
      value
                    
                    
                    2.08636
                    
                    
                    
                    2.43971#
      of warrants
                    
                    
                    1,437,467
                    
                    
                    
                    1,437,467Value
                    
                    
                    2,999,167
                    
                    
                    
                    3,507,000
 
 Investor Warrants: 5-7-2007
                    
                    3/31/2010
                    
                    
                    12/31/2009Strike
      price
                    
                    
                    4.50
                    
                    
                    
                    4.50Market
      price
                    
                    
                    3.80
                    
                    
                    
                    4.13Valuation
      date
                    
                    3/31/2010
                    
                    
                    12/31/2009Expiry
      date
                    
                    5/9/2012
                    
                    
                    5/9/2012Vlolatility
                    
                    
                    105.00
                    %
                    
                    
                    105.00
                    %Risk
      free rate
                    
                    
                    1.08
                    %
                    
                    
                    1.33
                    %Option
      value
                    
                    
                    0.59873
                    
                    
                    
                    0.61711#
      of warrants
                    
                    
                    2,539,416
                    
                    
                    
                    2,539,416Value
                    
                    
                    1,520,423
                    
                    
                    
                    1,567,092
 
 Conversion
      Option Valuation:
                    
                    3/31/2010
                    
                    
                    12/31/2009Strike
      price
                    
                    
                    5.57
                    
                    
                    
                    5.57Market
      price
                    
                    
                    3.80
                    
                    
                    
                    4.13Valuation
      date
                    
                    3/31/2010
                    
                    
                    12/31/2009Expiry
      date
                    
                    1/28/2013
                    
                    
                    1/28/2013Volatility
                    
                    
                    105.00
                    %
                    
                    
                    105.00
                    %Risk
      free rate
                    
                    
                    1.50
                    %
                    
                    
                    1.74
                    %Option
      value
                    
                    
                    2.11960
                    
                    
                    
                    2.47002Host
      Value –principal
                    
                    
                    9,000,000
                    
                    
                    
                    9,000,000Host
      Value –interest
                    
                    
                    0
                    
                    
                    
                    0Shares
      issuable on conversion
                    
                    
                    1,615,799
                    
                    
                    
                    1,615,799Option
      value –principal
                    
                    
                    3,424,841
                    
                    
                    
                    3,991,048Derivative
      value
                    
                    
                    3,424,841
                    
                    
                    
                    3,991,048
  18
  Real
estate held for development or sale, intangible asset and deposits on land use
rights
 
 We
evaluate the recoverability of our real estate developments taking into account
several factors including, but not limited to, our plans for future operations,
prevailing market prices for similar properties and projected cash
flows.
 
 We review
real estate projects, whenever events or changes in circumstances indicate that
the carrying amount of an asset may no longer be recoverable. When these events
occur, we measure impairment by comparing the carrying value to the estimated
undiscounted future cash flows expected resulting 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 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 are recorded as adjustments to
the cost basis. There has been no impairment on real estate inventories and no
impairment loss has been recorded for the three months ended March 31, 2010 and
2009.
  The
following summarizes the components of real estate inventories as at March 31,
2010 and December 31, 2009:
 
 March 31, 2010
                      
                      
                      December 31, 2009Finished
      projects
                      
                      $
                      15,761,645
                      
                      
                      $
                      20,417,820Construction
      in progress
                      
                      
                      90,001,623
                      
                      
                      
                      82,585,709Total
      real estate held for development or sale
                      
                      $
                      105,763,268
                      
                      
                      $
                      103,003,529
  Intangible
asset
  The
Company’s intangible asset is related to the exclusive rights to develop 487
acres of land in the Baqiao area acquired in 2007. The Company believes that the
cooperation agreement with Baqiao District Government will be extended after
June 2011. Based on the prevailing market condition in Xi’an city we concluded
that there is no impairment.
 
 According
to the agreement with Baqiao District Government, at the beginning of each year,
the Company will prepare the annual work plan and have it approved by Baqiao
District Government. The annual work plan will include the detailed projects
that will be started during that year and the Baqiao District Government is
responsible for the land clearance. Due to the delay of land clearance progress,
certain scheduled projects have been postponed. The Baqiao District Government
acknowledged the delay and informed us of their intention to extend the
agreement. Currently, we still have 389 acres land undeveloped and $41.4
million in intangible assets. If there’s any event that leads the Company to
believe it’s unlikely to extend the agreement, we will assess the impairment of
the intangible asset and write off the intangible asset from our balance
sheet.
 
 As of
March 31, 2010 and December 31, 2009, intangible asset consists of the
following:
 
 March
      31, 2010
                      
                      
                      December
      31, 2009Intangible
      acquired
                      
                      $
                      47,311,458
                      
                      
                      $
                      47,310,765Accumulated
      amortization
                      
                      
                      (5,955,718
                      )
                      
                      
                      (5,955,631
                      )Intangible
      assets, net
                      
                      $
                      41,355,740
                      
                      
                      $
                      41,355,134
  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 months ended March 31, 2010 and 2009,
the Company has recorded $0 of impairment on this intangible
asset.
  19
 
 The
Company amortized the intangible asset based on the percentage of the profit
margin realized over the total expected profit margin to be realized from the
487 acre land in the Baqiao project. During fiscal 2007, the Company sold 18.6
acres of land and the related profit margin realized on that sale
represented 2.56% of the total estimated profit margin on the whole 487
acre project, as a result, the Company amortized
$1.29 million (2.56%) of the total intangible asset during fiscal
2007. This method is intended to match the pattern of amortization with the
income-generating capacity of the intangible asset. Amortization expense for the
three months ended March 31, 2010 and 2009 amounted to $0 and $4.66
million, respectively. The amortization expense was capitalized in the real
estate construction in progress.
 
 Management
re-evaluated the expected profit margin from the 487 acres of land as at March
31, 2010 and recalculated the intangible amortization related to the 2008 land
sales based on the new estimate. As a result, management found the difference
resulting from the change of estimate was not material. Therefore no
adjustment was made in the three months ended March 31, 2010 due to the change
of accounting estimate of total profit margin on the 487 acres of
land.
  Deposits
on land use rights
 March 31, 2010
                    
                    
                    December 31, 2009Deposits
      on land use rights
                    
                    
                    50,939,221
                    
                    
                    
                    28,084,346
 
 The
increase in Deposits on land use rights was mainly due to the deposits the
Company paid for land use rights for JunJing III, Park Plaza, and Golden Bay
project during the first quarter of 2010.
 
 The
Company conducts regular reviews of the deposits on land use right. After review
and assessment, the Company concluded that there was no significant
decrease in the market price and therefore no impairment write-down was
required. According to E House (China) Real Estate Research Institute the
average residential sale price in Xi’an city was stable in the fiscal
quarter ended March 31, 2010. The average sale price increased to 5,885 RMB
per square meter (approximately US$ 862 per square meter) from
5,225 RMB (approximately US$ 764 per square meter) in the fourth
quarter 2009, representing about 12.6% quarter-over-quarter.
  Material
trends and uncertainties that may impact continuing operations
  Changes
in national and regional economic conditions, as well as in areas where we
conduct our operations and where prospective purchasers of our homes live, may
result in more caution on the part of homebuyers resulting in fewer home
purchases. According to data from the Xi’an Bureau of Statistics, Xi’an city’s
real estate transaction volume (in terms of sq. meter signed) increased about
41% in the first quarter of 2010 compared to the same period of 2009. All our
projects are currently in Xi’an city. During the first quarter of 2010, our
revenue increased approximately 151% over same period of 2009.
 
 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 need in order to purchase
our homes, as well as 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 compete for home buyers. A reduction in pricing
could result in a decline in revenues and margins. We do not expect any
substantial change in current mortgage policy or the prevailing
mortgage rate in the near future.
  The real
estate development industry is capital intensive, requiring 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 larger amounts of equity to
be invested by borrowers in a project in connection with new loans. Failure
to obtain sufficient capital to fund planned capital and other expenditures
could have a material adverse effect on our business.
 
 In
addition, regulatory requirements could force 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 the necessary licenses,
permits and approvals could have an adverse effect on our
operations.
 
 As of
March 31, 2010, we had $66,323,400 of cash and cash equivalents, compared to
$36,863,216 as of December 31, 2009, an increase of
$29,460,184.
  20
 
 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 2010. We intend to meet our liquidity
requirements, including capital expenditures related to the purchase of land for
the development of future projects, through cash 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 will be available to fund our
operations.
 
 BUSINESS
  The
Company 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, 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, 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, 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, in which 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 with units available for sale, where the construction has been
      finished and most of the units in the buildings have been sold or
      leased.
  21
 
 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
                                March 31, 2010
                                (m2)JunJing
      II
                                Phase
      Two
                              
                              Multi-Family
                                residential
      &
                                Commercial
                              
                              Q2/2009
                                -
      Q2/2011
                              
                              
                              Q3/2009
                              
                              
                              
                              29,800
                              
                              
                              
                              112,556
                              
                              
                              
                              81,748Puhua
      Project
                              
                              Multi-Family
                                residential
      &
                                Commercial
                              
                              Q2/2009
                                -
      Q3/2014
                              
                              
                              Q4/2009
                              
                              
                              
                              192,582
                              
                              
                              
                              640,000
                              
                              
                              
                              49,870
 
 Project name
                      
                      Total
                        Number of
                        Units
                      
                      
                      Number of
                        Units sold by
                        March 31, 2010
                      
                      
                      Estimated
                        Revenue
                        ($ million)
                      
                      
                      Contract
                        Revenue by
                        March 31, 2010
                        ($ million)
                      
                      
                      Recognized
                        Revenue by
                        March 31,
                        2010  ($ million)JunJing
      II
                        Phase
      Two
                      
                      
                      1,015
                      
                      
                      
                      752
                      
                      
                      
                      93.4
                      
                      
                      
                      61.0
                      
                      
                      
                      41.0Puhua
      Project
                      
                      
                      5,000
                      
                      
                      
                      393
                      
                      
                      
                      700.0
                      
                      
                      
                      31.7
                      
                      
                      
                      11.5
 
 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 2007.
 
 The
construction of Phase Two commenced in the fourth quarter of 2009 and pre-sales
started within the same quarter. As of March 31, 2010, the contract revenue for
Phase Two was $ 61.0 million, of which we have recognized $ 41.0 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 640,000 square meters. In November 2008, the Company entered
into an agreement with Prax Capital China Real Estate Fund I, Ltd., to form
a joint venture. The joint venture was formed in late 2008, subject to
certain conditions and approvals, which have been satisfied. Prax Capital Real
Estate Holdings Limited invested US$29.3 million, The joint venture acquired the
land use rights early in the first quarter of 2009.
 
 The
construction of the Puhua project began in June 2009. The whole project, which
consists of four phases, is expected to be completed in the third quarter of
2014, with estimated revenues of $700 million. The Company began accepting
pre-sale contracts for units in the Puhua Phase One project on October 24th,
2009. As of March 31, 2010, the contract revenue for Puhua project is $31.7
million, of which we have recognized $11.5 million.
 
 For
JunJing II Phase Two and Puhua Project, the contract revenue is $93.2 million,
of which we have recognized $52.5 million.
 
 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
                          
                          Q2/2010
                            - Q2/2012
                          
                          
                          
                          Q3/2010
                          
                          
                          
                          7,510
                          
                          
                          
                          47,153
                          
                          
                          
                          434Park
      Plaza
                          
                          Multi-Family
                            residential
      &
                            Commercial
                          
                          Q3/2010
                            - Q4/2014
                          
                          
                          
                          Q4/2010
                          
                          
                          
                          44,250
                          
                          
                          
                          180,000
                          
                          
                          
                          2,000Golden
      Bay
                          
                          Multi-Family
                            residential
      &
                            Commercial
                          
                          Q4/2010
                            - Q4/2014
                          
                          
                          
                          Q1/2011
                          
                          
                          
                          146,099
                          
                          
                          
                          378,887
                          
                          
                          
                          N/A
  22
  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 a
newly designated satellite city of Xi’an.
 
 Xi’an has
designated the Baqiao District as a major resettlement zone in which the
city expects 900,000 middle to upper income inhabitants 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; which will embellish the
natural environment adjacent to our Baqiao project.
 
 
 
 Through
its New Land subsidiary, the Company sold approximately 18.4 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 18.4 acres and placing 79 acres in the joint venture, about 389 acres
remained available 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 area of approximately 7,501 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 to the city center. We plan to start
construction during the second quarter of 2010 and expect pre-sales to begin
during the third quarter of 2010. The total estimated revenues from this project
are 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 162, 000 square meters. The four-year
construction of Park Plaza is expected to begin in the third quarter 2010.
We anticipate accepting pre-sale purchase agreements in the second quarter of
2010, and revenues from pre-sale agreements will be recognized when all revenue
recognition criteria have been met. The total revenue from Park Plaza is
estimated to be $154 million.
 
 Golden Bay: The Golden Bay
project is located within the Baqiao project, with a total gross floor area of
378,887 square meters. The Golden Bay project will consist of residential
buildings as well as a commercial area. Construction is anticipated to begin in
the fourth quarter of 2010, and we expect to begin accepting pre-sale purchase
agreements in the first quarter of 2011.
  23
 
 Completed
Projects with units available for sale
 
 Project name
                          
                          Type of
                            Projects
                          
                          Completion
                            Date
                          
                          
                          Total Site
                            Area
                            (m2)
                          
                          
                          Total GFA
                            (m2)
                          
                          
                          Total
                            Number of
                            Units
                          
                          
                          Number of
                            Units sold by
                            March 31, 2010JunJing
      II Phase One
                          
                          Multi-Family
                            residential
      &
                            Commercial
                          
                          
                          Q4/2009
                          
                          
                          
                          39,524
                          
                          
                          
                          136,012
                          
                          
                          
                          1,182
                          
                          
                          
                          1,155Tsining
      Home IN
                          
                          Multi-Family
                            residential
      &
                            Commercial
                          
                          
                          Q4/2003
                          
                          
                          
                          8,483
                          
                          
                          
                          30,072
                          
                          
                          
                          215
                          
                          
                          
                          213Tsining-24G
                          
                          Hotel,
                            Commercial
                          
                          
                          Q2/2006
                          
                          
                          
                          8,227
                          
                          
                          
                          43,563
                          
                          
                          
                          773
                          
                          
                          
                          748JunJing
      I
                          
                          Multi-Family
                            residential
      &
                            Commercial
                          
                          
                          Q3/2006
                          
                          
                          
                          55,588
                          
                          
                          
                          167,931
                          
                          
                          
                          1,671
                          
                          
                          
                          1,640
 
 JunJing II Phase One: JunJing
II Phase One consists of 13 residential buildings and 3 auxiliary buildings,
including one kindergarten, with a gross floor area of about 136,012 square
meters. JunJing II Phase One was one of our major revenue generating projects
during the first quarter of 2010, contributing approximately $76.9 million in
revenues. By March 31, 2010, we had pre-sold approximately 1,155units in the
project, which accounts for about 97% of all available units totaling
approximately 123,874 square meters, about 91% of available GFA. This project
began the delivery to customers for this project began at the end of October,
2009.
 
 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 $13.7 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 773 one to three bedroom service apartments. The
project started construction in June 2005 and was completed in June 2006 with
total sales of $42.1 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 1,671 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 wasalso 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 $49.57 million.
 
 CONSOLIDATED
OPERATING RESULTS
 
 Three
Months Ended March 31, 2010 Compared With Three Months Ended March 31,
2009
 
 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
first quarter of 2010, most of our revenues came from Puhua Project, Tsining
JunJing II phases one and two, JunJing II Phase One consists of 13 residential
buildings and 3 auxiliary buildings, including one kindergarten, with a gross
floor area of about 136,012 square meters. This project began to be delivered to
customers at the end of October, 2009. JunJing II Phase Two consists of 12
buildings, mainly middle and high rises, and began to accept pre-sale contracts
in the second quarter 2009. Puhua Phase One consists of 7 garden houses, 2
mid-rises and 4 high-rises buildings with total expected revenues of
approximately $116.2 million. We officially started the pre-sales in the fourth
quarter of 2009 and we recognized approximately $31.7 million in the
first quarter of 2010.
  24
 
 Effective
January 1, 2008, the Company adopted the percentage of completion method of
accounting for revenue recognition for all building construction projects in
progress, including the Tsining JunJing II and PuHua Project. 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:
                                    
                                    March31,2010
                                    
                                    
                                    March31,2009US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One (Under construction on March 31,
2009)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    10,305,262Tsining
      JunJing II Phase Two
                                    
                                    
                                    15,161,722
                                    
                                    
                                    
                                    -Puhua
      Project
                                    
                                    
                                    11,454,564
                                    
                                    
                                    
                                    -Projects
      CompletedTsining
      JunJing II Phase One
                                    
                                    
                                    4,095,525
                                    
                                    
                                    
                                    -Tsining
      JunJing I
                                    
                                    
                                    1,296,725
                                    
                                    
                                    
                                    1,580,565Tsining-24G
                                    
                                    
                                    15,684
                                    
                                    
                                    
                                    862,593Tsining
      Gang Wan
                                    
                                    
                                    
                                    -
                                    
                                    
                                    158,724Tsining
      In Home
                                    
                                    
                                    366,841
                                    
                                    
                                    
                                    18,725Additional
      ProjectRevenues
      from the sale of properties
                                    
                                    $
                                    32,391,061
                                    
                                    
                                    $
                                    12,925,869
  The
revenues from the sale of properties in the three months ended March 31,
2010increased
150.6 percent to $32,391,061 from $12,925,869 in the same period of 2009. The
increase was primarily due to the increased revenue from Tsining JunJing II
Phase One, Phase Two, and Puhua Project.
 
 Our
project in process is the Baqiao project where we have the exclusive right to
develop 487 acres. In 2007, we acquired the development rights and recognized
$24,405,717 in revenue as a result of an approximately 18 acre land sale to an
unrelated developer. Near the end of 2008, we initiated a joint venture with
Prax Capital to co-develop 79 acres within the Baqiao project. Prax Capital
invested $29.3 million in cash into the joint venture. After setting aside
approximately 42 acres for the newly planned Golden Bay project, approximately
348 acres remain available for development in the Baqiao project.
 
 The
following table summarizes details of our most significant
projects:
 
 3 Months Ended
                  
                  
                  3 Months EndedRevenues by project:
                  
                  31-Mar-10
                  
                  
                  31-Mar-09US$Project
      Under Construction
                  
                  
                  
                  
                  
                  -Puhua
      Project contract sale
                  
                  $
                  17,880,123
                  
                  
                  
                  -Revenue
                  
                  
                  11,454,564
                  
                  
                  
                  -Total
      gross floor area (GFA) available for sale
                  
                  
                  640,000
                  
                  
                  
                  -GFA
      sold during the period
                  
                  
                  25,741
                  
                  
                  
                  -Remaining
      GFA available for sale
                  
                  
                  590,130
                  
                  
                  
                  -Percentage
      of completion
                  
                  
                  31.1
                  %
                  
                  
                  -Percentage
      GFA sold during the period
                  
                  
                  4.0
                  %
                  
                  
                  -Percentage
      GFA sold to date
                  
                  
                  7.8
                  %
                  
                  
                  -Average
      sales price per GFA
                  
                  $
                  695Tsining
      JunJing II Phase Two contract sales
                  
                  
                  20,003.787
                  
                  
                  
                  -Revenue
                  
                  $
                  15,161,722
                  
                  
                  
                  -Total
      gross floor area (GFA) available for sale
                  
                  
                  112,556
                  
                  
                  
                  -GFA
      sold during the period
                  
                  
                  26,415
                  
                  
                  
                  -Remaining
      GFA available for sale
                  
                  
                  30,808
                  
                  
                  
                  -Percentage
      of completion
                  
                  
                  66.2
                  %
                  
                  
                  -Percentage
      GFA sold during the period
                  
                  
                  23.5
                  %
                  
                  
                  -Percentage
      GFA sold to date
                  
                  
                  72.6
                  %
                  
                  
                  -Average
      sales price per GFA
                  
                  $
                  757
                  
                  
                  
                  -
  25
 
 Revenues
from projects under construction
 
 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 $93.4 million. We officially started
the pre-sales in the second quarter of 2009 and were able to secure $ 41.0
million in contract sales for 752 units of which we recognized
approximately $15.2 million in the first quarter of 2010.
 
 Puhua
Phase One
 
 Puhua
Phase One consists of 7 garden houses, 2 mid-rises and 4 high-rises buildings
with total expected revenues of approximately $116.2 million. We officially
started the pre-sales in the fourth quarter of 2009 and were able to secure $
31.7 million in contract sales of which we recognized approximately $11.5
million in the first quarter of 2010.
 
 Please
note that the method of percentage of completion was utilized to recognize
revenue from January 1, 2008. Only revenue recognition of Tsining JunJing II and
PuHua Project is under this method. The percentages of completion of the
construction for each building as at March 31, 2010 are shown
below:
  Tsining JunJing II Phase two Buildings
                    
                    Percentage of Completion10#
                    
                    
                    72.93
                    %11#
                    
                    
                    74.85
                    %12#
                    
                    
                    66.52
                    %13#
                    
                    
                    77.62
                    %16#
                    
                    
                    71.59
                    %17#
                    
                    
                    72.83
                    %18#
                    
                    
                    67.54
                    %19#
                    
                    
                    75.77
                    %22#
                    
                    
                    61.93
                    %23#
                    
                    
                    61.56
                    %24#
                    
                    
                    65.29
                    %25#
                    
                    
                    62.46
                    %
 
 PuhuaPhaseone
                    
                    Percentage of Completion1#
                    
                    
                    28.65
                    %2#
                    
                    
                    68.23
                    %3#
                    
                    
                    27.86
                    %4#
                    
                    
                    44.38
                    %5#
                    
                    
                    35.53
                    %6#
                    
                    
                    36.30
                    %7#
                    
                    
                    26.75
                    %8#
                    
                    
                    35.02
                    %9#
                    
                    
                    31.10
                    %10#
                    
                    
                    31.26
                    %11#
                    
                    
                    24.53
                    %12#
                    
                    
                    30.61
                    %13#
                    
                    
                    29.77
                    %
  26
 
 The above
are all the buildings under pre-sale in JunJing II Phase Two and Puhua Phase
One.
 
 Revenues
from projects completed
 
 The
revenue from completed projects totaled $5,774,775 in the three months
ended March 31, 2010, compared to $2,620,607 during same period of 2009.
The increase was mainly due to JunJing II Phase one which was completed and
reclassified to completed projects during fourth quarter of fiscal
2009.
 
 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 $1,181,853 in other income
for the three months ended March 31, 2010 compared with $1,002,058 in the same
period of 2009. The 17.9 percent increase can be explained by the following
table which summarizes the breakdown of the other income and their changes
during the three months ended March 31, 2010 and 2009:
 
 For the three months endedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Interest
      income
                    
                    $
                    116,546
                    
                    
                    $
                    3,796Government
      reimbursement of infrastructure cost
                    
                    
                    -
                    
                    
                    
                    316,266Rental
      income, net
                    
                    
                    310,910
                    
                    
                    
                    84,656Other
      non-operating income
                    
                    
                    754,407
                    
                    
                    
                    580,394Gain
      on disposal of fixed assets and inventory
                    
                    
                    -
                    
                    
                    
                    16,945Total
                    
                    $
                    1,181,853
                    
                    
                    $
                    1,002,058
 
 Cost
of properties and land
 
 The cost
of properties and land in the three months ended March 31, 2010 increased 182.8
percent to $27,098,660 compared with $9,581,459 in the same period of 2009. The
increase was primarily a result of the increased sales volume in our JunJing II
Phase Two and Puhua project.
 
 Gross
profit and profit margin
 
 Gross
profit for the three months ended March 31, 2010 was
$6,474,254, representing an increase of 49.0 percent from $4,346,468
in the same period of 2009. The gross profit margin for the three months ended
March 31, 2010 was 19.3 percent compared with 31.2 percent in the same
period of 2009. Due to the introduction of Jun Jing II phase two and Puhua
project which started to recognize revenue in the first quarter of this year,
the revenue has increased. Meanwhile the performance of sales is much better
with the improvement in the market condition. Our gross margin decreased due to
the sales of the parking lots of JunJing I and JunJing II phase one which only
had 3% to 5% margin.
 
 Selling,
general and administrative expenses
 
 Selling,
general and administrative expenses (SG&A) for the three months ended March
31, 2010 increased 80.1 percent to $2,537,884 from $1,408,824 in the same period
of 2009. The increase in SG&A is associated with the increased sales. This
quarter’s SG&A mainly include marketing expenses associated with Tsining
JunJing II Phase Two as well as administrative and marketing expenses
related to the Puhua project. SG&A accounted to 7.6 percent of total
revenue in the first quarter of 2010 compared to 10.1 percent for the same
period in 2009.
  27
  Stock-based
compensation
 
 We had no
stock-based compensation incurred during the first quarter of 2010 and
2009.
 
 Other
expenses
 
 Other
expenses consist mainly of late delivery settlements and maintenance
costs. Other expenses in the three months ended March 31, 2010 increased
208.2 percent to $122,651 compared with $39,796 in the same period of 2009
primarily due to accounts written off by Planning Bureau and compensation of
Tsining 24G because of the compensation for minor area difference when the units
are delivered to customers.
 
 Operating
profit and operating profit margin
 
 Operating
profit is defined as gross profit minus selling, general and administrative
expenses, stock-based compensation, security registration expenses and
other expenses. Operating profit in the three months ended March 31, 2010
was $2,977,512 compared with $1,677,948 operating profit in the same period of
2009, primarily due to the higher revenues generated by Tsining JunJing II Phase
Two and Puhua project. As a result, the operating profit margin was 8.9 percent
for the first quarter of 2010 compared with 12.0 percent for the same period of
2009, which was primarily due to the sales of the parking lots of Junjing II
phase one and Junjing I which negative impacted operating profit
margin.
 
 Interest
expense
 
 Interest
expense in the three months ended March 31, 2010 increased 50.0 percent to
$507,025 from $338,078 in the same period of 2009. This is primarily due to
the increase of employee loan interest.
 
 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).
  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 first quarter
of 2010, our common stock price experienced large fluctuations with the price
decreasing from $4.13 on December 31,2009 to $3.80 on March 31, 2010. The
decrease in stock price and expected volatility caused a decrease in
fair value for warrants and the change of fair value was booked as a reverse of
non-cash expense.
 
 The
company recorded $(566,206) in the change in fair value of embedded
derivatives in the three months ended March 31, 2010 compared with $(124,038) in
the same period of 2009.
  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 investors to buy
additional common shares at the prices specified in the warrant
agreements.
 
 An
investor typically only exercises a warrant to buy common shares when the stock
price is higher than the warrant exercise price. The investor 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 $(554,601) in the three months ended March
31, 2010, compared to $(167,239) during the same period of 2009, 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 first quarter of 2010, our common stock price experienced large
fluctuations with the price decreasing from $4.13 on December 31, 2009 to $3.80
on March 31, 2010. The decrease in stock price and expected volatility
caused a decrease in fair value for warrants and the change of fair value was
booked as a reverse of non-cash expense.
  28
  Security
registration expenses
 
 The
security registration expenses were zero for the three months ended March 31,
2010, compared with $600,000 in the same period of 2009.
 
 Recovery
of income taxes
  We
recorded the recovery of income taxes of $29,146 during the first quarter of
2010 and we had no such gain during the same period in 2009.
 
 Net
income
 
 Net
income for the three months ended March 31, 2010
increased 148.3 percent to $3,117,934 compared to $1,255,584 in
the same period of 2009.
 
 We
believe that the net income increase was a result of multiple factors. The
overall real estate market condition in Xi’an has improved since the beginning
of 2010 and through the first quarter, which is also demonstrated in the
pre-sales results of our current projects under construction, i.e. JunJing
II Phase Two and Puhua project. In the first quarter, we were able to
recognize approximately $26.6 million as revenue from JunJing II Phase Two
project and our Puhua project, and we were able to secure approximately $11.3
million new contracts from those two projects . As of
March 31, 2010, we have pre-sold 81,748 sq. meters out of 112,556 sq. meters
total GFA of JunJing II Phase Two approximately 72.6 percent on the GFA
basis and 74.1 percent on the unit basis as well as pre-sold 79,673 sq. meters
out of 117,160 sq. meters total GFA of Puhua approximately 12.4 percent on the
GFA basis and 4.2% on the unit basis.
 
 With the
introduction of Puhua, we are also expecting the gross margin will be
improved slightly in the future, which is primarily because of its better
quality and higher average price in Puhua. The average selling price has
increased to RMB 4,742(approximately US$695) per square meter during the first
quarter of 2010, compared with RMB4, 360(approximately US$641) per square
meter when the company first started pre-sale in October 2009.
 
 The
periodic revaluation of derivatives and warrants also contributed approximately
$1.1 million during the quarter mainly due to the decrease of our common stock
price.
  Charge
to noncontrolling interest
  On
November 5, 2008, the Company and Prax Capital (“Prax”) entered into a joint
venture agreement to develop 79 acres within China Housing’s Baqiao project
located in Xi’an. Prax invested $29.3 million for a 25% interest in Puhua
through obtaining 1,000 Class A shares of Success Hill (“Class A Shares”) with
various distribution rights. Prax’s initial investments were recorded as
noncontrolling interests in the consolidated financial statements. During the
first quarter of 2010, the Company proposed to redeem Prax’s 1000 Class A shares
in Success Hill in order to fix the maximum return on Prax’s initial investment.
Both parties then entered into an Amended and Restated Shareholders’ Agreement
on May 10, 2010, under the terms of which, effectively January 1, 2010, the
Company will redeem all Prax’s Class A Shares within three years for
consideration of the USD equivalent of $84.39 million (RMB 576
million).
 
 As Prax’s
interest in the consolidated subsidiaries meets the definition of a mandatorily
redeemable financial instrument, it is reported within liabilities as
mandatorily redeemable noncontrolling interests in subsidiaries on the Company’s
consolidated balance sheet and initally measured at the fair value of cash that
would be due and payable to Prax under the Amended and Restated Shareholder
agreement.
 
 As at
January 1, 2010, the Company recorded a liability of $42,600,511 reflecting the
fair value of the redemption amount of Prax’s interest under the Amended and
Restated Shareholder Agreement and eliminated the original noncontrolling
interest in the equity on the consolidated balance sheet. The difference of
$14,229,043 between the carrying value of the original noncontrolling interest
and the fair value of redemption amount has been reflected as a charge to
noncontrolling interest.




Basic
and diluted earnings per share


Basic
earnings per share was $(0.34) in the three months ended March 31, 2010,
compared to $0.04 in the same period of 2009. Diluted earnings per
share was $(0.34) in the three months ended March 31, 2010, compared to
$0.04 in the same period of 2009. The number of shares outstanding
doesn’t change significantly from year to year. Earnings available to distribute
decreased from $1.3 million in first quarter of 2009 to a loss of
$11.1 million in the first quarter of this year. The negative EPS and
Diluted EPS are mainly due to Prax restructuring which recorded a one time
loss of ($14,229,043).
 
 Common
shares used to calculate basic and diluted EPS
 
 The
weighted average shares outstanding used to calculate basic earnings per
share was 32,580,769 shares in the three months ended March 31, 2010 and
30,893,757 shares in the same period of 2009. The weighted average shares
outstanding used to calculate the diluted earnings per share was
32,580,769 shares in the three months ended March 31, 2010 and 30,922,261
shares in the same period of 2009.
 
 Foreign
exchange
 
 The
company operates in China and the functional currency is Chinese Renminbi (RMB)
but the reporting currency is U.S. dollar, based on the exchange rate of the two
currencies. The fluctuation of exchange rates during the three months ended
March 31, 2010 and the same period of 2009, 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
three months ended March 31, 2010 was $27,684, compared with $363,133 in the
same period of 2009.
 
 Cash
flow discussion
 
 There is
net cash inflow of $29,467,321 during the three months ended March 31, 2010
compared with $26,759,990 cash outflow during the same period of
2009.
  The
operating activity cash inflow was $163,750 in the three months ended March 31,
2010 and a major cash outflow of $25,801,611 in the same period of 2009 due
to the sales of the property.
  29
 
 A cash
outflow $699,056 appeared at investing activities segment in the three months
ended March 31, 2010, compared with the cash inflow of $813,922 for the same
period of 2009 due to the purchase of the property and equipment.
 
 There was
a cash inflow of $30,002,627 for financing activities in the three months
ended March 31, 2010 compared with $1,772,301 of outflow in 2009 due to the
additional bank loan drawn.
 
 Debt
leverage
 
 Total
debt consists of Payables for acquisition of businesses, Loans from employees,
Loans payable and Convertible Debt.
 
 Total
debt outstanding as of March 31, 2010 was $92,897,189 compared with $59,801,870
on March 31, 2009. Net debt outstanding (total debt less cash) as of
March 31, 2010 was $26,573,789 compared with $22,938,654 on December
31, 2009. The company's net debt as a percentage of total capital (net debt plus
shareholders' equity) was 23.9 percent on March 31, 2010 and 16.1 percent on
December 31, 2009, which increased slightly due to the total debt
increase.
 
 Liquidity
and capital resources
 
 Our
principal liquidity demands are based on the development of new properties,
property acquisitions, and general corporate purposes. As of March 31,
2010, we had $66,323,400 of cash and cash equivalents, compared to $36,863,216
as of December 31, 2009, an increase of $29,460,184. Along with progress in
projects, we can use the internal generated cash flow to fund our daily
operation.
  The
Company leases part of its office and hotel space under various operating lease
agreements with expiring dates between year 2010 and 2011. The Company entered
into a consulting service contract with a third party. The contract has a set
payment schedule which will be realized in less than a year. The Company
also had two land use rights with unpaid balances of approximately $1.8 million
and $2.6 million. The balances are not due until the vendor removes the existing
building on the land and changes the zoning status of the land use right
certificate.
 
 All
future payments required under the various agreements are summarized
below.
 
 Payment due by periodCommitments and Contingencies
                    
                    Total
                    
                    
                    Less than
                      1 year
                    
                    1-2 yearsRental
      lease
                    
                    $
                    160,469
                    
                    
                    $
                    94,007
                    
                    $
                    66,462Rubber
      dam construction
                    
                    
                    274,693
                    
                    
                    
                    274,693
                    
                    
                    -Land
      use right
                    
                    
                    4,424,390
                    
                    
                    
                    1,831,287
                    
                    
                    2,593,103Total
                    
                    $
                    4,859,552
                    
                    
                    $
                    2,199,987
                    
                    $
                    2,659,565
 
 Financial
obligations
 
 As of
March 31, 2010 we had total bank loans of $64,461,309 with a weighted average
interest rate of 7.59 percent. 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 or two years. These loans generally can be renewed with the banks
when the loans mature.
 
 Most of
the obligations of the Company are tied to specific projects. The terms of the
loans typically are 1 to 3 years. Loan extensions are determined by mutual
agreement when the current term expires and both parties will consider the
remaining time needed to complete the project. Most of these loans are payable
when the project has been completed and the residents or businesses take
possession.
 
 On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a RMB 1
billion (approximately US$147 million) credit line for real estate development
by the Company and its subsidiaries. On August 28, 2008, the Company
entered a first loan agreement with China Construction Bank Xi’an Branch to draw
down the first RMB 150 million loans. The first loan was fully repaid as at
December 31, 2009. On August 30, 2009, the Company entered a second loan
agreement with China Construction Bank Xi’an Branch to draw down another RMB 85
million loan, which will mature on September 8, 2012. $12,452,753 (RMB 85
million) was received by the Company by the end of March 31,
2010.
  30
  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%.
Due to the change of corporate structure of the Company, China Construction Bank
Xi’an Branch has clarified the current ratio and liabilities to assets ratio
calculations only include the financial information of Tsining and New Land. As
of March 31, 2010, the current ratio was approximately 138.4%, and the
liabilities to assets ratio was approximately 58.7%. The Company will be able to
draw down approximately another $33.08 million before we reach the maximum
liabilities to assets ratio of 65%.
 
 Loans
payable as of March 31, 2010 and December 31, 2009 consisted of
the following:
 
 March 31,
                        2010
                      
                      
                      December 31,
                        2009Xi'an
      Rural Credit Union Zao Yuan Rd. BranchDue
      July 3, 2010, annual interest is at 8.496 percent, secured by the
      Company's Jun Jing Yuan I, Han Yuan and Xin Xing Tower
      projects
                      
                      $
                      2,930,059
                      
                      
                      $
                      2,930,017China
      Construction Bank, Xi'an BranchDue
      August 27, 2011, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                      
                      
                      -
                      
                      
                      
                      3,223,018Due
      September 8, 2012, annual interest is at a floating interest rate based on
      110% of the People’s Bank of China prime rate, secured by the Company's
      Jun Jing Yuan II project
                      
                      
                      12,452,753
                      
                      
                      
                      12,452,571Xinhua
      Trust Investments Ltd.Due
      January 28, 2012, annual interest is at 10 percent, secured by the 24G
      project
                      
                      
                      21,975,446
                      
                      
                      
                      -Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21 percent, secured by the
      Company's Jun Jing Yuan I and XinXing Tower projects
                      
                      
                      5,127,605
                      
                      
                      
                      5,127,528Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012, annual interest is at the bank’s prime rate, secured by
      the PuHua project with a minimum repayment of $7.3 million required in
      2011.
                      
                      
                      21,975,446
                      
                      
                      
                      12,452,571Total
                      
                      $
                      64,461,309
                      
                      
                      $
                      36,185,705
 
 All loans
are used to finance construction projects. All interest paid
was capitalized and allocated to various construction
projects.
 
 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 2010.
 
 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.
  31
  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 $105.8
million at the end of March, 2010, may change due to market fluctuations.
Currently, it is valued at our cost which is significantly below the market
value.
  Risk
Relating to Property Sales
 
 The
Company may not be able to sell a property at a particular time for 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 for the fiscal year ended December
31, 2009. The Company has engaged Ernest & Young to aid in the compliance
with SOX 404.
 
 (b)     Changes
in Internal Control over Financial Reporting.
 
 During
the quarter ended March 31, 2010, 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.
  32
  Part
II. OTHER INFORMATION
 
 Item
1. Legal Proceedings
 
 None.
 
 Item
1A. Risk Factors.
  We have
the following risk factors in addition to those included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009.
  The
PRC government has recently introduced certain policy and regulatory measures to
cool down the real estate market and we already saw the effects of such policy
and regulatory measures in certain cities
  Since the
second half of 2009, the PRC real estate market has experienced exponential
growth and housing prices rose rapidly in certain cities. In response to
concerns over the scale of the increase in property investments, the PRC
government has implemented measures and introduced policies to curtail property
development and promote the healthy development of the real estate industry in
the PRC.
  In April
2010, the general office of the PRC State Council issued a circular to all
ministries and provincial-level local governments. Among other matters, the
circular provided as follows: purchasers of a first residential property for
their households with a gross floor area of greater than 90 square meters must
make down payments of no less than 30% of the purchase price; purchasers of a
second residential property for their households must make down payments of no
less than 50% of the purchase price and the interest rate of any mortgage for
such property must equal at least the benchmark interest rate plus 10%; and for
purchasers of a third residential property, both the minimum down payment amount
and applied interest rate must be significantly higher than the relevant minimum
down payment and interest rate which would have been applicable prior to the
issuance of the circular. In order to implement the requirements set forth in
the State Council’s circular, People’s Bank of China and  the Ministry
of Land and Resources issued implementing regulatory measures to restrict
mortgage lending and tighten the availability of land resources for future
constructions.
  In cities
such as Beijing and Shanghai, we already saw the effects of such policy and
regulatory measures. The sales volumes for real properties in Beijing and
Shanghai reportedly have decreased significantly after the policy
change.  The sale price for certain properties in such cities have
also started to show signs of weakening. The PRC government’s policy and
regulatory measures on the PRC real estate sector could limit our access to
required financing and other capital resources, adversely affect the property
purchasers’ ability to obtain mortgage financing or significantly increase the
cost of mortgage financing, reduce market demand for our properties and increase
our operating costs. These factors may materially and adversely affect our
business, financial condition, results of operations and prospects.
 
 Our
sales, revenues and operations will be affected if our customers are not able to
secure mortgage financing on attractive terms, if at all.
  Substantially
all purchasers of our residential properties rely on mortgages to fund their
purchases. If the availability or attractiveness of mortgage financing is
reduced or limited, many of our prospective customers may not be able to
purchase our properties and, as a result, our business, liquidity and results of
operations could be adversely affected.
  The
recent circulars issued by the PRC State Council and related measures taken by
ministries and local governments have restricted and may continue to restrict
the ability of purchasers to qualify for or obtain mortgage financing. In
response to the circular issued in April 2010 , certain purchasers of our
properties can no longer qualify for loans any more and this leads to
cancellations of our existing sales and the returning of down payments by us to
those persons who have previously entered into a contract with us to purchase a
unit but were unable to obtain a mortgage within the 30-day period after the
contract date.
  PRC
government may issue further restrictive measures in the future
  We cannot
assure you that the PRC government will not issue further restrictive measures
in the future.  The PRC government’s restrictive regulations and
measures could increase our operating costs in adapting to these regulations and
measures, limit our access to capital resources or even restrict our business
operations, which could further adversely affect our business and
prospects.
  An
increase in interest rates will increase our customers’ mortgage
financing  which may further adversely affect the real estate
market  in the PRC
  An
increase in interest rates may significantly increase the cost of mortgage
financing, thus affecting the affordability of residential properties. According
to the circular issued in April , financial institutions must determine the
applicable loan interest rate and down-payment ratio for non-welfare residential
property according to the following factors: (i) whether the borrower is
purchasing a property for the first time; (ii) whether the borrower is
purchasing the property for his/her own use; (iii) whether the property
purchased is an ordinary residential property; and (iv) risk factors
including the borrower’s credit records and payment ability. Increases in
mortgage financing costs may dampen people’s desire to purchase residential
properties and adversely affect the real estate market in the PRC.
  33
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 None.
 
 Item
3. Defaults Upon Senior Securities
 
 None.
 
 Item
4. (Removed and Reserved)
 
 
 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)
  34
  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.May
      14, 2010
              
              By:
              /s/
      Xiaohong FengXiaohong
      FengChief
      Executive Officer(Principal
      Executive Officer)
  May
      14, 2010
              
              By:
              /s/
      Cangsang HuangCangsang
      HuangChief
      Financial Officer(Principal
      Financial and Accounting
Officer)
  35