UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 x  QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended June 30, 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 o No  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer  ̈
              Accelerated filer  ̈
              Non-accelerated filer  ̈
                (Do not check if a smaller
                reporting company)
              Smaller reporting company
                x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No x
 
 The
number of shares of Common Stock outstanding on August 11, 2010 was 33,083,354
shares.
 
 CHINA
HOUSING & LAND DEVELOPMENT, INC.
 Index
 
 Page
                  NumberPART
      I
                
                FINANCIAL
      INFORMATIONItem
      1.
                
                Financial
      Statements
                
                3Interim
      Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and
      December 31, 2009
                
                3Interim
      Condensed Consolidated Statements of Income for the three and six months
      ended June 30, 2010 and 2009 (unaudited)
                
                4Interim
      Condensed Consolidated Statements of Comprehensive Income for the three
      and six months ended June 30, 2010 and 2009 (unaudited)
                
                5Interim
      Condensed Consolidated Statements of Cash Flows for the six months ended
      June 30, 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
                
                19Item
      3.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                40Item
      4.
                
                Controls
      and Procedures
                
                41PART
      II.
                
                OTHER
      INFORMATIONItem
      1.
                
                Legal
      Proceedings
                
                42Item
      1A.
                
                Risk
      Factors
                
                42Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                42Item
      3.
                
                Defaults
      Upon Senior Securities
                
                42Item
      4.
                
                (Removed
      and Reserved)
                
                42Item
      5.
                
                Other
      Information
                
                42Item
      6.
                
                Exhibits
                
                42SIGNATURES
                
                
                
                43EX-31.1
                
                (Certifications
      required under Section 302 of the Sarbanes-Oxley Act of
    2002)EX-31.2
                
                (Certifications
      required under Section 302 of the Sarbanes-Oxley Act of
    2002)EX-32.1
                
                (Certifications
      required under Section 906 of the Sarbanes-Oxley Act of
    2002)EX-32.2
                
                (Certifications
      required under Section 906 of the Sarbanes-Oxley Act of
    2002)
  2
  PART I.
FINANCIAL INFORMATION
 
 Item
1. Financial Statements
 
 CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES
 
 Interim Condensed
Consolidated Balance Sheets
 As of
June 30, 2010 and December 31, 2009
 (Unaudited)
  June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009ASSETSCash
      and cash equivalents
                    
                    $
                    68,316,347
                    
                    
                    $
                    36,863,216Cash
      – restricted
                    
                    
                    779,672
                    
                    
                    
                    701,017Accounts
      receivable, net of allowance for doubtful accounts of $392,550 and
      $389,996, respectively
                    
                    
                    8,966,489
                    
                    
                    
                    6,088,482Other
      receivables and prepaid expenses
                    
                    
                    4,029,933
                    
                    
                    
                    2,484,221Real
      estate held for development or sale
                    
                    
                    109,755,284
                    
                    
                    
                    103,003,529Property
      and equipment, net
                    
                    
                    15,283,212
                    
                    
                    
                    15,307,478Asset
      held for sale
                    
                    
                    14,720,084
                    
                    
                    
                    14,301,564Advance
      to suppliers
                    
                    
                    652,859
                    
                    
                    
                    10,368,386Deposits
      on land use rights
                    
                    
                    53,114,051
                    
                    
                    
                    28,084,346Intangible
      assets, net
                    
                    
                    41,625,895
                    
                    
                    
                    41,355,134Goodwill
                    
                    
                    821,815
                    
                    
                    
                    816,469Deferred
      financing costs
                    
                    
                    475,628
                    
                    
                    
                    411,457Total
      assets
                    
                    $
                    318,541,269
                    
                    
                    $
                    259,785,299LIABILITIESAccounts
      payable
                    
                    $
                    16,735,426
                    
                    
                    $
                    20,706,263Advances
      from customers
                    
                    
                    40,796,137
                    
                    
                    
                    21,301,876Accrued
      expenses
                    
                    
                    2,506,148
                    
                    
                    
                    5,587,837Payable
      for acquisition of businesses
                    
                    
                    6,663,588
                    
                    
                    
                    5,916,354Income
      and other taxes payable
                    
                    
                    11,463,416
                    
                    
                    
                    8,194,659Other
      payables
                    
                    
                    4,771,743
                    
                    
                    
                    4,524,288Loans
      from employees
                    
                    
                    4,853,646
                    
                    
                    
                    2,864,824Loans
      payable
                    
                    
                    52,348,301
                    
                    
                    
                    36,185,705Deferred
      tax liability
                    
                    
                    13,723,678
                    
                    
                    
                    11,505,181Warrants
      liability
                    
                    
                    2,537,867
                    
                    
                    
                    5,074,191Fair
      value of embedded derivatives
                    
                    
                    4,037,264
                    
                    
                    
                    3,991,047Convertible
      debt
                    
                    
                    15,510,095
                    
                    
                    
                    14,834,987Mandatorily
      redeemable noncontrolling interests in Subsidiaries
                    
                    
                    51,570,844
                    
                    
                    
                    -Total
      liabilities
                    
                    
                    227,518,153
                    
                    
                    
                    140,687,212SHAREHOLDERS'
      EQUITYCommon
      stock: $.001 par value, authorized 100,000,000 sharesissued
      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
                    
                    
                    34,352,016
                    
                    
                    
                    39,895,179Accumulated
      other comprehensive income
                    
                    
                    10,970,330
                    
                    
                    
                    10,163,483Total
      China Housing & Land Development, Inc. shareholders’
      equity
                    
                    
                    91,023,116
                    
                    
                    
                    90,726,619Noncontrolling
      interests
                    
                    
                    -
                    
                    
                    
                    28,371,468Total
      shareholders' equity
                    
                    
                    91,023,116
                    
                    
                    
                    119,098,087Total
      liabilities and shareholders' equity
                    
                    $
                    318,541,269
                    
                    
                    $
                    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 Income (Loss)
 For The
Three and Six Months Ended June 30, 2010 and 2009
 (Unaudited)
  3
      Months
                                      
                                      
                                      3
      Months
                                      
                                      
                                      6
      Months
                                      
                                      
                                      6
      MonthsJune 30,
                                        2010
                                      
                                      
                                      June 30,
                                        2009
                                      
                                      
                                      June 30,
                                        2010
                                      
                                      
                                      June 30,
                                        2009REVENUESSale
      of properties
                                      
                                      $
                                      35,220,386
                                      
                                      
                                      $
                                      21,180,940
                                      
                                      
                                      $
                                      67,611,447
                                      
                                      
                                      $
                                      34,106,809Other
      income
                                      
                                      
                                      1,373,409
                                      
                                      
                                      
                                      1,534,893
                                      
                                      
                                      
                                      2,555,262
                                      
                                      
                                      
                                      2,536,951Total
      revenues
                                      
                                      
                                      36,593,795
                                      
                                      
                                      
                                      22,715,833
                                      
                                      
                                      
                                      70,166,709
                                      
                                      
                                      
                                      36,643,760COST
      OF SALESCost
      of sales of properties
                                      
                                      
                                      25,691,338
                                      
                                      
                                      
                                      15,016,997
                                      
                                      
                                      
                                      52,253,225
                                      
                                      
                                      
                                      24,138,943Cost
      of other income
                                      
                                      
                                      576,854
                                      
                                      
                                      
                                      491,387
                                      
                                      
                                      
                                      1,113,627
                                      
                                      
                                      
                                      950,900Total
      cost of sales
                                      
                                      
                                      26,268,192
                                      
                                      
                                      
                                      15,508,384
                                      
                                      
                                      
                                      53,366,852
                                      
                                      
                                      
                                      25,089,843Gross
      margin
                                      
                                      
                                      10,325,603
                                      
                                      
                                      
                                      7,207,449
                                      
                                      
                                      
                                      16,799,857
                                      
                                      
                                      
                                      11,553,917OPERATING
      EXPENSESSelling,
      general, and administrative expenses
                                      
                                      
                                      3,758,565
                                      
                                      
                                      
                                      1,942,946
                                      
                                      
                                      
                                      6,296,449
                                      
                                      
                                      
                                      3,351,770Security
      registration expenses
                                      
                                      
                                      -
                                      
                                      
                                      
                                      606,742
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,206,742Other
      expenses
                                      
                                      
                                      65,381
                                      
                                      
                                      
                                      150,327
                                      
                                      
                                      
                                      188,032
                                      
                                      
                                      
                                      190,123Interest
      expense
                                      
                                      
                                      447,475
                                      
                                      
                                      
                                      446,899
                                      
                                      
                                      
                                      954,500
                                      
                                      
                                      
                                      784,977Accretion
      expense on convertible debt
                                      
                                      
                                      345,926
                                      
                                      
                                      
                                      296,164
                                      
                                      
                                      
                                      675,108
                                      
                                      
                                      
                                      577,986Total
      operating expenses
                                      
                                      
                                      4,617,347
                                      
                                      
                                      
                                      3,443,078
                                      
                                      
                                      
                                      8,114,089
                                      
                                      
                                      
                                      6,111,598NET
      INCOME FROM BUSINESS OPERATION
                                      
                                      
                                      5,708,256
                                      
                                      
                                      
                                      3,764,371
                                      
                                      
                                      
                                      8,685,768
                                      
                                      
                                      
                                      5,442,319CHANGE
      IN FAIR VALUE OF DERIVATIVESLoss
      on extinguishment of debt
                                      
                                      
                                      2,180,492
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,180,492
                                      
                                      
                                      
                                      -Change
      in fair value of embedded derivatives
                                      
                                      
                                      (1,307,129
                                      )
                                      
                                      
                                      5,836,616
                                      
                                      
                                      
                                      (1,873,335
                                      )
                                      
                                      
                                      5,712,578Change
      in fair value of warrants
                                      
                                      
                                      (2,242,663
                                      )
                                      
                                      
                                      7,222,727
                                      
                                      
                                      
                                      (2,797,264
                                      )
                                      
                                      
                                      7,055,488Total
      change in fair value of derivatives
                                      
                                      
                                      (1,369,300
                                      )
                                      
                                      
                                      13,059,343
                                      
                                      
                                      
                                      (2,490,107
                                      )
                                      
                                      
                                      12,768,066Income
      (loss) before provision for income taxes and noncontrolling
      interest
                                      
                                      
                                      7,077,556
                                      
                                      
                                      
                                      (9,294,972
                                      )
                                      
                                      
                                      11,175,875
                                      
                                      
                                      
                                      (7,325,747
                                      )Provision
      for income taxes
                                      
                                      
                                      1,531,461
                                      
                                      
                                      
                                      1,347,914
                                      
                                      
                                      
                                      2,540,992
                                      
                                      
                                      
                                      2,061,555Recovery
      of deferred income taxes
                                      
                                      
                                      (21,851
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (50,997
                                      )
                                      
                                      
                                      -Net
      income (loss)
                                      
                                      
                                      5,567,946
                                      
                                      
                                      
                                      (10,642,886
                                      )
                                      
                                      
                                      8,685,880
                                      
                                      
                                      
                                      (9,387,302
                                      )Charge
      to noncontrolling interest
                                      
                                      
                                      -
                                      
                                      
                                      
                                      145,899
                                      
                                      
                                      
                                      (14,229,043
                                      )
                                      
                                      
                                      193,034NET
      INCOME (LOSS) ATTRIBUTABLE TO  CHINA HOUSING & LAND
      DEVELOPMENT, INC.
                                      
                                      $
                                      5,567,946
                                      
                                      
                                      $
                                      (10,496,987
                                      )
                                      
                                      $
                                      (5,543,163
                                      )
                                      
                                      $
                                      (9,194,268
                                      )WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
                                      
                                      
                                      33,065,386
                                      
                                      
                                      
                                      30,932,745
                                      
                                      
                                      
                                      32,824,416
                                      
                                      
                                      
                                      30,913,359Diluted
                                      
                                      
                                      35,302,785
                                      
                                      
                                      
                                      30,938,070
                                      
                                      
                                      
                                      34,752,732
                                      
                                      
                                      
                                      30,916,036NET
      INCOME (LOSS) PER SHAREBasic
                                      
                                      $
                                      0.17
                                      
                                      
                                      $
                                      (0.34
                                      )
                                      
                                      $
                                      (0.17
                                      )
                                      
                                      $
                                      (0.30
                                      )Diluted
                                      
                                      $
                                      0.13
                                      
                                      
                                      $
                                      (0.34
                                      )
                                      
                                      $
                                      (0.20
                                      )
                                      
                                      $
                                      (0.30
                                      )
 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 Income (Loss)
 For The
Three and Six Months Ended June 30, 2010 and 2009
 (Unaudited)
 
 3
      Months
                  
                  
                  3
      Months
                  
                  
                  6
      Months
                  
                  
                  6
      MonthsJune
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009NET
      INCOME (LOSS)
                  
                  $
                  5,567,946
                  
                  
                  $
                  (10,642,886
                  )
                  
                  $
                  8,685,880
                  
                  
                  $
                  (9,387,302
                  )OTHER
      COMPREHENSIVE INCOME (LOSS)Gain
      (loss) in foreign exchange
                  
                  
                  834,531
                  
                  
                  
                  51,713
                  
                  
                  
                  806,847
                  
                  
                  
                  (311,420
                  )COMPREHENSIVE
      INCOME (LOSS)
                  
                  
                  6,402,477
                  
                  
                  
                  (10,591,173
                  )
                  
                  
                  9,492,727
                  
                  
                  
                  (9,698,722
                  )Charge
      to noncontrolling interest
                  
                  
                  -
                  
                  
                  
                  145,899
                  
                  
                  
                  (14,229,043
                  )
                  
                  
                  193,034Comprehensive
      income (loss) attributable to China Housing & Land Development,
      Inc.
                  
                  $
                  6,402,477
                  
                  
                  $
                  (10,445,274
                  )
                  
                  $
                  (4,736,316
                  )
                  
                  $
                  (9,505,688
                  )
 
 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
Six Months Ended June 30, 2010 and 2009
 (Unaudited)
  June
      30,
                    
                    
                    June
      30,2010
                    
                    
                    2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                    
                    $
                    8,685,880
                    
                    
                    $
                    (9,387,302
                    )Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Bad
      debt recovery
                    
                    
                    -
                    
                    
                    
                    (275,265
                    )Depreciation
                    
                    
                    593,498
                    
                    
                    
                    315,026Gain
      on disposal of property and equipment
                    
                    
                    (23,292
                    )
                    
                    
                    (16,200
                    )Amortization
      of deferred financing costs
                    
                    
                    77,391
                    
                    
                    
                    77,391Recovery
      of future income taxes
                    
                    
                    (50,997
                    )
                    
                    
                    -Loss
      on extinguishment of debt
                    
                    
                    2,180,492
                    
                    
                    
                    -Change
      in fair value of embedded derivatives
                    
                    
                    (1,873,335
                    )
                    
                    
                    5,712,578Change
      in fair value of warrants
                    
                    
                    (2,797,264
                    )
                    
                    
                    7,055,488Accretion
      expense on convertible debt
                    
                    
                    675,108
                    
                    
                    
                    577,986Non-cash
      proceeds from sales
                    
                    
                    -
                    
                    
                    
                    (23,804
                    )(Increase)
      decrease in assets:Accounts
      receivable
                    
                    
                    (2,554,513
                    )
                    
                    
                    (2,689,972
                    )Other
      receivable and prepaid expense
                    
                    
                    (1,529,450
                    )
                    
                    
                    (838,539
                    )Real
      estate held for development or sale
                    
                    
                    4,205,242
                    
                    
                    
                    (33,922,050
                    )Advances
      to suppliers
                    
                    
                    9,424,848
                    
                    
                    
                    13,738(Deposit)
      refund on land use rights
                    
                    
                    (24,680,429
                    )
                    
                    
                    13,363,368Deferred
      financing costs
                    
                    
                    (140,684
                    )
                    
                    
                    -Increase
      (decrease) in liabilities:Accounts
      payable
                    
                    
                    (4,134,870
                    )
                    
                    
                    3,205,445Advances
      from customers
                    
                    
                    19,230,257
                    
                    
                    
                    922,457Accrued
      expense
                    
                    
                    5,615,440
                    
                    
                    
                    790,270Other
      payable
                    
                    
                    207,410
                    
                    
                    
                    (3,191,392
                    )Income
      and other taxes payable
                    
                    
                    3,204,854
                    
                    
                    
                    2,031,450Accrued
      security registration expenses
                    
                    
                    -
                    
                    
                    
                    1,206,742Net
      cash provided by (used in) operating activities
                    
                    
                    16,315,586
                    
                    
                    
                    (15,072,585
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Change
      in restricted cash
                    
                    
                    (73,606
                    )
                    
                    
                    52,887Purchase
      of property and equipment
                    
                    
                    (970,673
                    )
                    
                    
                    (478,557
                    )Notes
      receivable collected
                    
                    
                    -
                    
                    
                    
                    149,549Cash
      acquired from acquisition of business
                    
                    
                    2,179
                    
                    
                    
                    519,309Proceed
      from sale of property and equipment
                    
                    
                    -
                    
                    
                    
                    194,006Net
      cash (used in) provided by investing activities
                    
                    
                    (1,042,100
                    )
                    
                    
                    437,194CASH
      FLOWS FROM FINANCING ACTIVITIES:Investment
      and advances from noncontrolling interest
                    
                    
                    -
                    
                    
                    
                    267,605Loans
      from bank
                    
                    
                    31,491,680
                    
                    
                    
                    -Payments
      on loans payable
                    
                    
                    (15,678,807
                    )
                    
                    
                    (11,127,389
                    )Loans
      from or repayment to employees, net
                    
                    
                    1,956,931
                    
                    
                    
                    670,493Repayment
      of payables for acquisition of businesses
                    
                    
                    (2,022,431
                    )
                    
                    
                    (2,533,242
                    )Proceeds
      from exercise of warrants
                    
                    
                    -
                    
                    
                    
                    320,815Net
      cash provided by (used in) financing activities
                    
                    
                    15,747,373
                    
                    
                    
                    (12,401,718
                    )INCREASE/(DECREASE)
      IN CASH AND CASH EQUIVALENTS
                    
                    
                    31,020,859
                    
                    
                    
                    (27,037,109
                    )Effects
      on foreign currency exchange
                    
                    
                    432,272
                    
                    
                    
                    (254,631
                    )CASH
      AND CASH EQUIVALENTS, beginning of period
                    
                    
                    36,863,216
                    
                    
                    
                    37,425,340CASH
      AND CASH EQUIVALENTS, end of period
                    
                    $
                    68,316,347
                    
                    
                    $
                    10,133,600
 
 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
June 30, 2010 and December 31, 2009
 (Unaudited)
 
 Common
      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 on exercise of stock options
                        
                        
                        62,014
                        
                        
                        
                        62
                        
                        
                        
                        (252,118
                        )
                        
                        
                        252,056
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Common
      stock issued for acquisition of Suodi
                        
                        
                        1,118,403
                        
                        
                        
                        1,118
                        
                        
                        
                        -
                        
                        
                        
                        5,031,695
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        5,032,813Non-controlling
      interest reclassified to mandatorily redeemable preferred
      stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (28,371,468
                        )
                        
                        
                        (28,371,468
                        )Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,117,934
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,117,934Charge
      to noncontolling 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
                        
                        
                        
                        -
                        
                        
                        
                        84,620,639Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        5,567,946
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        5,567,946Foreign
      currency translation adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        834,531
                        
                        
                        
                        -
                        
                        
                        
                        834,531BALANCE,
      June 30, 2010
                        
                        
                        33,065,386
                        
                        
                        $
                        33,065
                        
                        
                        $
                        -
                        
                        
                        $
                        40,745,457
                        
                        
                        $
                        4,922,248
                        
                        
                        $
                        34,352,016
                        
                        
                        $
                        10,970,330
                        
                        
                        $
                        -
                        
                        
                        $
                        91,023,116
 
 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"), Manstate Assets Management Limited (“Manstate”), Xi’an Xinxing
Property Management Co., Ltd. (“Xinxing Property”), Puhua (Xi’an) Real Estate
Development Co., Ltd (“Puhua”) and 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 balances and transactions have
been eliminated on consolidation. The accompanying unaudited interim condensed
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”).
  In the
opinion of management, the unaudited interim condensed consolidated financial
statements reflect all adjustments necessary for a fair statement of the
Company's consolidated financial position as at June 30, 2010 and results of
operations and cash flows for the periods ended June 30, 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
require companies to more frequently reassess whether they must consolidate
variable interest entities. The changes also replace the previously required
quantitative approach to determining the primary beneficiary of a variable
interest entity with a requirement for an enterprise to perform a qualitative
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. The
adoption on January 1, 2010 of this standard did not have a material effect on
the Company’s unaudited 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 ASU 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
became effective for the Company on January 1, 2010. The adoption of this ASU
did not have a material impact on the Company‘s unaudited interim condensed
consolidated financial statements.
  In
February 2010, the FASB issued ASU 2010-09, “Subsequent Events (ASC Topic 855)
Amendments to Certain Recognition and Disclosure Requirements”.  ASU
2010-09 requires SEC filers to evaluate subsequent events through the date the
financial statements are issued and removes the requirement to disclose a date
in both issued and revised financial statements through which subsequent events
were evaluated.   The Company adopted the pronouncement for the
interim periods ending after March 31, 2010.  The adoption did not
have a material effect on the Company’s financial position or results of
operations.
  8
  Note
1 – Organization and Basis of Presentation
 
 New
Accounting Pronouncement Not Yet Adopted
 
 In March
2010, the FASB issued ASU No. 2010-11, “Scope Exception Related to Embedded
Credit Derivatives”. The provisions of ASU 2010-11 amend ASC Topic 815,
“Derivatives and Hedging”, to provide clarification on the bifurcation scope
exception for embedded credit derivative features. ASU 2010-11 is effective for
interim and annual reporting periods beginning on July 1, 2010. The provision of
ASU 2010-11 is not expected to have an impact on the Company’s consolidated
financial statements.
 
 In April
2010, the FASB issued ASU 2010-13 “Compensation—Stock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades”. ASU
2010-13 updates ASC 718 to codify the consensus reached in EITF Issue No. 09-J,
“Effect of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades”. ASU
2010-13 clarifies that share-based payment awards with an exercise price
denominated in the currency of a market in which a substantial portion of the
underlying equity security trades should not be considered to meet the criteria
requiring classification as a liability. The updated guidance is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. Early adoption is permitted. The provision of ASU
2010-13 is not expected to have an impact on the Company’s consolidated
financial statements.
 
 In July
2010, the FASB issued ASU 2010-20 “Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses” which expands the
disclosure requirements concerning the credit quality of an entity’s financing
receivables and its allowance for credit losses. ASU 2010-20 is effective for
interim and annual reporting periods beginning on or after December 15, 2010.
The Company does not expect the adoption of this guidance will have a material
impact on the Company’s consolidated financial statements.
  Foreign
exchange rates used:
 June
      30,
                    2010
                  
                  
                  December
      31,
                    2009
                  
                  
                  June
      30,
                    2009Period end
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.7815
                  
                  
                  
                  6.8259
                  
                  
                  
                  6.8302Average
      RMB/U.S. Dollar exchange rate
                  
                  
                  6.8238
                  
                  
                  
                  6.8307
                  
                  
                  
                  6.8293
 
 Reclassification
 
 Certain
reclassifications have been made to the prior periods’ financial statements
to conform to the 2010 presentation. The effects of the reclassifications were
not material to the Company’s unaudited interim condensed consolidated financial
statements.
 
 Note
2 – Acquisition
 
 On
January 15, 2010, Tsining signed an equity 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 a track of 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 a piece of 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
  9
  Note
2 – Acquisition
 
 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 of Suodi was
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
June 30, 2010, the remaining balance under the agreement amounted to
$737,300 (RMB 5 million) which is in arrears of the payment schedule (see
Note 10). The Company is arranging the final payments with the original
shareholders of Suodi.
 
 Note
3 – Mandatorily Redeemable Preferred Stock and 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 statement.
 
 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 Amended and Restated
Shareholders’ Agreement on May 10, 2010. Effective January 1, 2010, the Company
will redeem from Prax, and Prax agrees to, all Prax’s Class A Shares
within three years by December 31, 2012 for a consideration of the USD
equivalent of $84.39 million (RMB 576 million).
  As Prax’s
interest in the consolidated subsidiaries meet 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 initially 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 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 interests and the fair value of redemption amount of
Prax’s interest has been reflected as a charge to noncontrolling interests.
Subsequently, the Company recorded accretion cost on these redeemable
noncontrolling interests using the effective interest method based on effective
interest rate of 45%. The related accretion cost incurred for the three and six
months ended June 30, 2010 were $ 4,557,102 and $8,708,484, respectively
(2009 - $Nil and $Nil) and was capitalized in real estate construction in
progress.
  Noncontrolling
      InterestNoncontrolling
      interests at December 31, 2009
                  
                  $
                  28,371,468Reclassify
      to mandatorily redeemable noncontrolling interests in
      subsidiaries
                  
                  
                  (28,371,468
                  )Noncontrolling
      interests at June 30, 2010
                  
                  $
                  -
 
 Mandatory
      Redeemable
                      Noncontrolling
      Interests
                      in
      SubsidiariesMandatory
      redeemable noncontrolling interests in subsidiaries at December 31,
      2009
                    
                    $
                    -Initial
      fair value of mandatorily redeemable noncontrolling interests in
      subsidiaries
                    
                    
                    42,600,511Capitalized
      accretion cost on mandatorily redeemable noncontrolling interests in
      subsidiaries
                    
                    
                    8,708,484Difference
      in foreign exchange translation
                    
                    
                    261,849Mandatorily
      redeemable noncontrolling interests in subsidiaries at June 30,
      2010
                    
                    $
                    51,570,844
  10
  Note
3 – Mandatorily Redeemable Preferred Stock and Noncontrolling
Interest
 
 The
mandatory redemption schedules are as follow:
  DateDecember
      31, 2010
                  
                  $
                  29,492,000December
      31, 2011
                  
                  
                  29,492,000December
      25, 2012
                  
                  
                  25,952,960Total
                  
                  $
                  84,936,960
 
 Note
4 – Supplemental Disclosure of Cash Flow Information
 
 Income
taxes paid for the six months ended June 30, 2010 and 2009 amounted to $73,273
and $42,135, respectively. Interest paid for the six months ended June 30, 2010
and 2009 amounted to $5,926,071 and $2,008,308, respectively.
 
 The
following non-cash investing and financing activities are included in the
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 the 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 and Prepaid Expenses
 
 Other
receivables and prepaid expenses consisted of the following at June 30, 2010 and
December 31, 2009:
 
 June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Other
      receivable
                  
                  $
                  2,057,659
                  
                  
                  $
                  1,222,028Allowance
      for bad debts
                  
                  
                  (207,897
                  )
                  
                  
                  (206,545
                  )Prepaid
      expenses
                  
                  
                  214,748
                  
                  
                  
                  261,836Prepaid
      other tax expenses
                  
                  
                  1,965,423
                  
                  
                  
                  1,206,902Other
      receivables and prepaid expenses
                  
                  $
                  4,029,933
                  
                  
                  $
                  2,484,221
 
 Note
6 – Real Estate Held for Development or Sale
 
 The
following summarizes the components of real estate inventories at June 30,
2010 and December 31, 2009:
 
 June
      30,
                      2010
                    
                    
                    December
      31,
                      2009Finished
      projects
                    
                    $
                    12,216,090
                    
                    
                    $
                    20,417,820Construction
      in progress
                    
                    
                    97,539,194
                    
                    
                    
                    82,585,709Total
      real estate held for development or sale
                    
                    $
                    109,755,284
                    
                    
                    $
                    103,003,529
 
 Interest
on debts and accretion costs on mandatorily redeemable noncontrolling interest
in subsidiaries incurred by the Company for the three and six months ended
June 30, 2010 was $6,106,626 and $12,103,413, respectively (June 30, 2009 -
$1,194,478 and $2,392,335). The Company capitalized $ 5,698,060 in
construction in progress during the three months ended June 30, 2010 (June 30,
2009 - $751,712), and the company capitalized $ 11,226,349 in construction
in progress during the six months ended June 30, 2010 (June 30, 2009 -
$1,611,491).
  11
  Note
7 – Property and Equipment
 
 Property
and equipment consisted of the following at June 30, 2010 and
December 31, 2009:
  June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Buildings
      and improvements
                  
                  $
                  6,271,062
                  
                  
                  $
                  5,286,461Income
      producing properties and improvements
                  
                  
                  10,549,686
                  
                  
                  
                  11,095,868Electronic
      equipment
                  
                  
                  391,778
                  
                  
                  
                  330,218Vehicles
                  
                  
                  440,785
                  
                  
                  
                  425,099Office
      furniture
                  
                  
                  192,528
                  
                  
                  
                  182,309Computer
      software
                  
                  
                  177,144
                  
                  
                  
                  174,995Totals
                  
                  
                  18,022,983
                  
                  
                  
                  17,494,950Accumulated
      depreciation
                  
                  
                  (2,739,771
                  )
                  
                  
                  (2,187,472
                  )Property
      and equipment, net
                  
                  $
                  15,283,212
                  
                  
                  $
                  15,307,478
 
 Depreciation
expense for the three months ended June 30, 2010 and 2009 amounted to
$300,364 and $160,177, respectively. Depreciation expense for the
six months ended June 30, 2010 and 2009 amounted to $593,498 and
$315,026, respectively. The depreciation expense was included in the
selling, general and administrative expenses.
 
 Note
8 – Intangible Asset
 
 Intangible
assets consist of the following at June 30, 2010 and December
31, 2009:
 
 June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Intangibles
      acquired
                  
                  $
                  47,620,518
                  
                  
                  $
                  47,310,765Accumulated
      amortization
                  
                  
                  (5,994,623
                  )
                  
                  
                  (5,955,631
                  )Intangible
      assets, net
                  
                  $
                  41,625,895
                  
                  
                  $
                  41,355,134
 
 Amortization
expense for the three and six months ended June 30, 2010 amounted to
$Nil and $Nil, respectively (June 30, 2009 - $Nil and $4,360,003). The
amortization expense was capitalized in the real estate construction in
progress.
 
 Note
9 – Accrued Expenses
 
 June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Accrued
      expenses
                  
                  $
                  1,698,881
                  
                  
                  $
                  2,252,903Accrued
      interest
                  
                  
                  807,267
                  
                  
                  
                  3,334,934Total
                  
                  $
                  2,506,148
                  
                  
                  $
                  5,587,837
  12
  Note
10 – Payable for Acquisition of Businesses
  June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Payable
      to original shareholders of New Land (i)
                  
                  $
                  5,823,739
                  
                  
                  $
                  5,916,354Payable
      to original shareholders of Suodi (ii)
                  
                  
                  839,849
                  
                  
                  
                  -Total
                  
                  $
                  6,663,588
                  
                  
                  $
                  5,916,354
 
 (i)
              The
      Company has unsecured loans payable to previous shareholders of New Land
      totaling to $4,761,133 at June 30, 2010 (December 31, 2009 - $4,860,661).
      The remaining balance pertains to additional loans made by 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 the
      remaining balance under the acquisition agreement of $737,300 (RMB 5
      million), and (2) $102,549 (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 are loans from the Company’s President and an immediate family
member of the President for $663,570 (December 31, 2009 - $Nil) and
$1,041,068 (December 31, 2009 - $854,100), respectively.
 
 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 June 30,
2010 and December 31, 2009 consisted of
the following:
 
 June 30,
                      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
                    
                    $
                    2,949,200
                    
                    
                    $
                    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
                    
                    
                    -
                    
                    
                    
                    12,452,571Xinhua
      Trust Investments Ltd.Due
      February 10, 2012, annual interest is at 10 percent, secured by the
      24G project
                    
                    
                    22,119,000
                    
                    
                    
                    -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
                    
                    
                    5,161,100
                    
                    
                    
                    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.
                    
                    
                    22,119,001
                    
                    
                    
                    12,452,571Total
                    
                    $
                    52,348,301
                    
                    
                    $
                    36,185,705
 
 All loans
are used to finance construction projects. All interest paid
was capitalized and allocated to various real estate construction
projects.
  13
  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. All loans from China Construction Bank
Xi’an Branch were fully repaid as at June 30, 2010.
  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 June 30, 2010, the current ratio was approximately 110.0%, and the
liabilities to assets ratio was approximately 47.8%.
  The loans
payable balances were secured by certain of the Company’s real estate held for
development or sales with a carrying value of $78,899,892 (December 31,
2009 - $91,657,685) and certain buildings and income producing properties and
improvements with a carrying value of $9,576,104 at June 30, 2010 (December
31, 2009 - $9,738,804). The weighted average interest rate on loans payable as
at June 30, 2010 was 8.0% (December 31, 2009 – 6.6%).
  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, June 30, 2010, and the
basis for that measurement, by level within the fair value
hierarchy:
 
 Fair
      Value Measurements Using
                  
                  Assets/LiabilitiesLevel
      1
                  
                  
                  Level
      2
                  
                  
                  Level3
                  
                  
                  At
      Fair ValueWarrants
      liability
                  
                  
                  -
                  
                  
                  $
                  2,537,867
                  
                  
                  
                  -
                  
                  
                  $
                  2,537,867Fair
      value of embedded derivatives
                  
                  
                  -
                  
                  
                  $
                  4,037,264
                  
                  
                  
                  -
                  
                  
                  $
                  4,037,264Total
                  
                  
                  -
                  
                  
                  $
                  6,575,131
                  
                  
                  
                  -
                  
                  
                  $
                  6,575,131
 
 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/LiabilitiesLevel
      1
                  
                  
                  Level
      2
                  
                  
                  Level3
                  
                  
                  At
      Fair ValueCash
      equivalents
                  
                  $
                  4,395,025
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4,395,025Warrants
      liability
                  
                  
                  -
                  
                  
                  
                  5,074,191
                  
                  
                  
                  -
                  
                  
                  
                  5,074,191Fair
      value of embedded derivatives
                  
                  
                  -
                  
                  
                  
                  3,991,047
                  
                  
                  
                  -
                  
                  
                  
                  3,991,047Total
                  
                  $
                  4,395,025
                  
                  
                  $
                  9,065,238
                  
                  
                  
                  -
                  
                  
                  $
                  13,460,263
 
 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 and 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 June 30, 2010, the
Company did not repay any principle of Convertible Debt and the Investors
did not deliver any optional conversion requests to the
Company.
  14
  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 non-convertible portion of
Convertible Debt ($11 million) (the “Non-convertible Portion”) 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.
 
 On June
10, 2010, the Company and the Investors entered into an amendment (the
“Amendment”), which grants investors the rights to convert the $11 million
Non-convertible Portion of the Convertible Debt. The rights expire in 5 business
days after the effective date that a registration statement is filed by the
Company registering the shares to be issued on the conversion.
  The
warrants issued in 2008 were amended as well to permit the investors to exercise
the warrants on a cashless basis and receive one common share for every two
warrants held if the investor converts at least 55% of face amount of
Convertible Debt held.
 
 Upon
entering the Amendment, certain investors have agreed to convert 55% of the
aggregate face amount of debt to common shares and convert the warrants by
receiving one common share for every two warrants held within 5 business days
after the effective date of the registration statement filed by the
Company.
 
 Due to
the substantive change of the conversion feature on the Non-convertible portion,
the Amendment is treated as a debt extinguishment on the Non-convertible
portion. The deemed proceeds of the revised $11 million Non-convertible Portion
are allocated to the embedded derivative and to the cost associated with the
change in the terms of the outstanding warrants. The remaining proceeds were
then allocated to the carrying value of the convertible debt.
 
 For the
three and six months ended June 30, 2010, the Company recorded a loss on
extinguishment of debt of $2,180,492, which consists of:
 
 Immediately before the
                      Amendment date of
                      June10, 2010
                    
                    
                    Immediately after the
                      Amendment date of
                      June 10, 2010
                    
                    
                    Loss on
                      extinguishment of
                      debt recognizedFair
      value of warrants liability
                    
                    $
                    1,370,585
                    
                    
                    $
                    1,631,525
                    
                    
                    $
                    260,940Fair
      value of embedded derivatives
                    
                    
                    1,570,542
                    
                    
                    
                    3,490,094
                    
                    
                    
                    1,919,552Total
                    
                    $
                    2,941,127
                    
                    
                    $
                    5,121,619
                    
                    
                    $
                    2,180,492
 
 The fair
value of warrants and embedded derivatives immediately before and after the
Amendment date were calculated using the Cox-Ross-Rubinstein Binomial Lattice
Model (the “CRR Model”) with the following assumptions:
  Expected
      life
                    
                    2.64 - 2.72
      yearsExpected
      volatility
                    
                    
                    105
                    %Risk-free
      interest rate
                    
                    
                    1.10 - 1.14
                    %Dividend
      yield
                    
                    
                    0
                    %
 
 The fair
value change on the debt portion is not material. There is no gain or loss on
extinguishment of debt for the three and six months ended June 30,
2009.
  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.
  15
  Note
14 – Convertible Debt
  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 at June 30, 2010 were
determined to be of $1,667,462 and $4,037,264, respectively (December 31,
2009 - $3,507,000 and $3,991,047), using the CRR Model with the following
assumption:
  June 30, 2010
                      
                      
                      December 31, 2009Expected
      life
                      
                      2.58 - 2.67
      years
                      
                      
                      3.08
      – 3.16 yearsExpected
      volatility
                      
                      
                      105
                      %
                      
                      
                      105
                      %Risk-free
      interest rate
                      
                      
                      0.84 - 0.87
                      %
                      
                      
                      1.74%
      - 1.78
                      %Dividend
      yield
                      
                      
                      0
                      %
                      
                      
                      0
                      %
 
 For
the three months ended June 30, 2010, the Company recorded a decrease in
fair value for the warrants and embedded derivatives of $2,242,663 and
$1,307,129, respectively (June 30, 2009 – increase of $7,222,727
and $5,836,616). For the six months ended June 30, 2010, the Company
recorded a decrease in fair value for the warrants and embedded derivatives of
$2,797,264 and $1,873,335 respectively (June
30, 2009 – increase of $7,055,488 and $5,712,578), in the
unaudited condensed consolidated statement of income (loss).
 
 The
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 June 30,
2010 was $15,510,095 (December 31, 2009 - $14,834,987). Related interest expense
and accretion expense for the three months ended June 30, 2010 were $263,671 and
$345,926, respectively (June 30, 2009 - $266,311 and $296,164), and for the six
months ended June 30, 2010 were $527,099 and $675,108, respectively (June 30,
2009 - $529,674 and $577,986).
 
 Note
15 – Shareholders' Equity
 
 Common
stock
 
 1.
              As
      at December 31, 2009, the Company has 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 $4.5, the closing price of the
      Company’s common stock on Nasdaq on January 15, 2010, the day the
      acquisition of Suodi 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 $870,405 at June 30, 2010 (December
31, 2009 - $1,567,191) using the CRR Binomial Lattice Model with the following
assumptions:
  June 30, 2010
                      
                      
                      December 31, 2009Expected
      life
                      
                      1.86
      years
                      
                      
                      2.36
      yearsExpected
      volatility
                      
                      
                      105
                      %
                      
                      
                      105
                      %Risk-free
      interest rate
                      
                      
                      0.57
                      %
                      
                      
                      1.33
                      %Dividend
      yield
                      
                      
                      0
                      %
                      
                      
                      0
                      %
 
 The gain
from the change in fair value of warrants for the three months ended June 30,
2010 was $650,117 (June 30, 2009 – loss of $2,078,266), and the
gain for the six months ended June 30, 2010 were $696,786 (June 30, 2009
– loss of $2,015,767).
  16
  Note
15 – Shareholders' Equity
 
 Including
the fair value of warrants associated with the convertible debenture (see Note
14), the total warrant liability as at June 30, 2010 was $2,537,867 (December
31, 2009 - $5,074,191). The total gain from the change in fair value of warrants
for the three months ended June 30, 2010 was $2,242,663 (June 30, 2009
– loss of $7,222,727). The total gain from the change in fair value of
warrants for the six months ended June 30, 2010 was $2,797,264 (June 30, 2009 –
loss of $7,055,488).
 
 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
                  
                  
                  -
                  
                  
                  
                  -June
      30, 2010
                  
                  
                  3,976,883
                  
                  
                  $
                  5.07
 
 The
following summarizes the weighted-average information about the outstanding
warrants as at June 30, 2010:
  Outstanding WarrantsExercise
                                              Price
                                            
                                            Number
                                            
                                            Average Remaining
                                              Contractual Life$
                                            4.50
                                            
                                            2,539,416
                                            
                                            1.86
      years$
                                            6.07
                                            
                                            1,437,467
                                            
                                            2.67
      years$
                                            5.07
                                            
                                            3,976,883
                                            
                                            2.15
      years
 
 Note
16 – Other Income
 
 For
      the three months ended
                                
                                
                                For
      the six months endedJune
      30,
                                
                                
                                June
      30,
                                
                                
                                June
      30,
                                
                                
                                June
      30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Interest
      income
                                
                                $
                                61,547
                                
                                
                                $
                                37,082
                                
                                
                                $
                                178,093
                                
                                
                                $
                                40,879Government
      reimbursement of infrastructure cost
                                
                                
                                -
                                
                                
                                
                                637,024
                                
                                
                                
                                -
                                
                                
                                
                                953,290Rental
      income
                                
                                
                                530,038
                                
                                
                                
                                120,948
                                
                                
                                
                                840,938
                                
                                
                                
                                205,604Income
      from property management services
                                
                                
                                722,034
                                
                                
                                
                                588,558
                                
                                
                                
                                1,363,310
                                
                                
                                
                                1,168,952Gain
      on disposal of fixed assets and inventory
                                
                                
                                23,292
                                
                                
                                
                                -
                                
                                
                                
                                23,292
                                
                                
                                
                                16,945Miscellaneous
      income
                                
                                
                                36,498
                                
                                
                                
                                151,281
                                
                                
                                
                                149,629
                                
                                
                                
                                151,281$
                                1,373,409
                                
                                
                                $
                                1,534,893
                                
                                
                                $
                                2,555,262
                                
                                
                                $
                                2,536,951
  17
  Note
17 – Earnings (Loss) per Share
 
 Earnings
per share for the three and six months ended June 31, 2010, and 2009 were
determined by dividing net income (loss) 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.
 
 3
      months
                      
                      
                      3
      months
                      
                      
                      6
      months
                      
                      
                      6
      monthsJune
      30, 2010
                      
                      
                      June
      30, 2009
                      
                      
                      June
      30, 2010
                      
                      
                      June
      30, 2009NumeratorNet
      income (loss) attributable to China Housing &
      Land Development, Inc. – basic
                      
                      $
                      5,567,946
                      
                      
                      $
                      (10,496,987
                      )
                      
                      $
                      (5,543,163
                      )
                      
                      $
                      (9,194,268
                      )Effect
      of dilutive securitiesWarrants
                      
                      
                      35,937
                      
                      
                      
                      -
                      
                      
                      
                      35,937
                      
                      
                      
                      -Convertible
      debt
                      
                      
                      (1,107,556
                      )
                      
                      
                      -
                      
                      
                      
                      (1,525,630
                      )
                      
                      
                      -Income
      (loss) attributable to China Housing & Land Development, Inc. –
      diluted
                      
                      $
                      4,496,327
                      
                      
                      $
                      (10,496,987
                      )
                      
                      $
                      (7,032,856
                      )
                      
                      $
                      (9,194,268
                      )DenominatorWeighted
      average shares outstanding – basic
                      
                      
                      33,065,386
                      
                      
                      
                      30,932,745
                      
                      
                      
                      32,824,416
                      
                      
                      
                      30,913,359Effect
      of dilutive securitiesWarrants
                      
                      
                      165,862
                      
                      
                      
                      5,325
                      
                      
                      
                      83,389
                      
                      
                      
                      2,677Convertible
      debt
                      
                      
                      2,071,537
                      
                      
                      
                      -
                      
                      
                      
                      1,844,927
                      
                      
                      
                      -Weighted
      average shares outstanding – diluted
                      
                      
                      35,302,785
                      
                      
                      
                      30,938,070
                      
                      
                      
                      34,752,732
                      
                      
                      
                      30,916,036Earnings
      per shareBasic
      earnings (loss) per share
                      
                      $
                      0.17
                      
                      
                      $
                      (0.34
                      )
                      
                      $
                      (0.17
                      )
                      
                      $
                      (0.30
                      )Diluted
      earnings (loss) per share
                      
                      $
                      0.13
                      
                      
                      $
                      (0.34
                      )
                      
                      $
                      (0.20
                      )
                      
                      $
                      (0.30
                      )
 
 Note
18 – Commitments and Contingencies
 
 The
Company leases part of its office and hotel space under various operating lease
agreements with expiry dates between year 2010 and 2019.
 
 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 $0.9
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. Based on the current condition, the Company estimates that
the balances will be paid in two years.
 
 All
future payments required under the various agreements are summarized
below.
 
 Payment
      due by periodCommitments
      and
                                                Contingencies
                                              Total
                                              
                                              Less
      than
                                                1
      year
                                              
                                              1-2
      years
                                              
                                              
                                              2-3
      years
                                              
                                              
                                              3-4
      years
                                              
                                              
                                              4-5
      years
                                              
                                              
                                              After
                                                5
      yearsOperating
      lease
                                              
                                              $
                                              840,160
                                              
                                              
                                              $
                                              178,858
                                              
                                              
                                              $
                                              121,685
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              308,353Consulting
      contract
                                              
                                              
                                              276,488
                                              
                                              
                                              
                                              276,488
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Land
      use right
                                              
                                              
                                              3,539,040
                                              
                                              
                                              
                                              928,998
                                              
                                              
                                              
                                              2,610,042Total
                                              
                                              $
                                              4,655,688
                                              
                                              
                                              $
                                              1,384,344
                                              
                                              
                                              $
                                              2,731,727
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              77,088
                                              
                                              
                                              $
                                              308,353
  18
  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”). 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
June 30, 2010, the Company has approximately $2.5 million of warrants liability
and $4.0 million of fair value of embedded derivatives on the balance sheet,
representing approximately1.1% and 1.8% 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 June 30, 2010, our common stock price experienced
fluctuations with the price decreasing from $3.80 on April 1, 2010 to $2.32 on
June 30, 2010. The decrease in stock price caused a decrease in fair value for
warrants liability and embedded derivatives. As a result, we recognized
approximately $2.0 million as a change in fair value of warrants and $1.8
million as a change in fair value of embedded derivatives, which are all
non-cash gains.
  19
 
 The
following table summarizes the fair value of warrant liability and embedded
derivative as at various periods.
  June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Fair
      value of warrants liability
                  
                  $
                  2,537,867
                  
                  
                  $
                  5,074,191Fair
      value of embedded derivatives
                  
                  $
                  4,037,264
                  
                  
                  $
                  3,991,047
 
 The
following tables summarize all the warrants and conversion option outstanding
and the assumptions used for their valuations as of June 30, 2010 and December
31, 2009.
 
 Investor
      Warrants:
                  
                  6/30/2010
                  
                  
                  12/31/2009Strike
      price
                  
                  
                  6.07
                  
                  
                  
                  6.07Market
      price
                  
                  
                  2.32
                  
                  
                  
                  4.13Valuation
      date
                  
                  6/30/2010
                  
                  
                  12/31/2009Expiry
      date
                  
                  2/28/2013
                  
                  
                  2/28/2013Volatility
                  
                  
                  105.00
                  %
                  
                  
                  105.00
                  %Risk
      free rate
                  
                  
                  0.87
                  %
                  
                  
                  1.78
                  %Option
      value
                  
                  
                  0.96604
                  
                  
                  
                  2.43971#
      of warrants
                  
                  
                  1,437,467
                  
                  
                  
                  1,437,467Value
                  
                  
                  1,667,462
                  
                  
                  
                  3,507,000
 
 
 Investor Warrants: 5-7-2007
                  
                  6/30/2010
                  
                  
                  12/31/2009Strike
      price
                  
                  
                  4.50
                  
                  
                  
                  4.50Market
      price
                  
                  
                  2.32
                  
                  
                  
                  4.13Valuation
      date
                  
                  6/30/2010
                  
                  
                  12/31/2009Expiry
      date
                  
                  5/9/2012
                  
                  
                  5/9/2012Vlolatility
                  
                  
                  105.00
                  %
                  
                  
                  105.00
                  %Risk
      free rate
                  
                  
                  0.57
                  %
                  
                  
                  1.33
                  %Option
      value
                  
                  
                  0.86160
                  
                  
                  
                  0.61711#
      of warrants
                  
                  
                  2,539,416
                  
                  
                  
                  2,539,416Value
                  
                  
                  870,306
                  
                  
                  
                  1,567,092
 
 
 Conversion
      Option Valuation:
                  
                  6/30/2010
                  
                  
                  12/31/2009Strike
      price
                  
                  
                  5.57
                  
                  
                  
                  5.57Market
      price
                  
                  
                  2.32
                  
                  
                  
                  4.13Valuation
      date
                  
                  6/30/2010
                  
                  
                  12/31/2009Expiry
      date
                  
                  1/28/2013
                  
                  
                  1/28/2013Volatility
                  
                  
                  105.00
                  %
                  
                  
                  105.00
                  %Risk
      free rate
                  
                  
                  0.84
                  %
                  
                  
                  1.74
                  %Option
      value
                  
                  
                  1.12438
                  
                  
                  
                  2.47002Host
      Value – principal
                  
                  
                  20,000,000
                  
                  
                  
                  9,000,000Host
      Value – interest
                  
                  
                  0
                  
                  
                  
                  0Shares
      issuable on conversion
                  
                  
                  3,590,664
                  
                  
                  
                  1,615,799Option
      value – principal
                  
                  
                  4,037,264
                  
                  
                  
                  3,991,047Derivative
      value
                  
                  
                  4,037,264
                  
                  
                  
                  3,991,047
  20
  The
increase of shares issuable on conversion is due to that the Company and the
Investors entered into an amendment (the “Amendment”), which grants investors
the rights to convert the $11 million Non-convertible Portion of the Convertible
Debt on June 10, 2010. Please refer to Note 14 to Financial Statements for
detailed information.
 
 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 June 30,
2010 and 2009.
 
 The
following summarizes the components of real estate inventories as at June 30,
2010 and December 31, 2009:
 
 June
      30, 2010
                  
                  
                  December
      31, 2009Finished
      projects
                  
                  $
                  12,216,090
                  
                  
                  $
                  20,417,820Construction
      in progress
                  
                  
                  97,539,194
                  
                  
                  
                  82,585,709Total
      real estate held for development or sale
                  
                  $
                  109,755,284
                  
                  
                  $
                  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 have 389 acres of land undeveloped and $41.6
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
June 30, 2010 and December 31, 2009, intangible asset consists of the
following:
 
 June
      30, 2010
                  
                  
                  December
      31, 2009Intangible
      acquired
                  
                  $
                  47,620,518
                  
                  
                  $
                  47,310,765Accumulated
      amortization
                  
                  
                  (5,994,623)
                  
                  
                  
                  (5,955,631
                  )Intangible
      assets, net
                  
                  $
                  41,625,895
                  
                  
                  $
                  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 June 30, 2010 and 2009,
the Company has recorded $0 of impairment on this intangible
asset.
  21
 
 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. Amortization expense for the three
months ended June 30, 2010 and 2009 amounted to $0 and $0, respectively.
Amortization for the six months ended June 30, 2010 and 2009 amounted to $0 and
$4,360,003, respectively. The amortization for the six months ended June 30,
2009 was due to the acquisition of land for the Puhua project. The amortization
was capitalized in the real estate construction in progress.
 
 Management
re-evaluated the expected profit margin from the 487 acres of land regularly and
recalculated the intangible amortization related to the 2007 land sales and the
2009 land acquired based on the new estimate.
  Deposits
on land use rights
  June
      30, 2010
                  
                  
                  December
      31, 2009Deposits
      on land use rights
                  
                  
                  53,114,051
                  
                  
                  
                  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 second 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 June 30, 2010. The average sale price increased to 5,862 RMB
per square meter (approximately US$ 859 per square meter) from
5,531 RMB (approximately US$ 811 per square meter) in the first
quarter 2010, representing about 6.0% 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
5.4% in the second quarter of 2010 compared to the same period of 2009. All our
projects are currently in Xi’an city. During the second quarter of 2010,
our revenue generated from the sale of properties increased approximately
66.3% 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
June 30, 2010, we had $68,316,347 of cash and cash equivalents, compared to
$36,863,216 as of December 31, 2009, an increase of
$31,453,131.
  22
  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.
 
 23
  Projects underconstruction
 
 Project name
                            
                            Type of
                              Projects
                            
                            Actual or
                              Estimated
                              Construction
                              Period
                            
                            Actual or
                              Estimated Pre-
                              sale
                              Commencement
                              Date
                            
                            
                            Total Site
                              Area
                              (m2)
                            
                            
                            Total GFA
                              (m2)
                            
                            
                            Sold GFA by
                              June 30, 2010
                              (m2)JunJing
      II
                              Phase
      Two
                            
                            Multi-Family
                              residential
      &
                              Commercial
                            
                            Q2/2009
                              -
      Q2/2011
                            
                            
                            Q3/2009
                            
                            
                            
                            29,800
                            
                            
                            
                            112,556
                            
                            
                            
                            104,947Puhua
      Project
                            
                            Multi-Family
                              residential
      &
                              Commercial
                            
                            Q2/2009
                              -
      Q3/2014
                            
                            
                            Q4/2009
                            
                            
                            
                            192,582
                            
                            
                            
                            640,000
                            
                            
                            
                            67,883
 
 
 Project name
                    
                    Total
                      Number of
                      Units
                    
                    
                    Number of
                      Units sold by
                      June
      30, 2010
                    
                    
                    Estimated
                      Revenue
                      ($ million)
                    
                    
                    Contract
                      Revenue by
                      June
      30, 2010
                      ($ million)
                    
                    
                    Recognized
                      Revenue by
                      June
      30,
                      2010
       ($ million)JunJing
      II
                      Phase
      Two
                    
                    
                    1,015
                    
                    
                    
                    914
                    
                    
                    
                    93.4
                    
                    
                    
                    80.4
                    
                    
                    
                    62.9Puhua
      Project
                    
                    
                    5,000
                    
                    
                    
                    531
                    
                    
                    
                    700.0
                    
                    
                    
                    46.3
                    
                    
                    
                    20.4
 
 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 June 30, 2010, the contract revenue for
Phase Two was $ 80.4 million, of which we have recognized $ 62.9 million in
revenues. Revenue will continue to be recognized as the construction
progresses.
 
 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 second 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 June 30, 2010, the contract revenue for Puhua project is $46.3
million, of which we have recognized $20.4 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
                            
                            Q3/2010
                              - Q3/2012
                            
                            
                            Q3/2010
                            
                            
                            
                            7,510
                            
                            
                            
                            47,153
                            
                            
                            
                            434Park
      Plaza
                            
                            Multi-Family
                              residential
      &
                              Commercial
                            
                            Q4/2010
                              - Q4/2014
                            
                            
                            Q4/2010
                            
                            
                            
                            44,250
                            
                            
                            
                            180,000
                            
                            
                            
                            2,000Golden
      Bay
                            
                            Multi-Family
                              residential
      &
                              Commercial
                            
                            Q4/2010
                              - Q4/2014
                            
                            
                            Q2/2011
                            
                            
                            
                            146,099
                            
                            
                            
                            378,887
                            
                            
                            
                            N/A
   24
  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 third 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 fourth quarter 2010.
We anticipate accepting pre-sale purchase agreements in the fourth 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.
  25
  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 second quarter of 2011.
 
 Completed Projects
with unitsavailable 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
                          June
      30, 2010JunJing
      II Phase One
                        
                        Multi-Family
                          residential
      &
                          Commercial
                        
                        
                        Q4/2009
                        
                        
                        
                        39,524
                        
                        
                        
                        136,012
                        
                        
                        
                        1,182
                        
                        
                        
                        1,162Tsining
      Home IN
                        
                        Multi-Family
                          residential
      &
                          Commercial
                        
                        
                        Q4/2003
                        
                        
                        
                        8,483
                        
                        
                        
                        30,072
                        
                        
                        
                        215
                        
                        
                        
                        213Tsining-24G
                        
                        Hotel,
                          Commercial
                        
                        
                        Q2/2006
                        
                        
                        
                        8,227
                        
                        
                        
                        43,563
                        
                        
                        
                        773
                        
                        
                        
                        749JunJing
      I
                        
                        Multi-Family
                          residential
      &
                          Commercial
                        
                        
                        Q3/2006
                        
                        
                        
                        55,588
                        
                        
                        
                        167,931
                        
                        
                        
                        1,671
                        
                        
                        
                        1,642
 
 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. As of June 31, 2010, JunJing II Phase One has contributed approximately
$80 million in revenues. By June 30, 2010, we had sold approximately
1,162 units in the project, which accounts for about 98.3% of all available
units totaling approximately 133,428 square meters, about 93.7% of available
GFA. This project was delivered to customers 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 was also a commercial venture that houses small
businesses serving the needs of JunJing Garden I residents and the surrounding
residential communities. The project was completed in September 2006 and
generated total revenue of $49.57 million.
 
 CONSOLIDATED
OPERATING RESULTS
 
 Three
Months Ended June 30, 2010 Compared With Three Months Ended June 30,
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
second quarter of 2010, most of our revenues came from Tsining JunJing II Phases
Two and Puhua Project. 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 $8.9 million in the second quarter of
2010.
  26
  Three months
                    
                    
                    Three monthsended
                    
                    
                    endedRevenues by project:
                    
                    June
      30, 2010
                    
                    
                    June
      30, 2009US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One (Under construction on June 30, 2009)
                    
                    $
                    -
                    
                    
                    $
                    20,020,967Tsining
      JunJing II Phase Two
                    
                    
                    21,855,313
                    
                    
                    
                    960,096Puhua
      Project
                    
                    
                    8,887,590
                    
                    
                    
                    --Projects
      Completed
                    
                    
                    -Tsining
      JunJing II Phase One
                    
                    
                    3,135,381Tsining
      JunJing I
                    
                    
                    1,077,115
                    
                    
                    
                    (1,018,606)Tsining-24G
                    
                    
                    110,835
                    
                    
                    
                    1,018,023Tsining
      Gang Wan
                    
                    
                    94,361
                    
                    
                    
                    -Tsining
      In Home
                    
                    
                    59,791
                    
                    
                    
                    -Additional
      Project
                    
                    
                    
                    
                    
                    
                    200,460$
                    35,220,386
                    
                    
                    $
                    21,180,940
 
 Revenues
from the sale of properties
 The
revenues from the sale of properties in the three months ended June 30,
2010increased 66.3
percent to $35,220,386 from $21,180,940 in the same period of 2009. The increase
was primarily due to the increased revenue from Tsining JunJing II Phase One and
Phase Two projects and Puhua Project, with its pre-sale started in the fourth
quarter of 2009, which contributed additional revenues, compared with the same
period in 2009.
 
 The
following table summarizes details of our most significant
projects:
 
 3 Months Ended
                      
                      
                      3 Months EndedRevenues by project:
                      
                      June 30, 2010
                      
                      
                      June 30, 2009US$Project
      Under Construction
                      
                      
                      
                      
                      
                      -Puhua
      Project contract sale
                      
                      $
                      $14,582,861
                      
                      
                      
                      -Revenue
                      
                      
                      8,887,590
                      
                      
                      
                      -Total
      gross floor area (GFA) available for sale
                      
                      
                      640,000
                      
                      
                      
                      -GFA
      sold during the period
                      
                      
                      18,013
                      
                      
                      
                      -Remaining
      GFA available for sale
                      
                      
                      572,117
                      
                      
                      
                      -Phase
      one percentage of completion
                      
                      
                      46%
                      
                      
                      
                      -Percentage
      GFA sold during the period
                      
                      
                      2.8%
                      
                      
                      
                      -Percentage
      GFA sold to date
                      
                      
                      10.6%
                      
                      
                      
                      -Average
      sales price per GFA
                      
                      
                      810Tsining
      JunJing II Phase Two contract sales
                      
                      
                      19,348,964
                      
                      
                      
                      1,908,095Revenue
                      
                      
                      21,855,313
                      
                      
                      
                      960,096Total
      gross floor area (GFA) available for sale
                      
                      
                      112,556
                      
                      
                      
                      112,556GFA
      sold during the period
                      
                      
                      23,199
                      
                      
                      
                      2,456Remaining
      GFA available for sale
                      
                      
                      7,609
                      
                      
                      
                      110,100Percentage
      of completion
                      
                      
                      81%
                      
                      
                      
                      38%Percentage
      GFA sold during the period
                      
                      
                      21%
                      
                      
                      
                      2%Percentage
      GFA sold to date
                      
                      
                      93%
                      
                      
                      
                      2%Average
      sales price per GFA
                      
                      
                      834
                      
                      
                      
                      777Tsining
      JunJing II Phase One contract sales (Under construction on June 30,
      2009)
                      
                      
                      -
                      
                      
                      18,100,057Revenue
                      
                      
                      -
                      
                      
                      
                      20,020,967Total
      gross floor area (GFA) available for sale
                      
                      
                      -
                      
                      
                      
                      136,012GFA
      sold during the period
                      
                      
                      -
                      
                      
                      
                      28,367Remaining
      GFA available for sale
                      
                      
                      -
                      
                      
                      
                      31,350Percentage
      of completion
                      
                      
                      -
                      
                      
                      
                      81%Percentage
      GFA sold during the period
                      
                      
                      -
                      
                      
                      
                      20.9%Percentage
      GFA sold to date
                      
                      
                      -
                      
                      
                      
                      77.0%Average
      sales price per GFA
                      
                      
                      -
                      
                      
                      
                      638
 
 27
 
 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 started the pre-sales
for JunJing II Phase Two in the second quarter of 2009. During the three months
ended June 30, 2010, our contract sales totaled $ 19.3 million sales for
164 units and we were able to recognized revenue of approximately $21.9 million
due to the percentage of completion method.
 
 Puhua
Phase One and Phase Two
 
 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. Puhua Phase Two
consists of 11 mid-rises and high-rises. The pre-sale of Phase One began in
the fourth quarter of 2009 while the pre-sale of Phase Two started in the second
quarter of 2010. During the second quarter of 2010, we were able to secure $
14.6 million in contract sales and we recognized revenue of approximately $8.9
million.
 
 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 June 30, 2010 are shown below:
  Tsining JunJing II Phase two Buildings
                        
                        Percentage of Completion10#
                        
                        
                        86.61
                        %11#
                        
                        
                        88.41
                        %12#
                        
                        
                        76.64
                        %13#
                        
                        
                        88.66
                        %16#
                        
                        
                        83.37
                        %17#
                        
                        
                        86.22
                        %18#
                        
                        
                        77.60
                        %19#
                        
                        
                        84.09
                        %22#
                        
                        
                        75.38
                        %23#
                        
                        
                        73.63
                        %24#
                        
                        
                        74.83
                        %25#
                        
                        
                        71.76
                        %
 
 
 Puhua Phase one
                        
                        Percentage of Completion1#
                        
                        
                        44.09
                        %2#
                        
                        
                        79.16
                        %3#
                        
                        
                        30.44
                        %4#
                        
                        
                        64.27
                        %5#
                        
                        
                        38.07
                        %6#
                        
                        
                        51.26
                        %7#
                        
                        
                        29.24
                        %8#
                        
                        
                        47.47
                        %9#
                        
                        
                        43.54
                        %10#
                        
                        
                        44.64
                        %11#
                        
                        
                        26.75
                        %12#
                        
                        
                        42.43
                        %13#
                        
                        
                        38.20
                        %
 
 
 Puhua Phase two
                      
                      Percentage of Completion14#
                      
                      
                      23.62
                      %15#
                      
                      
                      23.06
                      %16#
                      
                      
                      26.11
                      %17#
                      
                      
                      28.38
                      %18#
                      
                      
                      23.62
                      %19#
                      
                      
                      23.06
                      %20#
                      
                      
                      24.40
                      %21#
                      
                      
                      22.97
                      %22#
                      
                      
                      23.29
                      %23#
                      
                      
                      23.06
                      %24#
                      
                      
                      23.06
                      %
  28
  The above
are all the buildings under pre-sale in JunJing II Phase Two, Puhua Phase One,
and Phase Two.
 
 Revenues
from projects completed
 
 The
revenue from completed projects totaled $4,477,483 for the three months
ended June 30, 2010, compared to $199,877 during same period of 2009. The
increase was mainly due to the completion of JunJing II Phase One which was
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 $1,373,409 in other
income for the three months ended June 30, 2010 compared with $1,420,979 in the
same period of 2009. The 3.3 percent decrease can be explained by the following
table which summarizes the breakdown of the other income and their changes
during the three months ended June 30, 2010 and 2009:
 
 For the three months endedJune
      30,
                        
                        
                        June
      30,2010
                        
                        
                        2009Interest
      income
                        
                        $
                        61,547
                        
                        
                        $
                        37,082Government
      reimbursement of infrastructure cost (1)
                        
                        
                        -
                        
                        
                        
                        637,024Rental
      income, net (2)
                        
                        
                        530,038
                        
                        
                        
                        120,948Other
      non-operating income (3)
                        
                        
                        722,034
                        
                        
                        
                        588,558Gain
      on disposal of fixed assets and inventory
                        
                        
                        23,292
                        
                        
                        
                        -Miscellaneous
      income
                        
                        
                        36,498
                        
                        
                        
                        151,281Total
                        
                        $
                        1,373,409
                        
                        
                        $
                        1,534,893
 
 (1)
              There
      is no more government reimbursement of infrastructure cost in year
      2010.
 
 (2)
              The
      increase of rental income is due to additional rental contract signed and
      collected during the period.
 
 (3)
              The
      increase is due to property management fees of additional project (JunJing
      II Phase I).
 
 Cost
of properties and land
 
 The cost
of properties and land in the three months ended June 30, 2010 increased 71.1
percent to $25,691,338 compared with $15,016,997 in the same period of 2009. The
increase was primarily a result of the increased sales in our current selling
projects, mainly JunJing II Phase Two and Puhua project.
 
 Gross
profit and profit margin
 
 Gross
profit for the three months ended June 30, 2010 was
$10,325,603, representing an increase of 43.3 percent from $7,207,449
in the same period of 2009. The gross profit margin for the three months ended
June 30, 2010 was 28.2 percent compared with 31.7 percent in the same
period of 2009 and 19.3 percent in the first quarter of 2010. Due to the
increased sales of Jun Jing II Phase Two and Puhua project, gross profit was
increased as a result of increased revenue. Our gross margin decreased 3.5
percent compared with same period in 2009 because we had significant parking
spot sales which only had 10% margin.  The gross margin increased 8.9
percent compared with  first quarter of fiscal 2010, as we sold much fewer
parking lots, which only had 3% to 6% margin during  the first
quarter of fiscal 2010 (the margin increased to 10% in the second quarter of
fiscal 2010).
 29
  Selling,
general and administrative expenses
 
 Selling,
general and administrative expenses (SG&A) for the three months ended June
30, 2010 increased 93.4 percent to $3,758,565 from $1,942,946 in the same period
of 2009. The increase in SG&A is associated with the increased sales and
increased projects compared with the same period of 2009. The increased SG&A
mainly include marketing and travel expenses associated with Puhua project, as
we started our marketing road show in other provinces in Western China. The
initiation of JunJing III also increased administrative and marketing expenses.
SG&A accounted to 10.3 percent of total revenue in the second quarter
of 2010 compared to 8.6 percent for the same period in 2009.
 
 Stock-based
compensation
 
 We had no
stock-based compensation incurred during the second 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 June 30, 2010 decreased
56.5 percent to $65,381 compared with $150,327 in the same period of 2009
primarily due to cancellation of the accounts written off by Planning
Bureau and reduction of the amount of compensation of Tsining 24G because of the
compensation for minor area difference when the units were 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 June 30, 2010
was $5,708,256 compared with $3,764,371 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 15.6 percent
for the second quarter of 2010 compared with 16.6 percent for the same period of
2009 which was in line with our business model. Operating profit margin
recovered from 8.9% in the first quarter of 2010, mainly due to significantly
decreased sales of the parking lots of Junjing II phase one and Junjing I which
negatively impacted operating profit margin.
 
 Interest
expense
 
 Interest
expense in the three months ended June 30, 2010 increased 0.13 percent to
$447,475 from $446,899 in the same period of 2009. This is primarily due to
the increase of employee loan interest.
 
 Amendment
to the Convertible Debt and Warrants Issued on January 28, 2008
 
 In order
to reduce our outstanding debt and interest payment, we reached an agreement
with the investors to retire US$11 million of non convertible portion of the
US$20 million 5% Senior Secured Convertible Notes, which were issued to the
investors in January 2008, thus making the US$ 11 million non-convertible
portion now convertible. The investors also agreed to exercise all their
outstanding warrants associated with the 5% Senior Secured Convertible Notes
once a new registration statement covering the US$ 11 million Convertible Notes
is declared effective by the Securities and Exchange Commission.
 
 On June
10, 2010, the Company and the investors entered into an amendment (the
“Amendment”), which grants the investors the rights to convert the $11
million Non-convertible Portion of the Convertible Notes. The rights expire in 5
business days after the effective date that a registration statement is filed by
the Company registering the shares underlying  the Notes.
 
 The
warrants issued in 2008 were amended as well to permit the investors to exercise
the warrants on a new provision (in addition to the original cashless exercise
provision) to receive one common share for every two warrants held if the
investor converts at least 55% of face amount of Convertible
Notes held.
 
 In
addition, certain investors have agreed to convert 55% of the aggregate face
amount of notes to common shares within 5 business days after the effective date
of the registration statement filed by the Company. If the investors fail to
convert at least 55% of the aggregate amount of the notes, then this provision
lapses and this portion of notes becomes non-convertible and revert back to the
terms as if the Amendment did not occur.
 Due to
the substantive change of the conversion feature on the Non-convertible Portion,
the Amendment is treated as a debt extinguishment on the Non-convertible
portion. The deemed proceeds of the revised $11 million Non-convertible Portion
are allocated to the embedded derivative and to the cost associated with the
change in the terms of the outstanding warrants. The remaining proceeds were
then allocated to the carrying value of the convertible debt.
 
 For the
three and six months ended June 30, 2010, the Company recorded a loss on
extinguishment of debt of $2,180,492, which consists of:
  30
  Immediately before the
                      Amendment date of
                      June10, 2010
                    
                    
                    Immediately after the
                      Amendment date of
                      June 10, 2010
                    
                    
                    Loss on
                      extinguishment of
                      debt recognizedFair
      value of warrants liability
                    
                    $
                    1,370,585
                    
                    
                    $
                    1,631,525
                    
                    
                    $
                    260,940Fair
      value of embedded derivatives
                    
                    
                    1,570,542
                    
                    
                    
                    3,490,094
                    
                    
                    
                    1,919,552Total
                    
                    $
                    2,941,127
                    
                    
                    $
                    5,121,619
                    
                    
                    $
                    2,180,492
 
 The fair
value of the warrants and embedded derivatives immediately before and after the
Amendment date were calculated using the Cox-Ross-Rubinstein Binomial Lattice
Model (the “CRR Model”) with the following assumptions:
  Expected
      life
                    
                    2.64 - 2.72
      yearsExpected
      volatility
                    
                    
                    105
                    %Risk-free
      interest rate
                    
                    
                    1.10 - 1.14
                    %Dividend
      yield
                    
                    
                    0
                    %
 
 The fair
value change on the debt portion is not material. There is no gain or loss on
extinguishment of debt for the three and six months ended June 30,
2009.
  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 second
quarter of 2010, our common stock price experienced large fluctuations with the
price decreasing from $3.76 on 1 April, 2010 to $2.32 on June 30, 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 $(1,307,129) in the change in fair value of embedded
derivatives in the three months ended June 30, 2010 compared with $5,836,616 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 $(2,242,663) in the three months ended June
30, 2010, compared to $7,222,727 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 second quarter of 2010, our common stock price experienced
large fluctuations with the price decreasing from $3.76 on April 1, 2010 to
$2.32 on June 30, 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. While During
the second quarter of 2009, our common stock price experienced large
fluctuations with the price increasing from $1.20 on March 31, 2009 to $5.76 on
June 30, 2009. The increase in stock price and expected volatility caused an
increase in fair value for warrants and the change of fair value was booked as a
non-cash expense.
 
 Security
registration expenses
 
 Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible Debt
(Note 14), the Company was required to pay the investors certain late
registration payments (“Late Payments”) if the company failed to file a
Registration Statement within 60 days after the closing date of the 5% Senior
Secured Convertible Debt. The Company commenced negotiations with the investors
of the 5% Senior Secured Convertible Debt to waive the Late Payments in December
2008, as both parties believed that the registration statement would become
effective within a short period of time. However, as the registration statement
has not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt have decided to claim the Late Payments.
  31
  The
security registration expenses were $0 for the three months ended June 30, 2010
because the Company has settled the Late Payments in fiscal 2009, compared with
$606,742 in the same period of 2009.
  Provision
of income taxes
 
 The
$1,531,461 income taxes provision for the three months ended June 30, 2010
increased from the $1,347,914 income taxes provision for the three months ended
June 30, 2009 due to increase of net income from business
operations.
  Net
income
 
 Net
income for the three months ended June 30, 2010
increased 162 percent to $5,567,946 compared to a loss
of $10,496,987 in the same period of 2009.
 
 The
increased net income was a result of multiple factors. During the three months
ended June 30, 2010, we had more projects generating revenues compared with the
same period in 2009. We also spent more on marketing to enhance our sales in
light of tightened government policies. In the second quarter, we were able to
recognize approximately $26.6 million as revenue from JunJing II Phase One,
Phase Two and our Puhua project and we were able to secure approximately
$33.9 million in new contracts from those three projects. As of June 30, 2010,
we have pre-sold 104,947 sq. meters out of 112,556 sq. meters total GFA of
JunJing II Phase Two approximately 93.2 percent on the GFA basis and 90
percent on the unit basis. We have sold 67,883 sq. meters out of
640,000 sq. meters total GFA of Puhua representing approximately 10.6 percent on
the GFA basis and 10.6 percent on the unit basis.
 
 With the
introduction of Puhua, we are 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 5,527(approximately US$810) per square meter during the second
quarter of 2010, compared with RMB4,360(approximately US$641) per square meter
when the company first started pre-sales in October 2009.
 
 The
periodic revaluation of derivatives and warrants also contributed approximately
$4 million during the quarter mainly due to the decrease of our common stock
price.
 
 Basic
and diluted earnings per share
 
 Basic
earnings per share was $0.17 in the three months ended June 30, 2010, compared
to $0.34 in the same period of 2009. Diluted earnings per share was
$0.13 in the three months ended June 30, 2010, compared to $0.34 in the
same period of 2009. The number of shares outstanding doesn’t change
significantly from year to year. Earnings available to distribute increased to
$5.6 million in second quarter of 2010 from a loss of
$10.6 million in the second quarter of 2009.
  Common
shares used to calculate basic and diluted EPS
 
 The
weighted average shares outstanding used to calculate basic earnings per
share was 33,065,086 shares in the three months ended June 30, 2010 and
30,932,745 shares in the same period of 2009. The weighted average shares
outstanding used to calculate the diluted earnings per share was
35,302,785 shares in the three months ended June 30, 2010 and 30,938,070
shares in the same period of 2009. The dilution is related to warrants and
convertible notes which had dilutive effect.
 
 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 June
30, 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 gain on foreign exchange in the three
months ended June 30, 2010 was $834,531, compared with gain of $51,713 in the
same period of 2009. There is no foreign exchange gain or loss incurred in the
second quarter of 2010. The gain (loss) are due to foreign exchange
fluctuations during the periods.
  32




Six
Months Ended June 30, 2010 Compared With Six Months Ended June 30,
2009





Revenues





In the
six months ended June 30, 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 $20.34 million
for the six months ended as of June 30, 2010.


6 months
                      
                      
                      6 monthsended
                      
                      
                      endedRevenues by project:
                      
                      June
      30, 2010
                      
                      
                      June30-
      2009US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One (Under construction on June 30, 2009)
                      
                      $
                      -
                      
                      
                      $
                      30,326,229Tsining
      JunJing II Phase Two
                      
                      
                      37,017,035
                      
                      
                      
                      960,096Puhua
      Project
                      
                      
                      20,342,154
                      
                      
                      
                      -Projects
      CompletedTsining
      JunJing II Phase One
                      
                      
                      7,230,906
                      
                      
                      
                      -Tsining
      JunJing I
                      
                      
                      2,373,840
                      
                      
                      
                      561,959Tsining-24G
                      
                      
                      126,519
                      
                      
                      
                      1,880,616Tsining
      Gang Wan
                      
                      
                      94,361Tsining
      In Home
                      
                      
                      426,632Additional
      Project
                      
                      
                      
                      
                      
                      
                      377,909Revenues
      from the sale of properties
                      
                      $
                      67,611,447
                      
                      
                      $
                      34,106,809




Revenues
from the sale of properties





The
revenues from the sale of properties in the six months ended June 30, 2010increased 98.2 percent
to $67,611,447 from $34,106,809 in the same period of 2009. The increase was
primarily due to the increased revenue from Tsining JunJing II Phase One, and
Phase Two. Puhua Project, with pre-sales starting in the fourth quarter of
2009, contributed additional revenues, while there was no revenue from Puhua
in the same period in 2009.





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:





6 Months Ended
                              
                              
                              6 Months EndedRevenues by project:
                              
                              June
      30, 2010
                              
                              
                              June30-
      2009US$Project
      Under Construction
                              
                              
                              
                              
                              
                              -Puhua
      Project contract sale
                              
                              $
                              32,462,984
                              
                              
                              
                              -Revenue
                              
                              
                              20,342,154
                              
                              
                              
                              -Total
      gross floor area (GFA) available for sale
                              
                              
                              640,000
                              
                              
                              
                              -GFA
      sold during the period
                              
                              
                              43,754
                              
                              
                              
                              -Remaining
      GFA available for sale
                              
                              
                              572,117
                              
                              
                              
                              -Phase
      one percentage of completion
                              
                              
                              46
                              %
                              
                              
                              -Percentage
      GFA sold during the period
                              
                              
                              6.8
                              %
                              
                              
                              -Percentage
      GFA sold to date
                              
                              
                              10.6
                              %
                              
                              
                              -Average
      sales price per GFA
                              
                              $
                              742Tsining
      JunJing II Phase Two contract sales
                              
                              
                              39,352,751
                              
                              
                              
                              1,908,095Revenue
                              
                              $
                              37,017,035
                              
                              
                              
                              960,096Total
      gross floor area (GFA) available for sale
                              
                              
                              112,556
                              
                              
                              
                              112,556GFA
      sold during the period
                              
                              
                              49,614
                              
                              
                              
                              2,456Remaining
      GFA available for sale
                              
                              
                              7,609
                              
                              
                              
                              110,100Percentage
      of completion
                              
                              
                              81
                              %
                              
                              
                              38%Percentage
      GFA sold during the period
                              
                              
                              44
                              %
                              
                              
                              2%Percentage
      GFA sold to date
                              
                              
                              93
                              %
                              
                              
                              2%Average
      sales price per GFA
                              
                              $
                              793
                              
                              
                              
                              777Tsining
      JunJing II Phase One contract sales (Under construction on June 30,
      2009)
                              
                              
                              
                              
                              
                              
                              30,151,821Revenue
                              
                              
                              
                              
                              
                              
                              30,326,229Total
      gross floor area (GFA) available for sale
                              
                              
                              
                              
                              
                              
                              136,012GFA
      sold during the period
                              
                              
                              
                              
                              
                              
                              47,564Remaining
      GFA available for sale
                              
                              
                              
                              
                              
                              
                              31,350Percentage
      of completion
                              
                              
                              
                              
                              
                              
                              81%Percentage
      GFA sold during the period
                              
                              
                              
                              
                              
                              
                              35%Percentage
      GFA sold to date
                              
                              
                              
                              
                              
                              
                              77%Average
      sales price per GFA
                              
                              
                              
                              
                              
                              
                              636


33





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 $39.4
million in contract sales for 398 units of which we recognized
approximately $37.0 million for the 6 months ended June 30,
2010.





Puhua
Phase One and Phase Two





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. Puhua Phase Two
consists of 11 mid-rises and high-rises. The pre-sale of Phase One began in
the fourth quarter of 2009 and we were able to secure $32.5 million in contract
sales for the 6 months ended June 30, 2010 of which we recognized
approximately $20.3 million for the 6 months ended June 30,
2010.





Revenues
from projects completed





The
revenue from completed projects totaled $10,252,257 for the six months
ended June 30, 2010, compared to $2,820,484 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 $2,555,262 in other income
for the six months ended June 30, 2010 compared with $2,339,793 in the same
period of 2009. The 9.2percent increase can be explained by the following table
which summarizes the breakdown of the other income and their changes during the
six months ended June 30, 2010 and 2009:





For
      the six months endedJune
      30,
                                  
                                  
                                  June
      30,2010
                                  
                                  
                                  2009Interest
      income
                                  
                                  $
                                  178,093
                                  
                                  
                                  $
                                  40,879Government
      reimbursement of infrastructure cost (1)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  953,290Rental
      income (2)
                                  
                                  
                                  840,938
                                  
                                  
                                  
                                  205,604Income
      from property management services (3)
                                  
                                  
                                  1,363,310
                                  
                                  
                                  
                                  1,168,952Gain
      on disposal of fixed assets and inventory
                                  
                                  
                                  23,292
                                  
                                  
                                  
                                  16,945Miscellaneous
      income
                                  
                                  
                                  149,629
                                  
                                  
                                  
                                  151,281$
                                  2,555,262
                                  
                                  
                                  $
                                  2,536,951


34





(1)
            There
      is no more government reimbursement of infrastructure cost in year
      2010.





(2)
            The
      increase of rental income is due to additional rental contract signed and
      collected during the period.





(3)
            The
      increase is due to property management fees of additional project (JunJing
      II Phase I).





Cost
of properties and land





The cost
of properties and land in the six months ended June 30, 2010 increased 116.5
percent to $52,253,225 compared with $24,138,943 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 six months ended June 30, 2010 was $16,799,857, representing an
increase of 45.4 percent from $11,553,917 in the same period of 2009. The
gross profit margin for the six months ended June 30, 2010 was 23.9 percent
compared with 31.5 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 through our
active marketing activities, we were able to enhance our sales given the
tightened government policies. Our gross margin decreased due to the sales of
the parking lots of JunJing II Phase One in the first quarter of 2010 which only
had approximately 3% to 6% gross profit margin.





Selling,
general and administrative expenses





Selling, general and administrative
expenses (SG&A) for the six months ended June 30, 2010 increased87.9percent to $6,296,449from $3,351,770in the same period of 2009. The
increase in SG&A is associated with the increased salesand increased projects compared with
the same period of 2009.
This quarter’s SG&A mainly include marketing
expenses associated withPuhua project, as we started our
marketing road show in other provinces in WesternChina.The initiation of JunJing III
alsoincreased
administrative and marketing expenses.SG&A accountedfor9.0percent of total revenue for the six
months ended June 30, 2010 compared to9.2percent for the same period in
2009.





Stock-based
compensation





We
incurred no stock-based compensation incurred for the six months ended June 30,
2010 and same period in 2009.





Other
expenses





Other
expenses consist mainly of late delivery settlements and maintenance
costs. Other expenses in the six months ended June 30, 2010 decreased 1.1
percent to $188,032 compared with $190,123 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 six months ended June 30, 2010 was
$8,685,768 compared with $5,442,319 operating profit in the same period of 2009,
primarily due to the higher revenues generated by Tsining JunJing II Phase Two
and Puhua project. The operating profit margin was 12.4 percent for the six
months ended June 30, 2010 compared with 14.9 percent for the same period of
2009 which was primarily due to the sales of the parking lots of JunJing II
Phase One in the first quarter of 2010 which negatively impacted our operating
profit margin.


Interest
expense





Interest
expense in the six months ended June 30, 2010 increased 21.6 percent to $954,500
from $784,977 in the same period of 2009. This increase was primarily due
to the increase of employee loan interest.





Amendment
to the Convertible Debt and Warrants Issued on January 28, 2008





See
discussion under the three months ended June 30, 2010 section
above.


35





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 January 1, 2010 to $2.32 on June 30, 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 $(1,873,335) in the change in fair value of embedded
derivatives in the six months ended June 30, 2010 compared with $5,712,578 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 $(2,797,264) in the six months ended June
30, 2010, compared to $7,055,488 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 1 January, 2010 to $2.32 on
June 30, 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. While During the second quarter of
2009, our common stock price experienced large fluctuations with the price
increasing from $1.20 on March 31, 2009 to $5.76 on June 30, 2009. The increase
in stock price and expected volatility caused an increase in fair value for
warrants and the change of fair value was booked as a non-cash
expense.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible Debt
(Note 14), the Company was required to pay the investors certain late
registration payments (“Late Payments”) if the company failed to file a
Registration Statement within 60 days after the closing date of the 5% Senior
Secured Convertible Debt. The Company commenced negotiations with the investors
of the 5% Senior Secured Convertible Debt to waive the Late Payments in December
2008, as both parties believed that the registration statement would become
effective within a short period of time. However, as the registration statement
has not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt have decided to claim the Late Payments.





The
security registration expenses were $0 for the six months ended June 30, 2010
because the Company has settled the Late Payments in fiscal 2009, compared with
$1,206,742 in the same period of 2009.





Provision
of income taxes




The
$2,540,992 income taxes provision for the six months ended June 30, 2010
increased from the $2,061,555 income taxes provision for the six months ended
June 30, 2009 due to increase of net income from business
operations.





Net
income





Net
income for the six months ended June 30, 2010
increased 45.1 percent to $(5,564,163) compared to $(9,194,268)
in the same period of 2009.


36


We
believe that the net income increase was a result of multiple factors.
During the six months ended June 30, 2010, we had more projects generating
revenues, compared with the same period in 2009. We also spent more on marketing
to enhance our sales in light of tightened government policies. Our net income
margin, due to the decrease of parking lots sales recovered to 16.6 percent in
the second quarter of 2010 from 9.3 percent in the first quarter of 2010. In the
first two quarters of 2010, we were able to recognize approximately $57.4
million as revenue from JunJing II Phase Two project and our Puhua project, and
we were able to secure approximately $51.8 million in new contracts from those
two projects. As of June 30, 2010, we have pre-sold 104,947 sq. meters out of
112,556 sq. meters total GFA of JunJing II Phase
Two approximately 93.2 percent on the GFA basis and 90 percent on the
unit basis. We have pre-sold 67,883 sq. meters out of 640,000 sq. meters total
GFA of Puhua representing approximately 10.6 percent on the GFA basis and 10.6
percent on the unit basis.





With the
introduction of Puhua, we are also expecting the gross margin will improve
slightly in the future, primarily because of its better quality and higher
average price in Puhua. The average selling price has increased to RMB
5,065(approximately US$742) per square meter during the second 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
$5.6 million during the quarter mainly due to the decrease of our common stock
price.




Charge
to non-controlling 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 by
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 of 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 initially 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 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 interests and the fair value of redemption amount of
Prax’s interest has been reflected as a charge to noncontrolling interests.
Subsequently, the Company recorded accretion cost on these redeemable
noncontrolling interests using the effective interest method based on effective
interest rate of 45%. The related accretion cost incurred for the six months
ended June 30, 2010 were $ 8,708,484 (2009 - $Nil) and was capitalized in
real estate construction in progress.





Noncontrolling InterestNoncontrolling
      interests at December 31, 2009
                          
                          $
                          28,371,468Reclassify
      to mandatorily redeemable noncontrolling interests in
      subsidiaries
                          
                          
                          (28,371,468
                          )Noncontrolling
      interests at June 30, 2010
                          
                          $
                          -





Mandatory Redeemable
                      Noncontrolling Interests in
                      SubsidiariesMandatory
      redeemable noncontrolling interests in subsidiaries at December 31,
      2009
                    
                    $
                    -Initial
      fair value of mandatorily redeemable noncontrolling interests in
      subsidiaries
                    
                    
                    42,600,511Capitalized
      accretion cost on mandatorily redeemable noncontrolling interests in
      subsidiaries
                    
                    
                    8,708,484Difference
      in foreign exchange translation
                    
                    
                    261,849Mandatorily
      redeemable noncontrolling interests in s subsidiaries at June 30,
      2010
                    
                    $
                    51,570,844





The
mandatory redemption schedules are as follow:





DateDecember
      31, 2010
                    
                    $
                    29,492,000December
      31, 2011
                    
                    
                    29,492,000December
      25, 2012
                    
                    
                    25,952,960Total
                    
                    $
                    84,936,960


37





Basic
and diluted earnings per share




Basic
earnings per share was $(0.17) in the six months ended June 30, 2010, compared
to $(0.30) in the same period of 2009. Diluted earnings per share was
$(0.20) in the six months ended June 30, 2010, compared to $(0.30) in the
same period of 2009. The number of shares outstanding doesn’t change
significantly from year to year. Earnings available to distribute increased from
$(9.2) million for the 6 months ended June 30, 2009 to $(5.5) million in
the same period 2010. The negative EPS and Diluted EPS are mainly due to Prax
restructuring which resulting in the recording of 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 32,824,416 shares in the six months ended June 30, 2010 and
30,913,359 shares in the same period of 2009. The weighted average shares
outstanding used to calculate the diluted earnings per share was
34,752,732 shares in the six months ended June 30, 2010 and 30,916,036
shares in the same period of 2009. The dilution is related to warrants and
convertible notes which had dilutive effect.





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 six months ended June
30, 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 gain on foreign exchange in the six months
ended June 30, 2010 was $806,847, compared with the loss of $311,420 in the same
period of 2009. The gain (loss) are due to foreign exchange fluctuations during
the periods.





Cash
flow discussion





There is
net cash inflow of $31,020,859 during the six months ended June 30, 2010
compared with $27,037,109 cash outflow during the same period of
2009.




The
operating activity cash inflow was $16,315,586 in the six months ended June 30,
2010 and a major cash outflow of $15,072,585 in the same period of 2009 due
to the sales of the property.





A cash
outflow of $1,042,100 in investing activities for the six months ended June
30, 2010, compared with the cash inflow of $437,194 for the same period of 2009,
due to the purchase of the property and equipment.





There was
a cash inflow of $15,747,373 for financing activities for the six months
ended June 30, 2010 compared with $12,401,718 of outflow in 2009 due to the
additional bank loans being drawn.





Debt
leverage





Total
debt consists of Payables for acquisition of businesses, Loans from employees,
Loans payable, Convertible Debt and mandatorily redeemable noncontrolling
interests in Subsidiairies.





Total
debt outstanding as of June 30, 2010 was $130,946,474 compared with $59,801,870
on December 31, 2009. Net debt outstanding (total debt less cash) as
of June 30, 2010 was $62,630,127 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 40.8 percent on June 30, 2010 and 20.2 percent on
December 31, 2009, which increased due to addition of the mandatorily
redeemable noncontrolling interests in Puhua.





Liquidity
and capital resources





Our
principal liquidity demands are based on the development of new properties,
property acquisitions, and general corporate purposes. As of June 30, 2010,
we had $68,316,347 of cash and cash equivalents, compared to $36,863,216 as of
December 31, 2009, an increase of $31,453,131. 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 2019.





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.


38


The
Company also had two land use rights with unpaid balances of approximately $0.9
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. Based on the current condition, the Company estimated
that the balances will be paid in two years.





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




PaymentduebyperiodCommitments and
                                              Contingencies
                                            Total
                                            
                                            Lessthan
                                              1year
                                            
                                            1-2years
                                            
                                            
                                            2-3years
                                            
                                            
                                            3-4years
                                            
                                            
                                            4-5years
                                            
                                            
                                            After
                                              5yearsOperating
      lease
                                            
                                            $
                                            840,160
                                            
                                            
                                            $
                                            178,858
                                            
                                            
                                            $
                                            121,685
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            308,353Consulting
      contract
                                            
                                            
                                            276,488
                                            
                                            
                                            
                                            276,488
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Land
      use right
                                            
                                            
                                            3,539,040
                                            
                                            
                                            
                                            928,998
                                            
                                            
                                            
                                            2,610,042
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
                                            
                                            $
                                            4,655,688
                                            
                                            
                                            $
                                            1,384,344
                                            
                                            
                                            $
                                            2,731,727
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            77,088
                                            
                                            
                                            $
                                            308,353


Financial
obligations





As of
June 30, 2010 we had total bank loans of $52,348,301 with a weighted average
interest rate of 8.1 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 was fully repaid as at June 30, 2010.





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 June 30, 2010, the current ratio was approximately 110%, and the
liabilities to assets ratio was approximately 47.8%. The Company will be able to
draw down approximately another $90.65 million before we reach the maximum
liabilities to assets ratio of 65%.





Loans
payable as of June 30, 2010 and December 31, 2009 consisted of
the following:





June30,
                        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
                      
                      $
                      2,949,200
                      
                      
                      $
                      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
                      
                      
                      -
                      
                      
                      
                      12,452,571Xinhua
      Trust Investments Ltd.Due
      January 28, 2012, annual interest is at 10 percent, secured by the 24G
      project
                      
                      
                      22,119,000
                      
                      
                      
                      -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
                      
                      
                      5,161,100
                      
                      
                      
                      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.
                      
                      
                      22,119,001
                      
                      
                      
                      12,452,571Total
                      
                      $
                      52,348,301
                      
                      
                      $
                      36,185,705


39





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.





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 limited
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 $109.8 million
at the end of June, 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.


40





Item
4. 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 Ernst & Young to aid in the
compliance with SOX 404.





(b)       Changes
in Internal Control over Financial Reporting.





During
the quarter ended June 30, 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.


41


Part
II. OTHER INFORMATION





Item
1. Legal Proceedings





None.





Item
1A. Risk Factors.





We
have no material changes to the risk factors previously disclosed in our Form
10-K, as amended, for the year ended December 31, 2009 and the additional risk
factors disclosed in our quarterly report on Form 10-Q for the quarter ended
March 31, 2010.


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





Our
current report on Form 8-K filed with SEC on June 17, 2010 is incorporated by
reference herein in its entirety


Item
3. Defaults Upon Senior Securities





None.





Item
4. (Removed and Reserved)






Item
5. Other Information





None.





Item
6. Exhibits





(a)
Exhibits





ExhibitNumber
                              
                              DescriptionofExhibit4.1
                              
                              First
      Amendment to Securities Purchase Agreement between the Company and
      investors dated June 11, 20104.2
                              
                              Form
      of Senior Secured Convertible Note Issued by the
Company4.3
                              
                              Form
      of Stock Purchase Warrant Issued by the Company31.1
                              
                              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)


42





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.August
      12, 2010
                    By:
                    /s/
                    Xiaohong FengXiaohong
      FengChief
      Executive Officer(Principal
      Executive
Officer)





August
      12, 2010
                  By:
                  /s/
                  Cangsang HuangCangsang
      HuangChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


43